ESTATE PLANNING BASICS
According to the Financial Planning Association and other professionals, common reasons people avoid Estate Planning include:
They don’t want to think about death;
They’re too busy;
They believe their estate is not large enough to require an estate plan;
They’re unsure over elements of their plan, such as how to distribute assets or who should be named a guardian for children;
They have life insurance and expect to receive an inheritance, so they believe no further planning is needed; and
They believe an estate plan is expensive, complicated and must include complex elements, such as multiple trusts.
Benefits of an Estate Plan
All of those might appear to be valid reasons, although we all know they are not. What is true and clear when viewed with an open unemotional mindset is that the benefits of having an Estate Plan are literally too numerous to list, which include:
Assuring your financial and business affairs are handled the way you wish;
Making provisions to care for and protect children and other beneficiaries;
Planning for your future in the event of a catastrophic medical event;
Allowing your family to avoid probate court;
Reducing estate taxes by placing property and other assets in trusts; and
Protecting your assets from unforeseen creditors or lawsuits.
Estate Plans can also address issues of succession for a family business or provide for a family member who lacks the ability to manage his or her financial affairs due to disability or poor judgment. Trusts can be designed so beneficiaries receive an inheritance in stages or you can name a trustee to oversee the distributions over time.
The Best Estate Plans are created by focusing on people, not just property. In its most basic terms Estate Planning is how your affairs will be managed in the event you are not around, either because of your death or incapacity.
Level or Size of an Estate
In point of fact, nearly everyone has an estate. Your estate is comprised of everything you own, including your home and other real estate, motor vehicles, bank accounts, investments, life insurance, personal possessions, as well as, your business and its assets. Whether you are married or single, a parent or childless, a millionaire or a middle-income person, you need an Estate Plan.
Consequently, you need to plan and delineate your wishes regarding end-of-life decisions, and how best to dispose of your remaining assets. Only in this way can you provide for those people, charitable organizations, and perhaps, the pets you leave behind. Only by leaving specific instructions outlined in the Estate Planning documents you create with your advisor and attorney can you ensure that you will avoid leaving a chaotic family atmosphere at a time when those you care about the most will need the comfort and solace of knowing you did your best to plan for each eventuality and contingency.
Every Estate Plan must also include more than just a list of your valuables and who gets what. If at all possible, it should also:
Include instructions for passing your values (religion, education, hard work, etc.) in addition to your valuables.
Include instructions for your care if you become disabled before you die.
Name a guardian and an inheritance manager for minor children.
Provide for family members with special needs without disrupting government benefits.
Provide for loved ones who might be irresponsible with money or who may need future protection from creditors or divorce.
Include life insurance to provide for your family at your death, disability income insurance to replace your income if you cannot work due to illness or injury, and long-term care insurance to help pay for your care in case of an extended illness or injury.
Provide for the transfer of your business at your retirement, disability, or death.
Minimize taxes, court costs, and unnecessary legal fees.
Be an ongoing process, not a one-time event. Your plan should be reviewed and updated as your family and financial situations (and laws) change over your lifetime.
Estate Planning: Everyone Needs A Plan.
People tend to think that an Estate Plan is for the wealthy and time is on their side, so planning can be put off until old age or retirement. This is a myopic way to view the situation. People of all incomes need to plan for the future. Estate Planning is not something one does when one retires. Time is not always on your side. Who can predict the future and when is "soon enough" really "soon enough to plan?"
Estate Planning has many facets and preserving wealth is only one aspect of it. If you consider yourself a person of modest means, what you have in the way of assets still needs to be preserved for those you leave behind. Do you really want to leave your estate, no matter how modest, in the hands of an Administrator appointed by a Judge?
Without A Plan.
If you do NOT have a Plan, and since no directions or instructions have been provided by you, the laws if intestacy of your state of residence determines the distribution of all your assets and makes all the decisions necessary regarding those assets, including how they are to be used, transferred or liquidated.
If you become disabled and unable to make your own decisions, certain statutory rules will take effect. In effect, the Court, not your family, will control how your assets are to be used to care for you. An Administrator or Guardian appointed by the Court will determine how all your assets are to be utilized during your disability.
This scenario can, and, no doubt, will become expensive and time-consuming; the entire matter is open to public scrutiny, and regaining control, should you recover from a disability, will be a difficult task subject to judicial inquiry and medical determinations as part of what may become an adversarial process.
Issues To Consider:
If you die without a Will as part of an Estate Plan, i.e., what is known as "intestate," your assets, whatever they may be, will be distributed according to the probate laws of your state of residence. These laws have specific Rules and Regulations regarding the distribution of assets left by someone who dies "intestate," and those Rules and Regulations normally allow for the distribution of those assets by percentages of shares. If you are married and have children, your spouse and children each receive a percentage of your Estate. Click here for an outline of the Pennsylvania Rules of Intestate Succession.
Those shares, however, may not provide sufficient assets for your spouse. If you have minor children, the Court appointed Receiver will control their inheritance. If both parents die (i.e., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.
Distribution of Property. Without a Will or Trust, you will be leaving the distribution of all your assets up to the state's laws of intestacy. Assuming your property is distributed to the right people under the State's Rules and Regulations, having the court supervise the distribution of your estate is often quite expensive and time-consuming.
Disability or Incapacitation. Without a Plan in place, the court will likely have to intervene to approve who takes care of you, whether or not you stay in your own home, how your assets would be used for your care, as well as, the important health-care decisions that might need to be made and who would be appointed to make those decisions on your behalf. All of this would become a heavy burden on your loved ones.
Children and Heirs. Without a Plan, you lose control over the intended welfare of your children and grandchildren. You give up any right to determine what assets your children receive and who will be appointed their guardians should a catastrophic event cause them to become orphans. Assuming good people are appointed as guardians for your children, without a plan you lost the ability to specify how your assets are to be used for their benefit. Moreover, once your children reach the age of eighteen (18), they receive complete control of any assets the court distributed to them, and in most instances, they are not ready to assume that responsibility.
With A Plan. Assuming you have a Plan and your children are adults, do you have the right people in place to make the key decisions related to your estate? Does your present Plan actually reflect the reality of your situation today? Things and situations change. Certain contingencies may not have been covered in your original Plan. Perhaps your spouse is ill or a divorce is looming; you may have parted ways with your appointed executor or successor trustee; it may be that you need to provide for a child with a disability or with one battling addiction or with one who is involved in rocky marriage. It may be that your business is on shaky ground, or a partner wants to retire or sell his shares in the company.
Keep in mind that longevity alters the playing field in all situations. Estate Planning is more than who gets what when; it is the only way you can live out your final years in peace and relative comfort and protect your family after you are gone. You must plan for the worst and not simply hope for the best. Indeed, to have no plan is a recipe for economic chaos and an emotional nightmare.
Life brings major changes, including birth, death, marriage, divorce, accidents, illness, disability, financial upheaval, business succession, and it is only prudent to review the status of whatever Plan you have in place every few years every few years to be sure your Plan is covering all the new possible contingencies and conforms to any changes in the law.
Working with an Estate Attorney
Every person and every family have unique personal, financial and business situations. Choosing an Estate Planning Attorney and Advisor is a very important decision. That person should be an experienced attorney with knowledge of the law, as well as, business and financial matters. Just as importantly, he or she needs be sympathetic and empathetic so that you may feel at ease and be comfortable in sharing your most personal details.
Cost of an Estate Planning.
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The best time to plan your Estate is now.
None of us really likes to think about our own mortality or the possibility of being unable to make decisions for ourselves. This is exactly why so many families are caught off-guard and unprepared when incapacity or death does strike. Don’t wait. You can put something in place now and change it later…which is exactly the way estate planning should be done.
The best benefit is peace of mind.
Knowing you have a properly prepared plan in place - one that contains your instructions and will protect your family - will give you and your family peace of mind. This is one of the most thoughtful and considerate things you can do for yourself and for those you love.