Estate Planning

While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones.  Proper estate planning not only puts you in charge of your future, it can also spare your loved ones unnecessary expense, delay and frustration associated with managing your affairs when you pass away or become disabled.

Providing for Incapacity

If you become incapacitated, you won’t be able to manage your own financial affairs.  Many people believe that their spouse or adult children automatically have power to handle matters if they become incapacitated.  The truth is that unless proper estate planning has been accomplished in advance, they must petition a court to declare you legally incompetent.  This process can be lengthy, costly and stressful.  Even if the court appoints the person you would have chosen, the court will likely require the person to file an annual report to show how he or she is spending and investing each and every penny.  If you want to decide who will handle you affairs without the need for court approval or oversight, you must designate a person or persons in proper legal documents. That will provide the person prompt authority to handle your affairs, such as paying bills, taking distributions from your Individual Retirement Accounts, selling stocks, refinancing your home, and other transactions.  Unfortunately, a will cannot provide this protection because it does not take effect until you die. Also, depending on your unpredictable needs, a power of attorney for these matters may be inadequate.

In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care.  The law allows you to appoint someone you trust, such as a family member or close friend, to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself.  You can do this by using a health care power of attorney to designate the person to make such decisions.  Although a health care power of attorney provides most individuals all that they need for health matters, a living will is also available, but it provides more restricted options for health matters.

Avoiding Probate

If leave your estate to your loved ones using only a will, everything you own may pass through probate.  The process can increase court oversight and requirements, require unnecessary expenses, become time-consuming and diminish privacy by being open to the public.  The probate court is in control of the process until the probate estate has been settled and distributed.  If you have immediate family, you may want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled.  It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be.   With proper planning, you can usually ensure that your assets are available to your loved ones without being delayed by unnecessary probate procedures, in a manner that is more efficient, less costly and private.

Providing for Minor Children

Your estate plan should address issues regarding the care and support of your children, whether they are minors or adults.  If you have young children, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations.  You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters.  You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously.  A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for raising your children.  The custodian or trustee in charge of the finances need not be the same person as the guardian for the physical care of the children.  In fact, in some situations, you may want to have a different person managing the property than the person providing the physical care of the children.  Without proper estate planning documents in place, the decision as to who will manage your finances and raise your children will be left to a court of law.  Additionally, your documents should provide guidelines on how you want things handled by the people you choose, otherwise, they may have undue burdens and restrictions placed on them by a court, such as having to provide an annual accounting.

You should give careful thought to your choice of guardian and custodian, ensuring that he or she shares the values you want instilled in your beneficiaries. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills that you feel are necessary.  Make sure that your plan does not create an additional financial burden for the guardian or custodian.

Providing for Adult Children or other Beneficiaries

Even if your children or beneficiaries are adults, you should consider whether you’d like them to receive your assets directly, or whether you’d prefer to have the assets placed in trust and distributed based a number of factors which you designate, such as age, need and even incentives based on behavior and education.  All too often, beneficiaries receive substantial assets before they are mature enough to handle them properly, sometimes with devastating results.

Planning for Death Taxes

The IRS will want to review your estate at death to ensure you don’t owe them that one final tax: the federal estate tax.  Whether any taxes are owed will depend on the size of your estate and how your estate plan works.  You should also take note that many states have their own separate estate and inheritance taxes. With proper planning and advice, you can take advantage of many effective strategies to reduce or eliminate these “death taxes”. The earlier you start implementing a plan, the better chance you have of gleaning the best advantages.

Charitable Bequests – Planned Giving

Do you want to benefit a charitable organization or cause?  Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death.  Depending on how your planned giving is designed and implemented, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.

Overview Conclusion

A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, reduce probate procedures and oversight at death, lessen or reduce estate taxes and unnecessary delays.  You should consult a qualified estate planning attorney to review your family and financial situation, your goals and explain the various options available to you.   Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.

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