When you think of someone dying, you might make some assumptions about the distribution of their wealth to their family and loved ones. At first glance, some things seem obvious. If a person passes, it may be assumed their spouse should inherit their assets. If parents die, their children will inherit the assets, and these assets will be divided equally, all in a simple, private manner. If this process needs clarification, a will sorts this out conveniently and swiftly so that the survivors will be taken care of as they grieve and heal. The assumption is that the cost of this process will be minimal, and the whole matter will be streamlined in a well-established routine.
The truth is, however, that this process is extremely complex and complicated. If not planned for in advance, it can cost families substantial financial losses and extreme emotional pain. Without a proper plan or will, you may not be in control of how your estate is dispersed.
Misconceptions about Estate Planners
People often think of an estate planning attorney as an attorney that simply draws up a will. This will set in motion a smooth transition of things such as money, property, family heirlooms, stocks, bonds, and any other assets from the person who has passed to the people they wanted to give them to.
An estate planner does so much more than this. There is more that needs to be taken care of than simply drafting a will. In fact, in many cases, a will sets in motion things that end up being very costly and emotionally taxing for the survivors. This may include expensive lawyer fees, high court costs, lengthy waits to get inheritances, legal disputes, paying extra money in taxes, and many other things that can be avoided.
The Scope of Estate Planning
Estate planning is not simply a meeting to occur when the end of life is near. Some people believe it’s not important to start until after they have children. In fact, estate planning should begin as soon as a person starts attaining assets. Assets might include finances, but they aren’t limited to what’s in your checking account. Stocks, retirement accounts, homes, and even cars are assets. No matter what assets you have, keep in mind that estate planning isn’t about wealth but rather about preparation. When carefully planned, it offers more peace of mind than discomfort.
When to Start Estate Planning
How do you know when to start the estate planning process? Your family always makes plans in their daily lives. Plans can include grocery lists for tonight’s dinner or a carpool to get the kids and their friends to soccer practice or perhaps music lessons. If a child falls behind in school, you may plan for a tutor to bring them up to speed. You plan for summer vacations, and family get-togethers, and birthday parties. You and your loved ones also make long-term plans, including mortgages for your home, planning for college or graduate school expenses, weddings, and even planning to have a child and start a family. Yet, often, people don’t have a plan in place in case of their own death. Unfortunately, death can be sudden and unforeseen. The best thing you can do now is to create an estate plan so that your family isn’t burdened more than they have to be while grieving and healing. We recommend that you begin the estate planning process as soon as possible.
What Is Included in Estate Planning?
Estate Planning, in the simplest terms, is a set of legal documents that describe what a person wants to do with their assets in the event of their death or if they are incapacitated and unable to make medical and financial decisions for themselves. Every estate plan will look different for each person, as everyone has a unique set of circumstances that will determine what needs to be addressed if a tragedy happens. Factors such as marriage, children, debt, creditors, local and state laws, and many others will affect how and why you draft the legal documents you do. These include but are not limited to:
- Naming the Executor and Beneficiaries. The executor is the person in charge of passing on the deceased person’s assets to the beneficiaries, who are the people inheriting those assets. This is important because it ensures that the people you want to get your wealth get it and in the means that you want them to get it. In other words, you will plan if people receive their inheritance in the form of money, property, valuable family heirlooms, valuable art, stocks, bonds, and other assets. Making your intentions clear can also make sure that people you don’t want to inherit your money won’t. Unfortunately, leaving behind unclear instructions means that people can dispute the distribution of your wealth in court and may get their hands on something you’ve intended for another survivor to have.
- Minimizing Taxes. Making a solid plan up-front means that your surviving family may save money by paying only the taxes they are legally responsible to pay. There are several ways trusts can be set up to save surviving beneficiaries money on taxes.
- Choose Guardians For Your Minor Children. Perhaps the most important aspect of estate planning is determining who will raise your minor children if you are no longer able to do so. Losing a parent is one of the most traumatic things that can happen to a child. In the case of this tragedy, you will want to make sure that the person raising your minor children will give them unconditional love and support, as well as the means to continue to live the lifestyle they are accustomed to living. This means that you need clear directives on who will be in charge of their well-being. This, too, will have to go through the court system if there are no clear instructions. The last thing you want for your children is the courts deciding who will be given guardianship over them.
- Designate Medical Power of Attorney. When many people hear the term “estate planning,” they think of death. Many legal documents are indeed used in the case of death, but a thorough estate planner will have instructions that designate a medical power of attorney in case they become incapacitated. There are many situations where a person may need a medical power of attorney. A few of the many situations include severe brain damage, declined mental capacities from dementia and Alzheimer’s, or being in a coma. If any situations like this arise, someone is going to have to make medical decisions for you. Without spelling this out, it could cause conflict among family members who may be unsure what your wishes are or even legal disputes. You don’t want someone you don’t trust or who doesn’t know your wishes in charge of your healthcare. It is imperative that you plan ahead so these worst-case conflict scenarios will not happen.
- Designate Financial Power of Attorney. Similar to a medical power of attorney, a financial power of attorney will decide how to handle your finances in case you are not able to do so. Again, you want someone who you trust and who will know your wishes when they take control of your finances. The last thing you want is someone in charge who will take advantage of the situation, perhaps taking wealth away from the people you intend it to go to.
- Determine Your Legacy. You may want to leave this world by helping to instill the values and beliefs you feel shape the world and make it a better place. Estate Planning can include leaving a portion of your wealth and assets to charities and causes that you hold dear to your heart. These can help ensure the things you care about are also taken care of for generations to come.
Should I Have a Trust or a Will?
The question of rather to have a trust or will is a common one, and there is often confusion between the two. Many people make the unfortunate error of assuming that wills and trusts are interchangeable. Many people also make the costly mistake of thinking that a will is all they need to pass on assets to their loved ones. It is vitally important that one knows the difference between the two and decide which is best for their survivors.
A will is a legal document that details how a person’s assets will be divided after their death. Someone can use this legal document to spell out who gets what. A will can also designate guardianship of minor children. These are two aspects an estate planner can utilize a will for. In general, drafting a will is cheaper than a trust on the front end, which is what entices many people to choose it over a trust.
However, there are some drawbacks to a will. Arguably, the biggest drawback is that a will must go through probate court. This means that no matter how detailed the document is, the government will have to be a part of the process. Using a will means that there is no way around this.
A trust, on the other hand, does not go through a probate court. This is beneficial for several reasons.
There are no expensive court costs with a trust. Your surviving family members will not be burdened with having to pay a lawyer to navigate the system for them. The last thing you want to do to grieving family and friends is to prolong the process of dividing up assets. The undue stress of the court can leave lasting conflicts within families if findings are disputed.
A trust provides instructions on what to do if you are incapacitated, and a will does not. This is another major shortcoming of having just a will. Again, if no instructions are provided for what to do in case of incapacitation, this will be decided in the court system. If you don’t want the government deciding who is making your healthcare and financial decisions for you, the trust is your best option.
A trust provides privacy. Because, let’s face it, no one wants other people poking around in their financial matters. A family has a right to privacy, especially during a time of grieving. Financial matters should stay in the hands of families. Remember that a will must always go through probate court. There are no exceptions to that. This means that anyone can see a family’s financial situation with a will because all court cases are public record.
While a trust generally costs more than a will upfront, it can save your heirs a lot of money and even conflict, often substantially so.
Do I Need an Estate Planner?
If you have any assets, then yes, you should have an estate planning attorney. A common misconception is that only wealthy people need an estate planner. In reality, almost everyone could benefit from one. The last thing you want is to saddle your beneficiaries with extended court cases, being buried in legal fees, not getting the wealth they deserve, and not getting it in the way you wanted them to. An estate planning attorney can deal with complex matters. A few of which include inheritance, retirement and investment accounts, cash accounts that do not automatically transfer to someone in death, valuable items such as jewelry and art (taking into account both financial and sentimental value), real estate, and many other complex issues. An estate planning attorney can also help plan how debts will be paid off once you are gone.
You do not need to be wealthy to benefit from an estate planning attorney. In fact, the average person may have even more to gain from sound estate planning because it ensures that every asset a person has gets fairly distributed in the manner they prefer. This means that a surviving spouse can live the life they were meant to live, and children can afford their college, grad school, or the education for a career of their choosing. In the end, an estate plan is not about death at all but rather a gift of love and a way to support and care for your family and loved ones even after you are gone. To discuss all of your options and learn more about the estate planning process, contact the estate planning experts at Huber Law. It is never too early to be prepared.