ESTATE PLANNING CAN SAVE YOU TIME AND TROUBLE
Want a good return on your investment? Put a little time into planning your estate, and you and your family will receive big benefits.
Your estate consists of all your property, including
Through your estate plan, you can decide how to protect and provide for your family in the event of your death or incapacity. You can also plan how youíll provide for your kidsí or grankidsí education, or determine how to help a favorite cause, such as a charity, hospital, or college. Want more? You can also plan to reduce state and federal taxes, sometimes saving hundreds of thousands of dollars, if not more. And if you have a business you can provide for its continuation and an orderly succession when youíre not longer in the picture.
While a will or trust is often the most important part of an estate plan, itís not the only part. These days, your lawyer will also help you create your living will or healthcare advance directive as part of the process. And, working with your lawyer, you can be sure that your will or trust is coordinated with your pensions, the gifts you make, your life insurance, the property you hold in joint ownership, and all the other ways you can transfer property at or before death.
Who Needs an Estate Plan? Everyone. One glance at the news demonstrates that far too many young and middle age people die suddenly, often leaving behind minor children who need care and direction. And estate planning can be part of your overall financial plan, where you set goals for your childrenís college tuition and your retirement needs. If your finances or family circumstances change later in life, it's usually easy and inexpensive to adjust your plan.
Most people also plan for mental or physical incapacity resulting from an accident or illness. Through living wills, health-care advance directives, and other mechanisms, they control beforehand how they are to be cared for if disaster strikes. Through a living trust, they can control how their property is to be managed and their family supported in the same circumstances.
If You Donít PlanÖ If you die intestate (without a will), and you donít transfer your property by some other means- such as a trust, joint ownership, or beneficiary designation (for insurance IRAís and the like) Ė state law will step in and decide how to distribute it. This doesnít mean that your money will go to the state. That happens only in very rare cases where you leave no surviving relatives, even very remote ones.
But it does mean that the state will make certain assumptions about where youíd like your property to go Ė assumptions with which you might not agree. Some of your hard-earned money might end up with people who donít need it. Meanwhile, others who might need the money more, or who are more deserving, could be shortchanged. And surviving relatives may squabble over who gets particular items of your property, since you didnít make these decisions before you died.
The only way to assure that your property will go where you want it to, and that your goals will be achieved, is to plan your estate. Only estate planning gives you the feeling of control that comes from knowing your family is provided for as you wish.
How the Planning Process Works Begin by taking a quick inventory of your assets and liabilities. Total up
Donít forget to consider your debts as well, including mortgages, installment loans, business debts, and the like.
Then think about how you want that property to be used. Think too about what youíd want to happen in the even you are incapacitated- how would you want yourself, your property, and your loved ones cared for?
Doing all this preparation will simplify the process, but remember that creating a will or trust is seldom as simple as filling in blanks on a form. Most people will meet with their lawyer twice in the process. At the first meeting, you would probably discuss your financial situation and estate planning goals. Your lawyer will review any documents youíve brought in and ask questions that will help you think through various issues and possibilities. Then, your lawyer will probably outline some of the options the law provides for accomplishing your goals. Though certain methods may be recommended over others, depending on your circumstances, it will still be up to you to make your own choices from among those options.
Then, based on the choices you have made, your lawyer will draft a will or trust. At a second meeting, your lawyer will review that document with you. If it meets with your approval, it can be signed then and there.
For more complicated estates, you may have some phone conversations with your lawyer, and perhaps have to review several drafts of various estate planning documents, before everything is settled.
You should review your estate plan periodically, so youíll want to stay in touch with your lawyer. Donít think of estate planning as a one-time retail transaction, but an occasional process that works best when you have a continuing relationship with your professional advisors.
Estate Planning Saves You Money. Good estate planning should minimize costs that come about after your death. These include the following:
Probate costs: Probate is the court supervised legal procedure that (1) determines the validity of you will and (2) gathers and distributes your assets. The expenses of probate vary by state but good estate planning can minimize these expenses by passing assets through means other than a will, thus limiting the size of your probate estate. The smaller the estate, the lower the costs, especially if it is small enough to qualify for a quick and inexpensive processing. Since a living trust avoids probate, the total cost of a living trust may well be less than the combined cost of a will and probate.
Executor Fees: By having a will and planning well, you can minimize the executorís fees. Your executor carries out the provisions of your will. If you name a relative whoís a beneficiary under the will as executor (most likely your spouse), he or she will probably waive the fee. And if your will gives your executor authority to act efficiently and says that a surety bond (which protects your estate if your executor does not perform his or her duties) will not be required, you can save your family money.
On the other hand, if you die without a will or trust, the probate court will appoint a personal representative to see the estate through probate, at a cost to be deducted from your estate.
COMMUNICATION THE KEY
In planning your estate, itís highly desirable that you and your family agree on what youíre trying to accomplish. If youíre married, you and your spouse should track down all your assets Ė what benefits each of you is entitled to, where the money is invested. Itís especially important to find out how property each of you owns is titled, including insurance and real estate. Of course, a couple should communicate with each other so they agree on what goes to the surviving spouse and what to the children.
Because estate planning affects several generations, it may be a good idea, especially if your family includes grown children, to make your estate plan a family affair. Some families set aside a day and gather all family members who are involved in the plan. The parents can explain how this plan can have a major influence on all their lives, and why theyíre distributing gifts and trusts the way they are. They can also find out whether the children want to continue the family business, and ask if any property has sentimental values for them.
And donít forget to tell the persons youíve selected as executors or guardians of the children, to make sure they agree to serve. Itís a good idea to name alternative executors or guardians in case your first choice canít serve.