No one wants to squander a lifetime of sacrifice and hard work. However, if there is no estate plan, this can occur. The aim of every estate plan, no matter how large or small the estate, is to protect loved ones. The necessary steps are described in the article “Estate Planning for Everyone” from The Street. An estate plan can include almost any of your goals, and it’s not something to postpone.
Think of estate planning as a means of efficiently transferring the assets you’ve accumulated over a lifetime while protecting your family from unnecessary expenses, stress, and, yes, taxes. Without an estate plan, the laws of your state and the federal government will determine who receives what, and these laws will reduce your estate considerably by taxes. The process will take months or maybe even years. If you have ever been divorced, own property in more than one state, own a business, or care for a family member with special needs, the complications and costs grow exponentially.
The core of any estate plan is to answer a few simple questions: how do you want future generations to carry out your wishes? Do you want to take care of anyone? And how do you want to be remembered? An estate plan can allow you to set up a roadmap for future generations, manage how and when wealth is distributed, create a legacy for your family, and, if you are charitably minded, for your community.
A Will, or Last Will and Testament. This document is used to spell out how your assets should be distributed upon your death. It also includes naming a guardian if you have minor children and naming a personal representative (executor), who will carry out the directions in the will. You can also use a will to name gifts to individuals or institutions. Without a will, assets may be distributed following state law, which may not be the same as your wishes. Heirs will almost assuredly pay more in estate taxes, and the family may find themselves battling over personal items.
The will forms the foundation of estate planning, but it is by no means the only document you’ll need.
Healthcare Directive or Living Will. This is a legal document used to communicate end-of-life decisions. In some states, it’s referred to as an Advance Healthcare Directive or Medical Proxy. If you do not want life-extending treatments, it often includes a Do Not Resuscitate (DNR) order, like a breathing or feeding tube, blood transfusion, dialysis, or pain medication. The living will only work if the family knows where it is and shares it with your healthcare providers. Let loved ones know your wishes and tell them where to find the living will.
Power of Attorney—Financial. A Power of Attorney, or POA document, names people to manage specific tasks if you are incapacitated, whether by illness or injury. Please don’t make the mistake of using a standard form because it may not reflect your wishes. For instance, you may want to name one person to handle your finances, but you may not like the same person to handle the sale of your home. The POA can be as broad or narrow as you want, but only if created for your needs. The POA is only good during your lifetime when you are disabled. It is no longer effective after your death.
Without a POA and Healthcare Directive, your family will need to go to court and have one or more people named to act as your guardian and conservator. This process takes time, is expensive, and is extremely stressful. What if the court designates a family member to make all of your decisions, and it is someone you don’t want? The matter will be out of your control.
Trusts are used to avoid certain assets passing through probate and maintain privacy. Trusts are legal entities funded with a wide range of assets, which are transferred out of your control and into the trust, where they are the trustee’s responsibility. When the trust is a “revocable living trust,” you will likely serve as the trustee as long as you are able. The person who receives the assets at the direction of the trust is known as the beneficiary. There are numerous types of trusts, and your estate planning attorney will recommend the one that works best for your purposes.
Reference: The Street (Nov. 4, 2021) “Estate Planning for Everyone”