Because estate planning is about taking care of yourself and those you love, it doesn’t matter how much money you have. There’s no financial threshold you must meet in order to qualify for planning. The qualifications are simple and twofold: first, you must care about someone or want to have some level of control over your life, health, and assets; and, second, you must be age 18 or older.
Think of estate planning as the creation of your written instructions combined with the legal language necessary to accomplish your goals. If you want to control how things are handled for the rest of your life and after your death, you must have your own estate plan. Your instructions will protect and provide for you, your spouse or partner, children, pets, assets, goals, and legacy.
Many people believe that estate planning is only for people who are particularly wealthy, have elaborate schemes in mind for passing their money to their heirs, or for people who are acutely ill and contemplating their death. This could not be farther from the truth! Estate planning is for every husband, wife, mother, father, grandparent, business owner, professional, or anyone else who has someone they care about, are concerned about providing responsibly for their own well being and for the well being of those they love, and for anyone who seeks to make a difference in the lives of others after they’re gone. Estate planning is not ‘death planning’; it’s ‘life planning’, and an essential and rewarding process for individuals and families who engage in it.
A will ‘ or a ‘last will and testament’ ‘ is a legal document that tells the probate court how you want your property distributed after you die, and who has the power and responsibility to wrap up your affairs. Through the probate process the court will give the ‘executor’ of your will the authority to gather all of your property, pay any remaining creditors’ bills, and distribute your remaining property as you specify in your will.
Because the will takes effect only after a court determined that it is a valid document, a judge must act before your executor can step in and manage your estate.
Health Care Proxy
A health care proxy allows a loved one such as a trusted friend or family member to make medical treatment decisions for you if you are unable to make those decisions and communicate your wishes to doctors. Without this essential document in place, your loved ones will be forced into court where a guardianship or conservatorship will be held.
During guardianship and conservatorship proceedings, a judge, in a public courtroom, hears testimony from your loved ones and medical professionals as to why you should be deemed incompetent and have a guardian named to make healthcare decisions for you. This procedure is public, expensive, time-consuming, and stressful for those who love you – and for the medical professionals as well; most doctors don’t like to go to court.
Fortunately, court involvement can be avoided simply by having a health care proxy in place and having that document accessible to your loved ones. In this document, you authorize a trusted loved one to act on your behalf, but only if you are not able to do so yourself. Rest assured, no one takes over your health care if you don’t need help.
A living will or directive to physicians directly informs your doctors that you do not want extraordinary medical measures taken, especially those that would cause you pain or discomfort, if those measures would only prolong the dying process. This document backs up your health care power of attorney. Anyone can deliver this document to your doctors if your agent under your health care power of attorney is unavailable to make health care decisions for you.
Perhaps the most common type of trust is the revocable living trust. As the name implies, revocable trusts are fully revocable at the request of the trust maker. Thus, assets transferred (or ‘funded’) to a revocable trust remain within the control of the trust maker; the trust maker (or trust makers if it is a joint revocable trust) can simply revoke the trust and have the assets returned. Revocable trusts can be excellent vehicles for disability planning, privacy, and probate avoidance.
A Revocable Living Trust based estate plan provides instructions that will allow you to:
- Control your property while you are alive
- Take care of you and your loved ones in the event of disability
- Pass your property to your heirs when and how you want while maintaining privacy
- Ensure that you and your spouse have sufficient assets to maintain your standard of living now and in retirement.
- Maintain maximum control and flexibility during your lifetime.
- Provide for you in the event you become disabled.
- Simplify administration as much as possible upon your death or disability (avoiding probate & guardianship).
- Avoid having your private matters being made public unnecessarily.
- Ensure that the efforts you desire are used to save your life.
- Have your property continue to benefit the survivor after one of you dies.
- If married, protect your assets so that they cannot be lost as a result of remarriage after the death of one of you.
- Ensure that the persons you select in fact become the guardians of your minor children.
- Protect your children’s or grandchildren’s inheritance from mismanagement.
- Structure your children’s or grandchildren’s inheritance in such a way that it installs values and virtues.
- Educate your children and grandchildren.
- Reduce the risk of litigation from heirs who receive less than they think they are entitled to.
- Minimize income taxes to the extent possible.
- Avoid or minimize capital gain tax on the sale of assets.
- Eliminate as much estate tax as possible.
Many young families put off estate planning because they are young and healthy, or because they don’t think they can afford it. But even a healthy, young adult can be taken suddenly by an accident or illness. And while none of us expects to die while our family is young, planning for the possibility is prudent and responsible. Also, estate planning does not have to be expensive; a young family can start with a Last Will and Testament and term life insurance, then update and upgrade as their financial situation improves. A well drafted Last Will and Testament will include the following:
Naming an Administrator
This person will be responsible for handling final financial affairs–locating and valuing assets, locating and paying bills, distributing assets, and hiring an attorney and other advisors. It should be someone who is trustworthy, willing and able to take on the responsibility.
Naming a Guardian for Minor Children
Deciding who will raise the children if something happens to both parents is often a difficult decision. But it is very important, because if the parents do not name a guardian, the court will have to appoint someone without knowing their wishes, the children or other family members.
Providing Instructions for Distribution of Assets
Most married couples want their assets to go to the surviving spouse if one of them dies. If both parents die and the children are young, they want their assets to be used to care for their children. Some assets will transfer automatically to the surviving spouse by beneficiary designations and how title is held. However, an estate plan is still needed in the event this spouse becomes disabled or dies, so that the assets can be used to provide for the children.
Naming Someone to Manage the Children’s Inheritance
Unless this in included in the estate plan, the court will appoint someone to oversee the children’s inheritance. This will likely be a friend of the judge and a stranger to the family. It will cost money (paid from the inheritance) and the children will receive their inheritances in equal shares when they reach legal age, usually age 18. Most parents prefer that their children inherit when they are older, and to keep the money in one ‘pot’ so it can be used to provide for the children’s different needs. Establishing a trust for the children’s inheritance lets the parents accomplish these goals and select someone they know and trust to manage it.