What is estate planning?
“Estate Planning” is the process of legally structuring a person’s property to create the most benefit from applicable laws, while also considering that person’s individual wishes for the transfer of their property. The “Estate Plan” is the actual arrangement created in the estate planning process, which maximizes the conservation, investment, use, management, and transfer of a person’s property, both during the person’s lifetime and after the person’s death.
Depending on a person’s needs, estate planning includes:
- Planning for incapacitation.
- Reducing the uncertainties when one dies or becomes incapacitated.
- Maximizing the value of a person’s estate transferred to their beneficiaries.
The specific objectives for each client may be as simple or complex as the client’s needs dictate.
Who can do estate planning?
Any person over 18 can start Estate Planning. Persons who will see the most significant benefit have property or a family they want to protect.
5 Reasons Every Family Needs an Estate Plan
While there are multiple reasons to have an Estate Plan, here are the top five:
1-Planning for Incapacity
People often assume that spouses have automatic legal authority to make all medical decisions for each other, for example, the authority to terminate life support. However, this is not true unless you have an advance directive (also known as an “advance health directive”). Without an advance directive, the spouse of an incapacitated who cannot make their own medical decisions must look to the Court to make those decisions for them.
People put off making an advance directive because they think they are not old enough to need one or because they are healthy. However, people do not consider the possibility of acts beyond their control, such as an automobile accident, biking or skiing accident, or a natural disaster.
Once you are incapacitated, you can no longer make an advance directive. There is no better time than the present to create an advance directive.
An advance directive gives individuals the ability to state their intentions, such as organ donation, funeral arrangements, and their desires regarding life-sustaining procedures. Putting your wishes in an advance directive helps ensure your intentions are honored and your desires are followed. It relieves the pressure on your family and friends about what they should do and how they should care for you, if you need serious medical treatment. People do not consider the effect of a disability on their families or friends.
2-Avoid Probate Court
Administering a person’s estate in Probate Court is expensive, open to the public, and can take up to a year or more to complete. Avoiding Probate Court should be part of all estate plans. People are often shocked at the cost of probate. In Massachusetts, fees can cost as much as $3,500. The initial filing fee is just the beginning. Attorney fees and various other court fees add up. The probate court can be costly and stress-filled, depending on the complexity of the case.
Your Probate administration will be open to the public. In other words, your personal financial information and your decisions regarding your family are available for public consumption, meaning a loss of privacy to you and your beneficiaries.
Lastly, administering an estate in Probate Court takes much of the control out of your loved ones’ hands and gives it to the Court. Since an estate administration in Probate Court can take up to a year or more to finish, your family and loved ones are in a vulnerable position while waiting for the Court to sort out your estate’s administration.
3-Sharing Financial Information or Retirement Planning
Information is not always equally shared. In some marriages, one spouse may take on more of the family finances or retirement planning responsibility. One spouse may manage the family business, while the other is responsible for different aspects of the family. Problems can arise if the spouse handling the family’s finances gets sick or dies, and the other spouse cannot start making unfamiliar decisions. A good estate plan clarifies a couple’s financial position and retirement plan. The Estate Planning process can create a comfortable space for couples to openly talk about and discuss their finances, retirement planning, and what they want for the future.
For a spouse managing a couple’s finances or following a retirement plan, it is their responsibility to explain or make information available to the other spouse. If death or disability happens, financial details and retirement planning information should be accessible to the other spouse or documented for a financial adviser or family member.
For spouses who do not spend their days handling family finances or a family business, it is their responsibility to insist their spouse document all family’s finances, retirement planning, and business information to be accessed when needed.
4-Mixed Marriages
Mixed marriages, where one or both spouses have children from a previous marriage, can be difficult for both the spouses and their children. However, most parents of mixed marriages do not realize that the best way to avoid conflict is to communicate with their children their wishes. Even if a child is upset about a marriage to a second spouse or is mad about how that parent plans to distribute their property, often that child will still accept their parent’s wishes if they know that is what the parent wants. Estate Planning tackles the thorny issues upfront, creates a dialog about how property is divided, and reduces or eliminates conflicts with the children.
Parents in a mixed marriage can cause harm if they say nothing about how they want their property distributed. Leaving it up to the non-parent spouse (i.e., a child’s stepmother or stepfather) to explain their mother’s or father’s wishes can hurt or anger the children.
A well-written Estate Plan memorializes a parent’s intentions. Parents who document and describe their intentions will prevent distrust and suspicion among their children.
5-Controlling Distributions of an Inheritance
When both parents die, minor children are appointed a guardian to manage their inheritances. When the minor beneficiary becomes an “adult” at age 18, they inherit the property and assets due to them. The child may be an adult at age 18, but receiving large sums of money or property at a young age can do them harm. Adult children may not have the maturity or experience to deal with the responsibility of inherited wealth.
A good Estate Plan can push back an adult child’s age to inherit property. It can also provide additional protections. A trustee can be appointed to pay for that adult child’s college education, medical needs, or other needs during that extra time.
This way, the child is protected from themselves until they become older and more mature. At the same time, they can receive the benefits of their inheritance as needed.
5 Tips for Every Family When Preparing an Estate Plan
- Nominate alternate beneficiaries. The future is impossible to know, so you should name an alternate beneficiary if the primary beneficiary dies before you. If your primary beneficiary dies before you, and you fail to state who should receive that gift, state law will control where that gift goes, and that might not be the person you choose. If it is important to you, who should receive a distribution if your primary beneficiary dies before you, expressly state so in your Estate Plan.
- Nominate at least one, preferably two successor Trustees. For many reasons, the designated successor Trustee might not serve. If you name someone as your successor Trustee, they have the option to decline. It is always good to nominate alternate successor Trustees to act if the first one you first consider cannot.
- Consider giving the disinherited person a small gift when using a No-Contest clause. A No-Contest clause states that if a person contests your Will or Trust in Court, that person will receive no property from the Will or Trust. Consider adding this clause if you are concerned that a person may contest your estate plan. When there are no such provisions, the person has little to lose if they “contest” your plan. A small gift may seem counterintuitive, but it will discourage that person from contesting the Will or Trust, because they now risk losing the small inheritance if they challenge the Will or Trust.
- Make sure to execute each document properly. Estate Planning documents require different methods of execution. Some documents, such as Wills, require witnesses and notarizations. A record not correctly executed may not be enforceable. Be sure you know the execution requirements for each document created.
- Avoid Powers of Attorney that require incapacity. In an emergency, your Powers of Attorney (i.e., a Durable Power of Attorney for financial decisions or an Advance Health Care Directive) allows a trusted friend or family member to make decisions on your behalf. Requiring you to be “incapacitated” means finding a doctor who will make that determination. If there is an emergency, and you determine yourself, you need to execute these documents; you do not want to wait for a doctor’s permission. Taking this extra step could detrimentally delay your agent from acting on your behalf.
NOTE: This blog is not original, though it has been edited and updated by Envision Estate Planning LLC owner Neil O. Anderson. GNGF.com allows us to use and re-purpose this article.
DISCLAIMER: This blog is not a substitute for legal advice. The content intends to provide an overview of the subject matter and is educational and informational only. This presentation creates no attorney-client relationship. Don’t hesitate to contact an estate planning attorney if you wish to obtain legal advice and services.
