Despite its incredible importance and value, individuals all too often tend to avoid estate planning. Perhaps estate planning is avoided because it is associated with negative connotations, such as death, taxes, and incapacity, or perhaps because estate planning is simply overwhelming and often misunderstood. Regardless of the reasoning behind this avoidance, however, it is unquestionable that estate planning is well deserving of your time and attention.
Estate Planning Myths
Before getting into the nitty-gritty of Estate Planning, it may be prudent to first start with a brief review of some of the most widely held myths about estate planning.
Estate planning isn’t necessary unless I am old or wealthy. With regards to being “too young” for an estate plan, this could be true – if we all knew when we would die and could therefore plan accordingly right before it happens. Unfortunately, without that crystal ball, it is never too early to get your plans in place. As to the belief that estate planning is only necessary for the wealthy, as discussed in more detail below, this myth ignores the fact that estate planning does much more than just dictate where your assets will end up upon your death.
Once my estate plan is configured, I can sit back and ignore it. While sitting down and creating an estate plan is a wonderful step, failing to update it may very well render the plan useless and obsolete. As such, while it is important to create an initial plan, it is imperative to review that plan every few years, or after a change in circumstances, so as to ensure that it still accommodates your needs and wishes.
It takes too long to create an estate plan and/or is too confusing. While it may be true that the various facets of estate planning can be confusing, that is easily remedied – not only by “busting” these estate planning myths, but also, and more importantly, by meeting with an attorney experienced in this area.
I can create my own estate plan without any assistance. While there are certainly estate planning kits, as well as web-based businesses offering estate planning forms, you must understand that estate planning is much more than just completing a variety of forms. Without understanding how your plan will work when you need it to work, and how its various components are interrelated, it is essentially impossible to create an effective plan document.
Everyone in my family gets along, so an estate plan isn’t necessary. Unfortunately, without that crystal ball mentioned above, there’s no way to guarantee that the current state of your family relationships will continue on in the future. Although most people don’t want to believe it, or believe that their family is immune to it, when money, property, or other assets come into the picture, disagreements and fights often result.
What Is An Estate Plan?
Now that we have dispelled a few of the myths about estate planning, we can begin to understand what, exactly, estate planning is, what it deals with, and what things must be considered when formulating a plan.
Generally, an estate plan is comprised of a variety of legal documents which, when taken together, indicate how you would like your personal property and other assets dealt with and/or distributed upon your death and/or incapacitation. When executed properly, an estate plan works to carry out your wishes and ensures that you are able to pass on as many of your assets, and at their highest value, while simultaneously paying the least amount of taxes and other administrative costs. Perhaps more importantly, however, is the fact that, should you not have an estate plan in place upon your death, a probate court will have jurisdiction over your estate. As such, not only will a court, as opposed to you, be deciding how to deal with your estate, but such proceedings may also come at a significant cost and be quite time consuming.
With What Does an Estate Plan Deal?
While this is not, by any means, an inclusive or exhaustive list, an estate plan may include an individual’s last will and testament, any applicable trusts, powers of attorney, and living wills and/or medical directives.
What Things Must be Considered When Creating Your Estate Plan?
Your Goals – First and foremost, you must determine what, exactly, you would like your plan to accomplish. Keep in mind that these goals can address not only how you would like your assets disposed of, but also why you want to take a specific approach. For example, perhaps you want to ensure that any estate taxes are reduced to the bare minimum, or maybe your focus is solely to avoid the probate process with the court. You’ll also need to think about whether you would want to provide money for specific individuals after you die or whether you would like your assets to go to a particular charity or cause. Finally, you must be sure to give some thought to whether there are any specific needs or challenges that you would like your plan to address.
Who Should Inherit Your Assets, When, and How – If you are married and/or have children, this discussion will likely vary greatly from that of an individual who does not have any dependents. Regardless of your family make-up, you will need to decide not only if you want your assets (all or any portion of them) left to charity, children (if you have them), other family members, friends, etc., but then also how you would like your assets divided upon among those beneficiaries. In addition to deciding who will be named a beneficiary of your estate, you will also need to think about when and how you would like your assets to be transferred to those beneficiaries. For example, if one of the beneficiaries is a young child, you may want to consider adding a revocable living trust to your estate plan (as discussed in more detail below), as it will provide you with more control over the assets even after they have been transferred to that beneficiary.
Last Will and Testament versus a Trust: Which Instrument Is Best For Me? – While both a last will and testament and a trust can serve the purpose of disposing of your assets upon your death, there are some notable differences between the two.
A last will and testament, quite simply, states how you would like your estate disposed of upon your death. This document will name an executor or personal representative and, in addition to delineating the treatment of your assets, may also name a guardian and/or conservator for any children that you may have. If your estate plan only includes a last will and testament, it is important to note that it will be required to go through probate.
A trust allows you to name an individual or institution (known as the trustee), which will then hold legal title to the property that is being left to a specific beneficiary. One large advantage of utilizing a trust is that, if the trust agreement is executed properly, any property that is in the trust before your death will avoid probate and instead may be transferred to the named beneficiaries. Also different from a last will and testament is the fact that there are two broad categories of trusts: testamentary (which is created by your will or at the time of your death) and living (which is created and comes into existence prior to your death) trusts, and two different types of living trusts – revocable and irrevocable. As there are various, and different, benefits and downfalls to each of these types of trusts, it is prudent to discuss your specific situation and goals with an experienced attorney so as to ensure that you utilize the trust that most completely meets your needs.
Who Should Be My Executor, Personal Representative, or Trustee? – This is an important decision in the estate planning process, and one not to be taken lightly. Among other things, you will want to name someone who is not only willing to be given such a role, but also someone whom you trust to carry out the role successfully.
Similarly, if you have children, you will want to give quite a bit of thought as to whom you will name as their guardian. Things to consider in making this decision include the proposed person’s ability to manage the assets being left to your children, whether the person’s lifestyle and/or home can actually accommodate your children, and whether the person will have the means to serve as a guardian, among other factors.
What is a Power of Attorney? – Simply, this legal document authorizes a named individual to act in your place for either a very narrow and specific purpose (limited), or more broadly (general). There are various types of Powers of Attorney (POA), including a “regular” POA, a durable POA, and a springing POA. A “regular” POA only remains in effect and force while you are capable of handling your own affairs, while a durable POA continues to be effective even if you become incapacitated. A springing POA, on the other hand, only becomes effective upon some specified date/event in the future.
While your Power of Attorney can authorize the named individual to do any number of tasks in your place, such as paying your bills and managing investments, the power to make health care or medical decisions is often granted in a separate Medical Directive or Health Care POA. In order to ensure that your wishes are adhered to in the event that you become incapacitated, it is also wise to pair this Medical Directive/Health Care POA with a “Living Will” which provides specific written instructions regarding your health care/medical beliefs and wishes.
By now you should have a much better understanding of both the intricacies and importance of an estate plan, and are likely in a much better position to begin thinking about creating your own estate plan. If you have begun this process and have questions or concerns about it, or would like some assistance in outlining and executing the various components of your estate plan, please do not hesitate to contact Jonathan Gelber!