Many people work all their lives to acquire property and income to provide for their needs in their old age and to provide for their children and loved ones upon their death. Unfortunately, despite the best of intentions, the failure to create or use an estate plan could result in the person’s wishes not being realized.
There are various factors that need to be considered when creating an estate plan. First, you want to ask yourself the first, second and even third choice for a personal representative for your estate. That person is responsible for collecting your assets upon your death, opening a probate if necessary, determining and paying debts owed, distributing property to your beneficiaries, completing your last tax return and paying any taxes owed following your death.
If you have minor children, it is important to consider whom the first, second, and third choices would be for a guardian for the children in the event you die or become incapacitated before your children become adults. Also, if your children are going to inherit property from your estate, it is important to select a conservator who will be responsible for handling the children’s assets until they become adults and/or are able to effectively manage their inheritance. A person who is responsible with money and willing to commit the time to raise and care for your children is the best person typically to serve such a role. Many times the guardian of the children will also serve as conservator of the minors’ assets.
Another factor to consider when creating your estate plan is determining how title should be held to assets. If you are married, you will need to ask yourself whether it is best to title the property as community property, or as community property with right of survivorship, or as joint tenancy with right of survivorship. You may also consider titling real estate with a beneficiary deed to avoid the property’s inclusion in the probate estate. The method of title can have tax consequences, and will determine whether that asset goes directly to the named survivor, or whether that asset is subject to probate, which is the court administration of your estate.
Another important decision in the creation of an estate plan is the selection and nomination of a guardian and conservator for you in the event you are alive but not able to take care of your own finances and health care decisions.
Another important task in estate planning work is to ensure that any banks, insurance companies, and retirement and investment companies receive proper notice from you of your intended beneficiary/ies as well as any alternate beneficiary/ies in the event the primary beneficiaries have predeceased you or wish to disclaim their inheritance.
Another consideration in estate planning is whether or not you should create a Living Trust. A Living Trust can save on federal estate taxes, and can address asset management and control of property distributions until intended heirs are mature and able to manage their inheritance. Property left to family members or loved ones in trust may be the best way to protect the assets from the heirs’ creditors, ex-spouses and bankruptcy.
Finally, another issue in estate planning is to determine if your estate is large enough to be subject to federal estate taxes. If it is, it is important to learn the relevant tax codes to ensure that you are claiming any exemptions that would eliminate or reduce estate tax liability. If federal estate taxes are owed, it is critical to ensure that there is sufficient liquidity in the estate so that these taxes can be paid.
Typical documents that are prepared in an estate plan are: a Will that complies with the law, a Living Will that expresses your wishes if you have a terminal condition, a General Power of Attorney for financial matters, a Power of Attorney for health care decisions, a HIPPAA authorization to allow medical providers to disclose information to your agent, i.e. the trusted person that you have named in your estate plan to provide that information to friends and family, and a letter to your agent early in the creation of your estate plan to make them aware of your intent to give them the authority to inventory and account for estate assets, and to handle the payment of expenses and the distribution of assets to heirs. Such a letter is critical because it is needed to confirm that the intended person is willing and able to take on the responsibilities of handling your estate. FBN