At its most basic, estate planning is preparing for the end of life. It is a difficult, but necessary topic. Estate planning typically involves creating a comprehensive plan that accounts for the following issues.
Creating a plan to distribute property is the cornerstone of estate planning. The key to this area is avoiding probate. Probate is undesirable for several reasons. First, probate is expensive. Any estate (assets such as real estate and personal property) that passes through probate will lose a portion of its value due to court costs and fees. In many cases, that can mean thousands of your hard-earned dollars passing to the government and other parties simply because of poor planning.
Probate is unfavorable for other reasons. Probate takes a long time: a minimum of 6 months, but often over 1 year. Probate is also public: your assets and debts are public information to any interested party. Finally, your family has limited control over the process.
If a person dies without any plan, they are said to die intestate and state statute determines distribution. Probate will be necessary. If a person dies with a will only, they are said to die testate, and, while the will determines distribution, probate will still be necessary.
How do you avoid probate? We recommend maximizing the use of non-probate transfers and/or a trust. Any property distributed through non-probate transfers of real and personal property and/or a revocable living trust will avoid probate, helping to save money and time.
Creating a plan for the possibility of incapacity is probably the most emotionally difficult aspect of estate planning. The key to this area is documenting direction and wishes in advance of any mental health issues. Durable Power of Attorney for Finance and Healthcare are necessary. Although a Power of Attorney cannot prevent a proceeding for guardianship and conservatorship, it can help avoid such a proceeding and creates a preference for the holder of the Power of Attorney to also serve as guardian and conservator. A Healthcare Directive / Living Will regarding end of life wishes is also highly recommended.
A couple with children should create an estate plan at the birth of their first child. If both parents die before their child reaches the age of majority and no plan is in place, the parents’ estates will be subject to probate, thereby losing value. The child will be entitled to any remaining assets at age 18, probably before fully maturing. Additionally, if the child is a minor, a proceeding for guardianship and conservatorship will be necessary. While it is not possible to name a guardian or conservator in advance, there are techniques that can be used to help increase the odds that your choice is named. Common estate plans that help address these issues include revocable living trusts and testamentary trusts.
The estate tax is not a concern for the vast majority of people. In most situations, a couple needs to have roughly $10,000,000 in assets for the estate tax to be an estate planning issue. However, those facing the estate tax should use available measures to avoid the tax as much as possible (the top tax rate is 40%). Gift tax liability should also be considered.
If you have additional questions about estate planning or are ready to have an estate plan prepared, call or come visit with the estate planning attorneys at the Paul Law Firm. Consultations are always free!