What is Estate Planning?
The process of guiding your assets during your life and after through the use of wills, trusts, insurance policies, and other arrangements especially geared towards reducing administration costs and transfer tax liability.
Why do it?
One of the most overlooked reasons to develop an estate plan is to make life easier on those you leave behind. Grieving a loved one’s death is hard enough. Estate planning can help avoid the administrative responsibilities involved with probating a will (such as developing an inventory and appraisal list, researching the many deadlines, filings with probate court, creditor rules, etc.) as well as any potential squabbling among the family over money or over who gets their favorite piece of jewelry, art, or furniture.
Taking the time to develop an adequate estate plan can help avoid much of these pains. We tend to think of an estate plan as an unselfish act that takes the responsibility off your family of others when you pass. It’s needed and very helpful.
In many families, one spouse is not as involved in the financial decisions with their family as the other spouse. How to invest? What to invest? Where to spend money? Who to give it to? Setting a budget? Setting up a trust is particularly useful to help a spouse make financial decisions without the pressure of other family members or even friends that may have self-serving interest. Oftentimes when the breadwinner spouse passes, the remaining spouse is presented with a series of “investment opportunities” or pitches from advisors.
It can be difficult for the remaining spouse to say no to close friends and families. Using a trust with a professional administrator allows the surviving spouse to deflect all of this pressure as well as to help to make sure that the trust principal remains for the duration of the surviving spouse’s life. Typically, we give the remaining spouse full authority to fire the trust administrator so that the surviving spouse retains full power while also being able to take advantage of professional advice.
If your estate is left under a will, the process of implementing that will is considered probate. Most people are aware that some things pass outside of probate (e.g. life insurance) but unless proper planning has been done coordinating the entire estate, your personal representative (usually a spouse or other relative) will be forced to address the probate court (either by hiring an attorney to help or by spending countless hours learning the ins and outs).
In most cases, paying for an estate plan is less expensive that the fees incurred in probating a will plus you can oftentimes avoid the hassle altogether.
What happens if you pass unexpectedly? Who will be the guardians of your children? Who will be responsible for ensuring that your money is used prudently for their benefit? Although the family court retains jurisidiction when both parents pass away, it is merely to ensure that the best interests of the child(ren) are protected.
In nearly all situations, the family court respects the guardians chosen under the will.. It is important for parents to have this (sometimes difficult) conversation and make a decision.
When a family member becomes incapacitated, it can be more difficult than anticipated for an individual to make decisions for their family member. Having the appropriate powers of attorney makes life much easier during a very stressful time.
With the estate tax exemption north of 5 million dollars (over 10 million for married couples using portability rules), few families have significant death tax implications. Note, however, that these laws can change at any time and under any administration.
If we do not choose to plan, then we choose to have others plan for us.
– Richard Winwood
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