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 finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.
Providing for Incapacity
If you become incapacitated, you will not be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over for them if they become incapacitated. The truth is that in order for others to be able to manage your finances 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, that person may have to come back to court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home. A will does not take effect until you die and a properly drawn durable power of attorney may be necessary.
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 – for example 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 durable health care proxy where you designate the person to make such decisions. In addition to a power of attorney for heath care, you should also have a living will which informs others of your preferred medical treatments such as the use or non-use of extraordinary measures should you become permanently unconscious or terminally ill.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. If your children are young 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 your spouse lacks 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, or within a short duration of time. A contingency plan should provide for persons you would like to manage your assets as well as the guardian you would like to nominate as guardian of your children. The person (or trustee) in charge of your children’s finances need not be the same person as the guardian. In fact, in many situations you may want to purposely designate different persons as trustee and guardian to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide an annual accounting.
Other issues to consider in this respect is whether you would like your beneficiaries to receive your assets directly, or whether you would 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 children receive substantial assets before they are mature enough to handle them properly, with devastating results.
Planning for Death Taxes
Whether there will be any federal estate tax to pay depends on the size of your estate and how your estate plan works. Many states have their own separate estate and inheritance taxes. There are many well-established strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to implement many of these plans.
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 plan is set up, it may also let you receive a stream of income for life, earn investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, 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. We look forward to being your trusted advisor. Call Adam today for a complimentary consultation.