Fortunately, estate planning is not all gloom and doom. You can take several measures while you’re alive and well to ensure that your estate is handled to your wishes and that your family’s burden is minimized. Below, we’ll detail the most critical aspects to estate planning and provide a helpful checklist and communication tool (at the end) so you can rest assured knowing your estate will be in good hands.
Estate planning allows you to manage and preserve your assets during your lifetime and after your death.
Estate planning happens both before and after you pass away. While you are alive, the estate planning process allows you to manage and preserve your assets. At death, your estate plan ensures that your belongings will be distributed according to your goals, objectives and wishes and can help ensure the minimization of taxes and administrative expenses.
This is important because most people want to control how their assets are given to the people and organizations they care most about after their death, ideally with as little administrative burden as possible and without any disagreements or other issues. A key aspect of the estate planning process is to provide clear instructions as to who will receive your property and when and how it will be received. Depending on your age and other factors, your estate plan should also name legal guardians for your minor children, outline your wishes for transferring your business and provide additional planning for any family members with special needs or unique circumstances.
Indeed, there are many elements to estate planning, which we’ll touch on below. There are no right or wrong answers when creating your estate plan, but it is vital to remember that creating an estate plan is the only way to ensure your wishes are carried out after your death
When people talk about estate planning, wills and trusts are naturally a key part of the conversation. But what are the differences?
A will is a legal document that provides direction on how property owned in your name (without a beneficiary designation) will be distributed after your death. Without a will, disbursements are made according to state law, which might not align with your wishes and priorities. In addition, a will names an individual (called an “executor” or “personal representative”) to manage and settle your estate as well as a legal guardian for any minor children. Since this is a legal document and legal requirements for an enforceable will vary from state to state, it is crucial that your will is well written and executed in accordance with your own state's laws.
If you don’t have a valid will at death, any property not held in joint tenancy with right of survivorship or without a transfer-on-death or other beneficiary designation will be distributed in accordance with your state’s intestacy laws. These laws vary widely from state-to-state and it is quite likely that your state’s laws do not reflect your desired distribution plan. Depending on the size of your estate and where you live, probate proceedings can get messy, legal fees can pile up, and family members or friends can feel overwhelmed and burdened from dealing with your estate in probate on top of grieving your death.
A trust is a legal document between a trustee (the person responsible for managing trust property) and grantor (the person who established the trust). A revocable living trust is another crucial piece of estate planning. A revocable living trust creates a separate legal entity to own, manage and administer property. Because the trust is revocable, it may be amended or revoked at any time by the grantor and the grantor maintains control of the assets and can continue to utilize trust property for personal use. Additionally, the trust is not recognized for income tax purposes so no separate tax return is required and the grantor can continue to use his or her social security number for all tax reporting.
One of the primary benefits of a revocable living trust is that any assets that are owned by the trust will avoid probate, which can be costly and time-consuming.
In addition, probate can delay distributions to beneficiaries and can interfere with the management of a closely held business or stock portfolio. Probate documents such as your will and statements of assets/property become public record, so having a trust in place generally helps preserve privacy and prevent public knowledge of your estate.
When a revocable living trust is used in an estate plan, a “pourover” will also be incorporated into the plan to specify custody and guardianship details for any minor children, potentially provide direction on the distribution of tangible personal property and also provide that any property that was not titled in the trust’s name will “pour over” into the revocable trust to be administered and distributed with the trust assets.
Estate planning is more than planning for disposing of your assets after death. Rather, a comprehensive estate plan will also provide that someone you trust will provide guidance on medical and financial decisions should you become incapacitated during life. These documents are as follows:
Advanced medical directives (sometimes called a “living will”)allows you to specify the medical treatments you do and do not want should you become incapacitated, such the use of CPR and tube feeding, and provides your wishes regarding organ donation. A Durable Health Care Power of Attorney appoints someone to speak to your medical providers, access your medical information and make medical decisions for you if you are incapacitated.
A durable financial power of attorney allows you to name individuals who can act on your behalf for all financial matters if you become incapacitated. For example, if you were not able to do so the individual you name would be able to access your bank account to pay bills and work with your accountant to file your tax return.
When it comes to estate planning, trusts are a common component. Trusts may be established during life and become effective immediately or may be established through a revocable living trust or will and become effective at death. In addition to the revocable living trusts mentioned above, there are other trusts types and terminology to be aware of, including:
While executing an estate plan might not be at the top of your to-do list, it’s one of the essential pieces of your financial plan —regardless of your age, stage of life, health or wealth.
While there’s no single answer as to when you should begin the estate planning process, if you care about how medical, financial or other decisions are made when you cannot make them yourself, you should consider crafting and implementing your estate plan as soon as possible.
Working with a team that includes a financial advisor, tax professional, and estate planning attorney can help you map out a complete estate plan that’s customized for you.
You may think an estate plan is set in stone once you’ve constructed it, but it’s not. Life is constantly changing, and your estate plan should as well. Regularly reviewing your estate plan to make sure it’s updated with current laws and your evolving life changes is wise. In particular, the following situations will impact your estate plan and should serve as a triggering event to review your estate plan:
When reviewing your estate plan, you will want to examine more than just who will receive property under your will and/or revocable living trust and will also want to review the following:
Does your family know who you have put in charge of making decisions if you cannot? Do they know where your estate planning documents are located and the legal and financial professionals who have assisted you in crafting your plan? If the answer is no, or if you are not sure, the process of what happens to your estate after your death can be potentially difficult and cause undue stress and discord among family members.
Estate planning helps you keep the peace, reduce anxiety, and allow your loved ones to focus on the process of grieving rather than dealing with the uncertainties, additional expenses and prolonged administration that often come with a lack of planning while also ensuring that your assets are divided and distributed as you intended.
We’d all like to believe that family members will be reasonable with each other after a death. Estate Plans make it so.
Often a spouse and/or children receive the bulk of a person’s assets upon their death. Yet even if you are not married or do not have children, you should still engage in estate planning to pass on your legacy. Start by asking yourself:
After working your whole life to build your wealth, you want to not only benefit from it during your lifetime but pass it on to the next generation as efficiently as possible. We’ve detailed important documents and steps to take to ensure you do just that but there’s one element that’s sometimes overlooked: taxes. Estate taxes can substantially impact the value of assets that are passed onto future generations but there are strategies you can use to minimize your tax liability, such as:
These are just a few examples of estate planning strategies to consider. Consult with your financial advisor, estate planning attorney or tax professional to ensure that your estate plan meets your intentions while also minimizing taxes.
One of the best things you can do to ensure the success of your estate plan is to assemble a team of qualified professionals to assist you. Here are three to add to your estate planning team:
A financial advisor is someone who provides financial guidance based on your unique needs and goals. A financial advisor may help with inventorying your assets, reviewing ownership and terms of trusts, life insurance policies and retirement accounts and help to educate and update beneficiaries on estate planning matters if appropriate. Your financial advisor can help you determine your estate planning goals, recommend individualized estate planning strategies to meet those objectives and then help implement and monitor your plan.
Estate planning attorney
An estate planning attorney drafts all the critical documents needed in your estate plan, such as your will, trust, advanced medical directive and durable powers of attorney, and other legal documents. Working with an estate planning attorney can help your executor navigate or outright avoid probate court and ensure all assets are correctly titled and ultimately distributed under the law and your estate planning documents.
Tax professionals can help you interpret the complexity of state and federal tax laws so you can accomplish your goals while minimizing taxes and ensuring that all tax filings are properly and timely made.
It’s never too early to think about your estate plan or build your team. If you need help finding a financial advisor, you can read more about what it’s like to work with Plancorp here.
Are you curious how much estate planning generally should cost you? The answer is simple: It depends. The complexity of your estate plan will ultimately determine the price of your estate plan. For example, a couple with one minor child and average wealth and asset composition will need an estate plan that focuses primarily on guardianship of their minor child and an efficient transfer of assets. On the other hand, a wealthy business owner with multiple children and spouses will need a plan that focuses on complex generational wealth and business succession issues.
Feeling overwhelmed? We get it - we’ve covered a lot! But don’t be. Estate planning is designed to help you, your executor, and your family avoid that very feeling. That’s why we’re ending on a high note - an estate planning checklist with action items to get your life and estate plan organized with minimal stress.
Creating your estate plan doesn’t need to be stressful or complicated — and once you’re finished, the peace of mind you’ll receive will be worth it! Just use the guidance throughout this resource and be sure to reference our checklist to get started with your estate planning.
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