What is Estate Planning?

Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life, in the event the person becomes incapacitated and after death.

The most basic step in estate planning involves writing a Will. Other major estate planning tasks include the following:

Limiting estate taxes by setting up trust accounts in the names of beneficiaries.

Establishing a guardian for living dependents

Creating or updating beneficiaries on plan such as life insurance, IRAs and 401(k)s.

Setting up funeral arrangement.

Establishing annual gifting to qualified charitable and nonprofit organization to reduce the taxable estate. 

Naming an executor of the estate to oversee the terms of the will

Setting up a durable power of attorney (POA) to direct other assets and investments

Six Big Mistakes that can cost you

Converting financial accounts to joint ownership

it substitutes for a financial power of attorney. Instead of having a document drafted that gives the adult child the power to manage the accounts when the parent is unable to, the joint title takes care of that. Each owner has authority over the accounts and can make decisions.  Secondly, the jointly-held account often creates problems. In most states, half the jointly-held account is subject to the claims of creditors of either co-owner. Your assets could end up in someone else’s hands if your adult child divorces, loses a lawsuit, or runs up big debts.

Naming one child as beneficiary

Too often a parent decides to keep things simple by naming only one adult child as beneficiary of life insurance or a financial account, including an IRA. The parent’s intent, which often was expressed to the children, is that the child who is named as beneficiary will split the account or insurance evenly with the other children. If one child takes title to the property, it is subject to the claims of any of his or her creditors.

Failure to name or update.

This means that an asset that normally would avoid probate must go through the probate process. It will be considered part of the estate and be distributed according to the terms of either the will or state law. For financial accounts, the company that holds the account might have its own default rules for determining who is the beneficiary when one isn’t named.  Too many people select beneficiaries when they open an account or buy a policy and never review the decision after marriages, divorces, deaths, etc.

Not having contingent beneficiaries.

The contingent beneficiary receives the property when the primary beneficiary already passed away or declines the property. When there isn’t a contingent beneficiary, then most of the time the consequences are the same as if no beneficiary were named. But sometimes state law or the rules of the account custodian might dictate a strange result.

Naming multiple co-beneficiaries.

This is frequently done with IRAs, financial accounts, and even real estate using a Transfer on Death deed or a similar designation. The arrangement can work well. With an IRA, the beneficiaries can agree to split it into separate IRAs. Too often, however, the strategy leads to problems. The beneficiaries can’t agree on how to manage the property or how to split it. It can be a major problem with real estate, because they all have to agree on everything. If they agree to sell, then they must agree on a broker, the offering price, and how to respond to each offer. They also might have to contribute equally to property taxes and other expenses until the property is sold.

Leaving Asset to Adult Children

Parents are always looking for ways to provide for their children. You may be wondering how you can help provide for them after you’re gone, and many parents resolve this issue by establishing an inheritance. There are different inheritance options to choose from depending on your budget, preferences, and the age of your children. Below are some examples of inheritance options and how they work.

Estate Planning Excuses

Although this last category arguably produces the best results for clients, it is sadly the least common. So why do most people delay in creating a thoughtful plan or fail to regularly review the plan that they have? I hear many justifications from clients or would be clients for postponing the creation of an estate plan or neglecting its review.

1. Consulting with an attorney will cost money that I would rather give to my family, spend now or invest for the future.

Whether you’re planning ahead for your own heirs or have been asked to serve as executor for someone else, it pays to understand what the role requires. The executor shoulders the fiduciary responsibility to keep track of all assets and debts for the deceased person and executes the instructions in the will for disposing the assets. Claims against the estate could become the executor’s personal responsibility if funds aren’t handled correctly.

2. I will never die, and I will always be mentally sharp.

Most people are too busy enjoying their lives to think about the possibility of losing their physical or mental capacity or their eventual demise. This is understandable, but it ignores the inevitable. Most attorneys and financial advisers welcome a conversation about planning techniques to ease any future hardship on you and your family that may be caused by your death or disability. You should have that conversation sooner rather than later, because you’re worth it, and so are your loved ones.

Get help

If you would like to learn more about the necessity of estate planning, any one of our estate planning attorneys would be happy to assist you.