Estate Planning Basics
When people think of estate planning, they tend to focus on the distribution of an individual's assets and other property when he or she passes away. Although that's certainly a component of estate planning, there's much more that a person can do to ensure that his or her intentions and wishes are honored in the case of mental incapacity or upon passing away. Estate planning is one of the most important steps any person can take while alive to make sure that their final property and health care wishes are honored, and that loved ones are provided for in their absence.
What is an “Estate”?
Your “estate” consists of all property owned by you at the time of your death, including:
- Real estate
- Bank accounts
- Stocks, Bonds, CD's and other securities
- Life insurance policies & IRA's
- Assets/Personal property such as automobiles, jewelry,
Why Estate Planning Is Important:
Estate planning allows a person to make decisions that include medical treatment care options and the distribution of property when he or she passes away. Planning ahead provides time to carefully consider and review estate decisions and to create tailored plans that preempt any disputes. As a side benefit, a person who plans ahead will become knowledgeable about important issues such as estate taxes. Keep in mind that estate plans can generally be amended, so you needn't fear being locked into a “rough draft” plan that's created early on in life.
How Can an Estate Plan Help?
Though often overlooked or put off in favor of more immediate concerns, a comprehensive estate plan can resolve a number of legal questions that arise whenever anyone dies or becomes incapacitated: What is the state of their financial affairs? What real and personal property do they own? Who gets what? Does a personal guardian need to be appointed to care for minor children? How much tax will need to be paid in order to transfer property ownership? What funeral arrangements are appropriate?
Estate Planning Benefits:
Regardless of your age, or the size and complexity of your estate, an estate plan can accomplish the following:
- Identify the family members and other loved ones that you wish to receive your property after your death.
- Ensure that your property will be transferred to those you have identified, as quickly and with as few legal hurdles as possible.
- Minimize the amount of taxes that will need to be paid in order for your property to pass to others after your death.
- Avoid the time and costs associated with the probate process by utilizing estate planning devices like living trusts and “payable on death” bank accounts.
- Dictate the kinds of life-prolonging medical care you wish to receive should you be unable to make your wishes known when the time comes.
Set forth the kind of funeral arrangements you would like, and how related expenses are to be paid.
Estate Planning Steps
“Hope for the best, prepare for the worst.”
– Chris Bradford, The Ring of the Earth
Every comprehensive Estate Plan should include ten basic steps as illustrated below:
The Risks If You Don't Plan:
A person who doesn't plan his or her estate runs the risk of family members fighting over property and over difficult decisions such as end-of-life care. If these issues cannot be easily resolved, the court system may become involved. If a dispute over the estate goes to court, expenses can quickly add up, the process can be painfully slow, and in extreme cases, family relationships can be ruined. Land can be troublesome to divide, with the problem compounded if some family members want to sell, against the wishes of other family members.
Estate Planning Documents to Consider
When it comes to estate planning documents, having a valid will is a good start. But a will is just one of a number of different types of estate planning documents you might need in order to ensure that your health care decisions and final wishes regarding your property are honored. Some estate planning documents that you'll probably want to consider are described below:
Powers of Attorney:
Powers of Attorney generally grant family members or loved ones the power to make certain decisions for you. There are three types of Power of Attorney, each of which can be an important document as it relates to a comprehensive estate plan.
- The “General Power of Attorney” grants its holder power over a broad range of legal, financial, and medical decisions.
- The Durable Power of Attorney is used to give its holder the power over medical or financial decisions in the event the grantor is incapacitated.
- A “Special Power of Attorney” is used to grant the power for a particular business transaction.
Advance Medical Directives:
Also known as a “Living Will,” an Advanced Medical Directive dictates the type of life-prolonging treatment that an individual wishes to receive in the event that person is unable to communicate his or her desires. For example, an advanced medical directive could allow an individual who does not wish to be kept alive in a vegetative or irreversibly comatose state to ensure that those wishes are honored.
A basic will, commonly referred to as a “Last Will & Testament” is the most common way for people to direct the distribution of their estate (real estate, money, possessions, etc.) after they're deceased. Increasingly, however, wills are being augmented, or even replaced in some instances, by the use of trusts.
Trusts are instruments created either during a person's lifetime, or in a person's will, that grant rights in that person's property to others known as beneficiaries. There are a wide variety of trusts, offering a wide range of potential benefits, from tax-savings to avoiding probate.
Factors to Consider
The various forms of estate plans have their unique features and benefits. For example, one type of plan may provide advantageous tax benefits compared to another plan, and certain requirements may apply to one type of plan but not to another. Along with the federal government, states have passed estate laws, and it's important to understand the laws that apply as you begin planning. If you do so, you can minimize costs and tax payments while tailoring a plan that suits your needs and carries out your intentions.
Understanding the estate plan options that are right for you can be a complex undertaking. Bergstrom Law can explain all the options available to you for meeting your Estate Planning goals and fulfilling the needs of your loved ones. Whether you need to revise an existing Will or create a comprehensive Estate Plan from scratch, we can help. Call us today at 678-648-1794.