Almost 50% of Americans over the age of fifty-five do not have a will.
Additionally, only 18% of these Americans have the essential estate planning medical directives and powers of attorney. So, if you are someone who is only just getting started on an estate plan, you are not alone. Now is just as good of a time as any to get started.
This article will walk you through all the various elements that go into estate planning, while also outlining the benefits of having one.
Let’s get started by looking at the very definition of the phrase.
What Is Estate Planning?
An estate plan may not be pleasant to think about, but it is necessary.
Why is this? Because it helps you and your loved ones get through dire health care situations where you are unable to act on your own, and it directs what happens to all of your possessions if you cannot recover and pass away.
Estate plans answer difficult questions like: where do your assets go when you die? Who will handle any financial obligations you can no longer pay? Who makes medical decisions for you when you cannot? How do they know what you want? Who will take over your guardianship responsibilities for minors and other dependents?
That is a lot to think about, but without a plan, the courts step in to apply existing laws to make these decisions for you. Unfortunately, what a judge decides may not be what you want. The solution is simple though: an estate plan.
What Does an Estate Plan Include?
An estate plan can include a variety of documents, depending on what you want accomplished. A will, a trust, medical directives, and a financial power of attorney are some of the more common components in an estate plan.
The Benefits of Having an Estate Plan
An estate plan serves several critical functions that not only benefit you but the loved ones you leave behind. Here’s an overview of just a few of the key benefits.
Protect Your Beneficiaries
Estate planning allows you to designate heirs to your various properties and material possessions. If you do not want to leave this process up to the court, an estate plan will allow you to decide who gets what.
Ensure the Well-Being of Dependents
If you are the parent to a young child, one of your major concerns will be ensuring that their needs are taken care of in the event that you pass. Without an estate plan, the choice of guardian is left up to the legal processes of the court. However, an estate plan allows you to name a trusted friend or loved one as the guardian to your child.
The same concept of designating someone as your successor guardian also applies to any other dependents you are responsible for, such as an elderly parent or special needs child.
Protect Your Interests
You’ve worked hard for what you have, and you want to ensure that you have control over your assets and the heirs that receive them. An estate plan gives you that very power, allowing you to choose what becomes of your possessions.
Staying Clear Off Family Fights
Family fighting over an inheritance is not a new concept. We are all too familiar with siblings fighting over an estate, and the family squabbles that ensue. You can put all of this to rest by outlining exactly what must happen to your assets, upon your death, putting an end to any potential arguments over your estate.
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The Estate Planning Process
Now that you’re familiar with some of the benefits and elements of estate planning, let’s review the various steps included in the process. Here’s what you need to do.
An Inventory of Your Assets
Your first task is to identify all of your tangible and intangible assets.
This could include homes, motor vehicles, artwork, jewelry, antiques, and so on. Other assets would include your savings accounts, mutual funds, stocks, life insurance, 401(k), pensions, investments, and similar intangible items of value.
After you identify your assets, you must assign them with a value. While monetary assets are easy to value, other items may not be so straightforward. You can consider hiring an expert to determine the value of your properties or consider the value your family members might assign to a given item, particularly those that are of sentimental value, more than monetary value.
Identifying Your Family’s Needs
Does your family or some of its members have specific needs that you need to account for? Do you have any financial dependents? Are you a parent to young children?
Evaluate and identify the needs of your family that you’d like to address in your estate plan. This includes naming a guardian for your child, outlining how you would like your child to be raised, and more.
Hiring an Estate Planning Attorney
To get assistance with the process, it is advisable to work with a qualified estate planning attorney. This will help you ensure that all of your documents are compliant with the laws of your state. If you are working with the right lawyer, they will also make it easy to review and update your plan if you want to make changes.
An estate planning attorney will also ensure that your documents use the right language that is precise in meaning. You do not want a will with ambiguous wording, as this could leave it open to interpretation. They will also give you expert advice on your assets and the best way to distribute them, to get the outcome you want.
Once you have a strong client-attorney relationship, your lawyer will be a trusted and familiar source of help to you and your loved ones throughout the estate planning process.
Exploring Your Planning Options
You need to understand a variety of important legal documents and other planning options that can protect you and your family in end of life, and life-threatening, situations.
A will does many things. Some of the more important directives it includes are who receives your assets, who is going to be the guardian of any minor children you may have, and who oversees the entire execution of your estate plan. (This is referred to as your executor.) You also specify who should manage the property left to minor children, a special needs individual, or someone who has money management problems.
A good attorney will help you draft a will that leaves no room for interpretation, outlining exactly what you want, in language that’s straightforward and easy to understand.
You have the option of creating several different types of trusts depending on the assets in question, and your intended outcome. These include revocable, irrevocable, testamentary, and living trusts.
A trust is a legal relationship established between three parties. The creator of the trust is called a trustor or settlor. A trustee is a person or entity that manages the assets in the trust. And, the beneficiary is the person who benefits from the trust.
A revocable living trust is a common type of trust that is both, created and usually controlled by the trustor. They can be revoked if the trustor so chooses to prior to their death. An irrevocable trust is managed and controlled by the trustee and, generally speaking, cannot be changed.
When you create a revocable living trust, when you die your designated successor trustee takes over and the trust also becomes irrevocable.
One of the main purposes of a trust is to bypass the often tedious court directed probate process after your death. Trusts allow for an easy transfer of ownership without the added complexity and expense of court.
There are many types of healthcare directives, including two that are essential to every estate plan: the medical power of attorney and the living will.
A medical power of attorney designates who will make your healthcare decisions when you are incapacitated and unable to. This power of attorney is only effective when you cannot make your own decisions and usually requires two doctors to certify that this is the situation.
The other essential healthcare directive is the living will. The purpose of the living will is to let your treatment wishes be know if you are in a health care crises and cannot speak. They will include guidance about your preferred choice of treatment, what ought to be done in the event of a terminal illness or persistent vegetative state, your preferences for organ donations, blood transfusions, and so on.
These directives can be very specific, outlining a variety of serious healthcare situations and how you want treatment. Or, they can broadly address some common life and death medical situations while also letting your treatment preferences be know. In the latter situation, many directives will give deference to your medical power of attorney to make the final decisions on your treatment in consideration of what the living will says and their personal knowledge of your wishes.
You can also combine these two to create an advanced healthcare directive.
The Power of Attorney
A power of attorney (POA) allows you to designate power to another person to handle your finances and make decisions on your behalf.
For example, for finances, they will be responsible for paying your bills, settling debts, paying your taxes, taking care of your investments, and managing your assets.
There are different types of powers of attorney and several important considerations when deciding which is appropriate for you. A particularly important concept is whether your POA is nondurable or durable. The nondurable power of attorney cannot make decisions in the event that you are disabled or medically incapacitated from doing so. In the context of estate planning, all legal or financial powers of attorney are durable.
However, if you choose to, you can specify for their power to be limited. This would impose specific limits on what your POA is and is not able to do.
If you are potentially leaving behind dependents, and if it will be a while until these dependents reach an age where they can sustain themselves, it is advisable to get life insurance.
A perk of having life insurance is that it can bypass the probate process and reach your beneficiaries upon your death. This allows them monetary support without the hassle of going to court.
Funerals can be expensive, and your loved ones may not be able to easily access the funds they need. If you plan ahead, you can set up a payable-on-death account to accommodate funeral or cremation expenses.
Identifying Your Beneficiaries and Creating Your Plan
Finally, it’s time to identify your beneficiaries and decide how your assets pass. It is important to talk to your lawyer about what you would like, and they will help you create a solid plan that ensures your preferred outcome.
What Are Estate Taxes?
An estate tax occurs when assets are transferred to other people after your death. However, your estate is only subject to this tax if it exceeds a specified taxable value. Your executor or trustee is responsible for paying this tax if it is applicable to your estate.
For deaths in 2019, this cut-off is at $11.40 million, while for those who have died in 2020, the amount is $11.58 million, and for deaths in 2021, the amount is $11.90 million. While these are extremely high amounts right now, these numbers do change frequently. As of 2001, the amount was fairly low, with any estate over $675,000 being taxed.
If you have a high-value estate and want to avoid taxation, you can consider reducing the value of your estate. This can be done in different ways, several popular ones being transferring assets into irrevocable trusts, giving them directly to your spouse, or making exempt gifts during your lifetime.
Do keep in mind that estate tax is only applicable to taxable estate above the exemption amount, and not all of your estate.
Regular Reassessment of Your Plan
Once you have all of your documents ready, make sure to keep them safe and accessible to relevant parties. This would include your power of attorney as well as your executor or trustee.
Additionally, your estate plan is something you should re-evaluate and reassess from time to time to make sure your decisions are consistent with what you want. A lot can change with time. Talk to your attorney about any changes you want to make, and look at your documents now and then to ensure that they are still aligned with any changes in state or federal laws.
Estate Planning Made Simple
Estate planning can often involve a lot of paperwork and attention to detail. This can seem tedious and overwhelming, particularly when you already have a lot on your mind and are not sure where to start.
At the Andrew J. Chamberlain Law Office, we specialize in helping clients like you create comprehensive estate plans that address all your needs. We make the process simple, easy, and fast, by answering all your questions and addressing all of your concerns.
Want to learn more about our legal services? Get in touch with us to schedule a free consultation with an experienced estate planning attorney, today!