Estate Planning


Estate Planning

A person’s “estate” is considered his or her property, and planning where it goes after their death is loosely what estate planning is intended to achieve. An estate plan can be considered an organized way to ensured that your property is handled in a way that corresponds with your values and wishes regarding your survivors and charitable interests you may have. Other considerations to make include lifetime concerns, such as preparing for the potential of physical or mental disability. Therefore, these issues are often discussed when a person is planning their estate.

The idea of the estate planning process can be unclear and somewhat overwhelming, as there is no specific starting point. Many financial and personal factors must be taken into account. A realistic place to start is to focus on the following questions: If you died tomorrow, what would you want to happen? And, what would be most likely to actually happen?

An effective estate plan should bring reality in line with your wants as much as possible, while keeping practical issues and limitations in mind. The steps in the plan may include draft versions of a will and trust, family discussions and ideas, changing the beneficiary designations on certain accounts, purchasing life insurance, and so on. Regarding the issues and limitations, this is frequently caused by inadequate amounts of money to fund all of one’s goals, as well as survivors who do not respond as hoped or expected.

Giving an estate plan the time and thought necessary to get everything straightened out is very important. When it is done in an organized manner, one step at a time, you can resolve issues and make a solid plan without being overwhelmed.

The Importance of Estate Plans

Answering the question what if you died tomorrow is uncomfortable, yes, but it is also the key to getting your resources and property taken care of the way you see fit. The following set of questions can help clarify the way you decide to handle your property and your beneficiaries. Some questions will not apply to everyone, of course, but for the most part these are common issues to address.

It is important to make note of answers to these questions that you are feeling unsure of or you are perhaps worried by. Then afterwards you can refer to your list of pinpointed issues to work out, and take action from there. Being able to identify and respond to such focal points will make the decision making process much easier.

Questions to Consider

            •  Would there be uncertainty, mistrust, and argument among your survivors in deciding how to divide your property and resolve your affairs? Is there anyone who, if not stopped, may take your assets or funds without authority?

•   If you have property subject to probate, but do not have a will, what does your state’s law of intestacy state about who takes property after someone dies?

•   Do you have a will, and does it reflect your current wishes? If so, is all your property actually subject to probate court and the terms of the will? Or is it set up to be distributed another way, such as through a beneficiary designation form, as with a 401k account, or to a co-owner, as with a joint savings or checking account?

•   What are the needs, abilities, and weaknesses of your survivors, especially your spouse and children, if any?

•   Are your survivors responsible individuals, capable of managing and using an inheritance wisely if they receive it outright? Or will they need protection from their own financial inexperience, immaturity, or negative habits?

•    Would your bequest to a child require protection from their spouse or creditors?

•    If your current spouse is not the parent of your children, how and when will your assets be divided among them?

•    What kinds of property do you own (real estate, mutual funds, a family business, etc.)? Can your property be managed without your supervision, at least for a short time? How much of it could be converted to cash simply and quickly, if necessary, at decent prices?

•    Does the net worth of your total property, or of property combined with your spouse, exceed the amount at which the federal estate tax begins to take effect and tax planning is called for ($5.12 million in 2012)?

•   What are your responsibilities to your survivors? For instance, would you be leaving young children and the surviving parent with enough money to maintain the family’s standard of living? Or on the other hand, do you have adult children who have stable jobs, and a spouse with their own retirement plan account?

•   If your children are under age 18, have you decided upon an appropriate guardian for them in case their other parent dies?

•  Does one of your children or family members have a disability who must be provided for separately, for life?

•   If you have an IRA or retirement plan account, have you selected the appropriate beneficiary and distribution options?

Getting Started

After reviewing these questions and potential problems that could arise, it is evident that estate planning could be a great help in making decisions and establishing the future of your property. Answering these questions and taking notes is the beginning of estate planning. Unless your situation regarding family and resources is very simple, it may be wise to seek assistance from an estate planning attorney.

Estate plans should be simple, and correspond with your values and desires, and needs of your survivors. Some estate plans can be as clear-cut as a two page will stating, “give everything to my two children, in equal amounts.” Others may have different wants or needs, such as giving to charity, or establishing a trust for their chosen beneficiaries to protect them from misusing the funds or simply set forth a specific way to distribute your money.

A will alone cannot establish specific instructions that can be accomplished by a trust. Trusts allow you to state exactly who you want your money to go to, when, and for the purposes you decide. In order to design one properly, you must consider your current state and what is realistic.

A Basic Will

Writing a will is important, regardless of what large or small amount of property or resources you may have. The main reasons to have a will are to name an executor, or personal representative to handle your affairs, and to designate who is entitled to what parts of your property and thus avoid family disputes. Without a will, your family may have to go to court to figure out how your property is distributed according to the state law of intestacy.

Many times, one will assume that their heirs understand their intentions for their funds and property, and are unfortunately mistaken. Families often argue in disagreement over distributions of anything from simple household objects to valuables when it is not specified. A will can designate specific individuals to particular items, or set up a system of distribution.

There is no required format for a will, and they usually run between 2 and 5 pages in length. The following will give an idea of some content you may want to include in your will.

  • A paragraph stating the person writing the will intends this document to be their “last will and testament.”
  • A paragraph naming the executor, and an alternate executor as well.
  • Designating guardians for any minor children in case both parents die prematurely.
  • A provision that the executor first pay all the debts and taxes of the deceased.
  • Naming individuals for specific bequests (“Daughter Ann gets the antiques, Son John gets the car”)
  • Deciding what happens to the remainder of property, which is everything left after  taxes, bills, and bequests

Wills can take several forms. A common one for married people with children is to have an identical will, stating that if they die first everything goes to the spouse, and if the spouse has already died, everything is given to their children in equal shares.

A will can also decide on an alternating selection process, to be managed by the executor. If no process is specified, it is up to the executor to conduct the distribution of property as they find appropriate, as long as it is fair to all other beneficiaries. This type often goes awry when left to an adult child who views their position as executor as an opportunity to abuse power, complicate the process, and end up in court.

Including a clause to pay off all debts and taxes can seem straightforward, though it commonly results in an unexpected issue. Because many transfers of property occur outside of the probate system (including joint property, retirement accounts, and life insurance) , this clause can lead to one beneficiary being singled out for these costs. The debts and taxes of the deceased all must be paid for by the beneficiary who inherits probate property, while other property which may pass outside of probate to another child, goes unaffected.

A simple will is really only a structured list of straightforward tasks designed to resolve one’s affairs after they are gone. Though it may seem daunting to start one without a plan, you will find once it is prepared, you will feel much relief over the future of your property and family.