Can’t my family just rely on a homemade will? A homemade will is better than no will. The Texas legislature, for example, goes to great lengths in trying to suspect or accomplish the wishes of an individual with the disposed of property and guardianship of the children in the event of their death. We certainly don’t want to discourage the preparation of a homemade will. However, a homemade will almost always has critical problems that are difficult to find. These problems cause stress and delay while the heirs most definitely do not need these hardships after the passing of a loved one. The pace of their sorrow is heightened – and their grief is worsened – by trouble related to the decedent’s assets. These potential trouble spots are almost always found long after the amateur draftsman who prepared the homemade will is no longer available to explain the decedent’s real wishes.
Most people think of an estate plan as nothing more than a will. However, relying only on a will can be a foolish choice. We do not look for auto insurance after we have an accident, nor should we look for a will after we have an emergency. Most people know they should have a living will or a trust, but because they do not know what these documents are, they often put off or even forget about the details of their estate plan. If you are going to take time out of your valuable day to read this book, we certainly want you to increase your knowledge on this topic.
Understanding Estate Planning
Estate planning is the process of exercising the stewardship that you have over your own property once you are either not mentally capable of doing so, while you are healthy, or once you are gone. Effective estate planning will help preserve your property while you grow older or unable to care for yourself. Families that you would like to leave a legacy for or who depend on you will appreciate your planning. Part of planning is discussing whether you will make medical or financial decisions for another person when he or she becomes incapable. If you fail to do this, family members will be unable to care for you or make decisions to affect your lifestyle if something happens to you. Estate planning may involve the creation of a will, revocable living trusts, durable powers of attorney for property management, and advance health care directives. If you do not take control of your own circumstances, your future can be managed by others. This is where the probate court steps in. If you do not plan your estate, your assets may be transferred to unintended beneficiaries or may be utilized to meet the legal fees of arguing about your dispositions or in the generalized costs of undertaking unwanted challenges to estate settlement and management.
When many people think of estate planning, they think of drawing up a will or establishing a trust. Although wills and trusts remain the foundation of estate plans for many people, as the baby boom generation ages, elder law attorneys are expanding their practice to encompass pre-death asset management and wishes for remaining connected, involved, and secure in life. Estate planning no longer starts after the beach house has been paid off and the kids are through college; for many, it starts long before assets have been accumulated, and children may not have been born yet. “Unfortunately, many people don’t place estate planning high enough on their list of things to do,” writes an estate planning attorney in his book. “They believe it’s only done after they’ve accomplished a certain level of financial success, or worse, that many people don’t need one.” And that’s not even counting those who are overwhelmed by the notion that their tax situations will summon an army of white-collar statesmen with spectacles and clipboards. There are many reasons to engage in planning regardless of the current economic, social, or political climates.
Importance of Comprehensive Planning
Surveys indicate that most people believe it is important to pass on good values. However, less than 10% will include in their inheritance documentation the need for the beneficiaries to contribute to the accumulative legacy (especially intangibles) of the testator. These documents merely focus on and promote the beneficiaries to maintain the capital of the inheritance. Intangibles receive no attention. Your wealth is part of your inheritance to your heirs, not the complete bequeathal. After your death, the inheritance implemented in your death certificate recognizes your ultimate contribution. Your last ghost is a record of your wealth. However, your enduring ghost is a record of your useful life and a warm, comforting place where your beneficiaries can reminisce. Intentional estate planning includes structurally addressing the transfer of capital to the next generation, but it also illustrates how values are transferred and maintained.
When people think about inheritance, most concentrate on the distribution of assets such as real estate and money. After your death, the distribution of your possessions (also called the liquidation of your estate) determines your lasting legacy. Besides the items you own, people also remember the role you played in their lives. This includes your contribution to enrich their lives. Therefore, your legacy consists partly of intangible items. The individuals in your circle of concern realize the value you contributed to their lives. Be kind and supportive to family members and friends, and by being understanding, you strengthen the interpersonal relationships you have with these people. To offer support and encouragement to your loved ones to inspire them to strive to achieve the goals they have set for themselves is also a recognized contributor to enriching the lives of people. All incidents of kindness and compassion leave a mark on people’s souls and help to secure your legacy. Participants in the hearts of these people reveal the face of your legacy. When you act unkindly, you chip away at your lasting legacy. Whereas, when you initiate love and understanding, your mustache your lasting ghost will shine.
Benefits of Estate Planning
There are a number of benefits to doing an estate plan. Here are just a few: as mentioned, to make sure your assets are distributed according to your wishes, to help shelter your wealth for future generations, have help plan for death taxes, to address guardianship issues for children and property management, insure a caregiver for dependents, and to maintain control of property distribution. Many financial advisers, accountants, and even lawyers charge an hourly rate, so the cost could be a lot more than the packages offered by estate attorneys. Typically, estate planning is not cheap. While there are some places that will put together a Will for free, you usually get what you pay for. A typical Will usually costs a few hundred dollars to create. A trust is more expensive to create up front than a will but can be less costly than a probate process. Litigation proceeds after the trust creator dies, trusts become public. Escapes are public if the trust becomes part of the public record.
“Creating an estate plan is your opportunity to leave a legal, rule-following road map for your loved ones to discover and use.” You may think that “having an estate” means you have to be really rich, but the term includes everything you own. Your estate includes money in the bank, real estate, cars, valuable belongings, valuable jewelry, furniture, bank accounts, collectibles, and life and disability insurance proceeds. You also need to consider writing a Last Will and Testament (Will) and making sure you designate beneficiaries to your employer-sponsored retirement plans, individual retirement accounts (IRAs), and other financial plans.
Beyond Inheritance: Mapping Out Your Future with Comprehensive Estate Planning
Key Elements of Estate Planning
In terms of health directives, everyone is familiar with the need for a living will, a document that delineates a client’s “end-of-life” care decisions. However, in reality, it addresses the family’s concern with respect to these decisions more effectively than the client’s medical desires. The Health Insurance Portability and Accountability Act (“HIPAA”) introduced a federal privacy regulation in 2002. Under the act, a client is legally required to have living medical directives appointing a spouse or family member to make medical decisions once the client is unable. A client will not have capacity until a physician confirms incapacity. In the absence of these directives, a client’s family cannot obtain any information concerning the client’s medical condition without a HIPAA release. Since an agent under a medical directive is not a client’s power of attorney, the election of a family member does not legally entitle the family member to any medical information.
There are many components to a complete estate plan, although not all plans need every element. Your assets, your family, and your needs are all parts of the planning process that should include the following elements: documents and structures that protect you and your family during your life, including retirement and health care planning; family welfare strategies that provide for your loved ones so they are cared for if something happens to you; building solid relationships with those that you want to be in charge when you’re not; avoiding or minimizing taxes, as well as other unnecessary costs, at your incapacity and death; avoiding public and private claims, such as costly guardianships and will contests, from interfering in your estate; a process that provides certainty in the management of your assets while allowing you to maintain control; full disclosure planning in regards to medical directives and “end of life” care and continuity for your survivors; and the qualities of an effective and efficient transfer of your assets to your beneficiaries.
Creating a Will
It is not uncommon for people to mistakenly believe that simply having a poor-man’s will in place, such as a handwritten note or acknowledging their wishes to their loved ones, will suffice in ensuring their intentions are honored. Be cautious; the law will classify a will validation process differently based on whether there is a proper will or a close will substitute or no document at all. In an ideal process, a court validates your will and appoints your executor without any formal testimony. Verbal acknowledgments of what someone intended can also create significant adversarial issues among loved ones. Otherwise, authenticating a document or validating your wishes requires a statement of assets or circumstances and exhibits to be introduced and compared to handwriting, be self-proven to make the process less adversarial, be clear about what you want to occur, and follow a specified format ensuring the completed formalities and requirements. Your wishes may be ignored when you unintentionally cause your family to become embroiled in a heated legal battle. The process can be expensive and cumbersome. When you have no valid documents in place to guide your loved ones, intestacy laws control what is to occur, the state appoints your executor, they are restricted in their power, and family members become conflicted over control of your property and who will care for your children. Observe in lively time today in our courts and in the media how these conflicts play out publicly, tear apart families, and can become protracted battles that outlive an individual’s capacity to care for themselves or to even express what they want, and unneeded and unwanted estate erosion ensures.
In order to create a will, you must be capable of expressing your clear wishes about what happens to your property after your death. To protect against challenges, your will is drafted, executed, and stored to meet the required conditions established by law, which usually include the presence of at least two competent witnesses during the signing process. Your will contains specific provisions for naming someone to be the executor of your estate, to pay your final debts and taxes, to protect your assets, and to distribute your property to your desired beneficiaries. Your selection of this trusted individual should be one who is capable and willing to act in this important role. Your will can also name a guardian who is responsible for your minor children in the event you and the other parent become deceased. If you have pets, you can also list instructions for their care, including the name of the caretaker who will assume that responsibility. Additionally, your will can include provisions for a trust for your children, and you can include provisions for funeral, burial, or cremation arrangements. Your will can be updated periodically to reflect any life or estate planning changes, and you should be aware that marital event changes have important effects on your will.
Establishing Trusts
Your living trust agreement also addresses issues that may arise in the event that you are old or disabled. It will appoint the right person to manage your estate in your stead, likely saving you legal costs and time that lavish court-involved proceedings endure. A living trust can allow for your estate to be distributed without incurring taxes. A-B Trusts best serve couples who are subject to federal estate tax, eliminating a tax burden when one spouse dies. Revocable living trusts are not the answer to Medicaid qualification. If it appears in your living trust, it will be part of your asset eligibility under Medicaid qualification. A pour-over will is also needed for estates with minor children. Upon your death, the will acts on behalf of the court and names guardians for your children and will cause the trust to come into existence and allow the transfer of certain assets to the trust.
It is important that the deeds of your real property also get filled in, as not all deeds are inclusive. You will need to consult with a lawyer or an expert to ensure that no property is left without any means of transfer. “Exemption of real property” forms will have to be filled out if you are married and will name you and your spouse as joint beneficiaries. A “community property statement” needs to be filled out if the property is held in a joint tenancy, in which you and a co-owner are beneficiaries. The forms: Preliminary Change of Ownership Report form and Change in Ownership Statement Death of Real Property Owner(s) will also need to be filled out, as they do not constitute reassessment.
Living trusts provide a means of helping you manage your assets during your lifetime. Due to the fact that they are living or revocable, you have the option of setting up and managing them. They act as a substitute for traditional wills as they come into effect when you die. Distribution and financial management of the living trust assets will be handled by your trustee according to the terms of the trust.
Power of Attorney and Healthcare Directives
These key documents arrange for what occurs if you become disabled and ensure that all of your needs and desires for your medical treatment in this situation are carried out. As you begin to put together your full estate planning, your future’s Power of Attorney becomes one additional critical component. It enables you to designate someone you trust to handle your financial and business affairs during your lifetime. If you become incapable of managing your finances due to injury or disease, a well-written estate planning Power of Attorney specifies your needs and enables them to be fulfilled while staying out of court. There are numerous options to Power of Attorney documents as you have unique needs and expectations. A Power of Attorney may be either jointly or individually defined (which is when you assign one person to fulfill your needs), durable (which ensures that your financial affairs will be handled even in your inability), and a springing (a power of attorney that springs into effect if a certain incident or condition occurs).
In addition to naming a trusted family member or friend as a health care proxy to make medical decisions for you, your health care directive can include a living will that specifies your preferences and provides guidance to trusted individuals who must make medical decisions on your behalf during this time.
This legal document is designed to appoint a health care proxy, someone you trust, to step in and make decisions about your medical care if you are unable to communicate. The person you select should know your feelings on medical treatment, life-saving measures, religious beliefs, and end-of-life care. In addition, you may also include individual directives and explicit instructions, such as organ donation or being an organ donor; this appointment can also be granted. These documents, carefully prepared under the guidance of an experienced estate planner, give you peace of mind and relieve your loved ones of having to make difficult life and death decisions.
Strategies for Effective Estate Planning
Talk to people you trust: Find advisors such as financial professionals who understand your unique goals and concerns, and then build a team around you. You likely have a tax professional, attorney, and financial adviser. However, you and your family matter to us. How do we work together to get the best outcome for you and your beneficiaries? You decide. Surrounding yourself with the right professionals with expertise in this area can ensure that you don’t inherit taxes.
More complicated trust terms: As legislation keeps getting more complicated, so do estate plans. Customized trust provisions can act as a type of asset protection for your beneficiaries and ensure the money isn’t squandered. The right trustee can monitor the money to ensure distributions are made according to your wishes.
Hold on to your real estate: In the US—Minnesota specifically—compared to Canada, there is less real estate transfer taxes when you transfer titles of real property to the next generation. Your principal residence is also not taxed upon transfer. For these reasons, holding on to such property can be a valid strategy to move wealth to the next generation. Your beneficiaries immediately assume the cost basis you had in the property, and it will receive a step up or step down in cost basis upon your death. This allows the next generation to sell the property without potential capital gains tax liability.
Create a Testamentary Trust: Rather than hand over assets to your beneficiaries as beneficiary designations on the accounts, name a trust as the beneficiary. The terms of the trust control distributions, ensuring the money isn’t squandered by your beneficiaries. Depending on your situation, it may also protect the money from the next generation’s divorce or other lawsuits.
Give your property away: The trick is to give it away slowly. You give away the rights to your inheritance to your beneficiaries over time. The government cannot take money you have already given away. The end result is the money can still be transferred to the next generation, and the government doesn’t get your money.
Identifying and Valuing Assets
Identifying Assets. As a preliminary matter, counting up the monies Aunt Sue wishes to learn about or your own holdings, you must inventory the assets before summing them up. An easy way to do this is to list the last four digits of any account, the institution where the account(s) resides, and its balance or the approximate value of the account. It may be necessary to use approximate values in the case of real estate with defaults, art pieces, antiques, collectibles, similar assets, or assets with unknown values. Once you uncover and approximate the value of all the real and personal property, which spoke of that property is located in the US, simply comes the associated with his wealth.
Locate and review important documents. Fairfax Estate Administration includes locating important estate planning documents, such as deed, bank accounts, saving accounts, bonds, retirement and pension accounts, a will or living trust, tax returns from the previous three years, life insurance policies, and all of your monthly bills.
Are you trying to figure out the net worth of your estate or that of a relative? Perhaps you’re trying to determine the value of your own estate for estate planning purposes. Said differently, do you want to figure out just how much wealth there is to distribute upon your demise? Or does your Aunt Sue wish to calculate your Grandpa Fred’s estate worth to know what will be left to distribute to his heirs and other people he cares about? Follow these steps to identify and value the assets and calculate the worth of any estate using easy and free methods.
Minimizing Estate Taxes
Preparing a will, particularly if they are fiscally responsible, can help reduce estate taxes. Wills are relatively affordable and can help create the legal documentation to make inheritance a simpler process. For large or complex estates, such as those that include businesses or other valuable assets, wills can be more customizable and better suited to one’s particular financial situation. Most states will preclude the additional hold-up to the existing government. Sometimes, the addition of a trust can create an air for an in-between community that cannot be claimed externally. During financially distressing times, lending companies take advantage of people who don’t fully understand their legal rights. Inheritance loans are pushed during the stress of a loss and the flexibility of money to cover funeral expenses.
The federal estate tax is applicable upon the transfer of an estate at someone’s death. When planning to minimize estate taxes, the goal can often be to reduce the estate size. The federal government allows for lifetime gifts to be made at a value of up to this amount without incurring a tax. In addition, individuals have the ability to give one another gifts under a certain threshold without tax consequence. Although gifts are not tax deductible, some estate planning suggestions that can be explored include the following: making gifts to charitable organizations can lower a donor’s estate and income tax liability. Donations discover both to the individual making the gift and their heirs. Often, charitable organizations have the ability to reinvest this gift to create an income stream. However, fashioning times the funding can make a happy prom. Meeting with the family to discuss the estate plan and determine the best way to beneficially use the lower estate tax liability is perhaps the best practice.
Planning for Incapacity
1) Planning for incapacity is incredibly important! Each of us live and work hard, knowing that one day, all too soon, we can become incapacitated on some level – whether it is temporary or permanent. We must take steps now to plan for and talk about what we would want to have happen, both personally and financially, in the event we become incapacitated. We are here to help the entire family in these conversations, including: what, at a minimum, should be in place for young adult children who move away for college or into their first apartment? Whom do we want to act on our behalf for financial and health care decisions? How do you want certain medical decisions to be made for you? What if I have no family member willing or capable of acting for me? Simply having these conversations and preparing the documentation provides peace of mind for everyone and will lead to a better quality of life for us all down the road.
2) Do you remember where you were the moment you realized that an estate plan should address more than just how your stuff will be divided when you are gone? If you haven’t already had that realization, for many the “aha” moment comes when we see a loved one suddenly, and quite unexpectedly, become incapacitated by a stroke, traumatic brain injury, heart attack or following a catastrophic car accident. Incapacity can be sudden and is frequently unpleasant and inevitable – plan now for yourself, in order to prevent your future incapacity from equaling unpaid bills, neglected property and loneliness.
Working with Professionals for Estate Planning
Please consider speaking with an estate lawyer, financial planner, and accountant when making your long-term and short-term plans. If you experience challenges, bring the estate team together or ask the professionals to reach out to each other while assisting in these areas. To help assess the situation and get you ready for speaking with any of these professionals, we have included some steps and guiding questions that may help you.
Starting Points for Planning Ahead: Before getting into any formal arrangements, we want to encourage you to speak with your family and any other people close to you about arrangements you’d like made. These wishes can be regarding your lifetime, the end of your life, and your estate after your passing. A direct and honest conversation may help everyone understand your situation and priorities. Young adults and adults with young children may benefit from expressing their desires regarding child care options, educational funds, and service arrangements, even if they do not yet have their estate planned for. We do not know what the future holds, so every piece of information shared may be a wonderful help to your loved ones. It is important to understand that arranging plans in advance will help ensure that your intentions are known to your loved ones and to designate representatives in case of incapacity.
Your estate can be large and complex, or small and simple. For either, it’s a good idea to make formal, legal plans for what you want to happen when you can’t be around any more. Lawyers, financial planners, and accountants can help you get everything in order so that your intentions are understood by everyone involved. By planning ahead, the time for mourning ends, and we can celebrate your legacy and joyfully remember the wonderful time we had as part of your life.
Choosing an Estate Planning Attorney
Ask for client references. I often tell people the most valuable currency the client can give is their endorsement. A good practice to put into place is to ask the attorney for just one or two references who the attorney worked within the past. Most clients understand they were formerly in your shoes having this attorney work with them on the estate planning process; they become informal wealth of knowledge. Speaking with references gives you firsthand accounts of how the process worked for previous clients who retained the attorney, and their experiences will be able to describe to you how easy or difficult the process was, and if they would hire the attorney again.
Ask for attorney referrals. You probably have an attorney that you already know. Maybe you had an attorney represent you in a car accident, drafted real estate documents, or any other legal service. Well, who better to ask about an estate planning attorney than the attorney you already know and trust? Chances are they know someone in the profession who can be a great fit for your family.
Ask about the attorney’s background. As you are probably aware, there seems to be an attorney available to help anyone with any need, and most attorneys spend the majority of their time specializing in the areas they are the most comfortable. It is also usually the areas where they have more experience, so regarding estate planning, it is a good idea to ask the attorney about their background in this type of planning. It also would not hurt to ask them how many years they have spent in the practice of estate planning.
When it comes to choosing the right attorney, there are several things to take into account. Many good estate attorneys are out there, but you must take your time and look for the right attorney in your estate planning journey.
Choosing an estate planning attorney is the first step in knowing that you and your loved ones will be protected. Here are a few points to consider when interviewing attorneys.
Collaborating with Financial Advisors
At the end of 2017, the American Institute for Economic Research finished publishing a study about wealth management and how the super-rich expanded their wealth. In order to get a sample that was representative of the wealthy, was comprehensive rather than arbitrary, and in a large enough size to explore patterns among these wealthy individuals, the study turned to the country’s premier wealth-advisory firms. According to the study, such financial advisors served as expert problem solvers and strategic and personal counselors. The super-rich also often turn to financial therapists for advice. Financial therapists are experts in the counseling process who also have the financial planning skills to help clients address assets, liabilities, and the financial interdependence report patterns they have developed for full impact on how financial therapy can produce positive benefits for their clients.
Financial advisors often play a role in people’s financial decision-making process. However, some may specialize in wealth management, tax planning, retirement planning, and other topics in the financial realm, but they may not specialize in estate planning. Sometimes, a financial advisor that specializes in these areas may be called upon to help provide guidance in the areas of inheritance, charitable giving, and other decisions. It is the job of the financial planner to help the client craft a plan to meet the client’s specific objectives. On the financial advisor’s website, they state that we collaborate with your legal and tax advisors as a team to bring you the most comprehensive advice possible. By getting to know your personal motivations and long-term goals, we help create a plan tailored to meet your individual objectives.
Involving Accountants and Tax Experts
Of course, basic tax rules are not necessarily the most important directive in preparing the intellectual capital underpinning planning, but they are required in the design and much more importantly, during the critical conversation stages that come long before the legal documents are actually in draft. Engineers of the finished products – whether planning pincers, mechanical work, or living trusts – are daily called on to work with numbers. Accountants also often work with specialists in other fields, especially with respect to insurance expertise. Business owners experience a trusted relationship that leads to conversations, so integrating planning under the team’s financial porches: lawyers should be prepared and open to communicate effectively with them in order to have strategic and practical presentations that work, as part of an accountant and legal plan. Lastly, accountants and tax advisors are not just one-dimensional on where their strengths currently exist or what role they think they should occupy in planning. A holistic approach can seamlessly involve them in more practical interview discussions at different points in a technically deeper plan.
In order for well-designed estate plans to achieve their goals, they need to work in concert with the owners’ entire suite of professional, financial, and personal advisors. This includes accountants. For many successful small business and farm families, their accountants are their most important and trusted advisors. They want to minimize tax with their planning, and they have spent many years working with their accountant to accomplish that. As wealth planning involves legal documents, many accountants and tax experts excel in working with legal documents and interpreting them in the bigger picture of a business owner’s tax objectives. But it is not simply a matter of having the document and interpreting it. Accountants in planning do far more than slot the wish list items of a business owner directly into legal documents for actual drafting.
