What Does Estate Planning Mean?

Family and Estate Planning

Yes, we all have an estate. Your estate consists of everything you own: your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions. So, big or small, everyone has an estate and regardless of size, you cannot take it with you when you die.

When the inevitable happens, you like most people, will probably want to control how those things are given to the people or organizations you love the most. Pull a few strings from the grave.  To ensure that your wishes are carried out, you need a plan; a set of blueprints you to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will also need, at times, to say specifically whom you don’t want to be the recipient of your belongings.  You will want this to happen in the most tax efficient way possible, and incurring few legal fees, and court costs.

That is estate planning—making a plan and decisions in advance, naming where you want your belongings to go after you die, and taking steps now to make carrying out your plan as easy as possible later. However, good estate planning is much more than that. It should also answer the following:

  • Who pays the bills if I become incapacitated before I die?
  • Include arrangements for disability income insurance to replace your income if you cannot work due to illness or injury, long-term care insurance to help pay for your care in case of an extended illness or injury, and life insurance to provide for your family at your death
  • Draft a buy/sell agreement.  This provides for the transfer of your business at your retirement, disability, incapacity, or death
  • Select a guardian for your minor children’s care and inheritance.  This ensures crazy Aunt Sally won’t be caring for the children.
  • Provide for family members with special needs without disqualifying them from government benefits.
  • We know our children and beneficiaries better than they think.  Provide for loved ones who might be irresponsible with money or who may need protection from creditors or in the event of divorce
  • Always keep cost and taxes in mind.  Minimize taxes, court costs, and unnecessary legal fees, where possible.  This may include funding assets into a living trust and completing and updating beneficiary designations.
  • Most importantly, estate planning is a continuous process, not a one-time event. You should review and update your plan as your family and financial circumstances change over your lifetime.

You’re never too Young for Estate Planning

Young adults seem to think they’ll live forever.  Estate Planning is not just for retirees, although people do tend to think about it more as they get older. Unfortunately, we cannot predict how long we will live. Illness and accidents can strike at any age.

Estate planning is not just for the wealthy either, although people who have accumulated wealth may think more about how to preserve it. Good estate planning is often more impactful for families with modest assets because the loss of time and funds as a result of poor estate planning is more detrimental.

If You Do Not Have an Estate Plan, Your State Has One for You and You Might Not Like It

If you become disabled and your name is on the title of your assets and you cannot conduct business due to mental or physical incapacity, only someone appointed by a court can sign for you. The court will supervise and ultimately control how your assets are used for your care.  Conservatorship and Guardianship appointments can become expensive and time-consuming, it is of public record to some extent, and it can be difficult to end even if you recover.

If you die without a valid estate plan, any assets owned in your individual name and without a beneficiary designation or other governing contract will be distributed according to your state’s intestacy laws, typically through a court-supervised probate proceeding. In many states, if you are married and have children, your spouse and children will each receive a share, even if your children are from a prior marriage or no longer minors. That means your spouse could receive only a fraction of your estate, which may not be enough to live on. If you have minor children, the court will control their inheritance. If both parents die (e.g., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.  The crazy Aunt Sally scenario again.

Given the choice, wouldn’t you prefer that these matters be handled privately by your family and not by the courts? Wouldn’t you prefer to keep control of who receives what and when? And if you have young children, wouldn’t you prefer to have a say in who will raise them if you cannot?

An Estate Plan Begins with a Will or Living Trust

A will provides your instructions, but it does not avoid probate. A will only directs how assets titled in your name and without a beneficiary designation or other governing contract will be distributed. The assets must still go through your state’s probate court before they can be distributed to your intended beneficiaries. The process varies greatly from state to state, but it can become expensive with attorney’s fees, executor commissions, and court costs. It can also take anywhere from a few months to two years or longer. In most cases probate proceedings are open to the public, and your creditors and any excluded heirs are notified of their opportunity to file for payment of a debt or a share of your estate. In short, the court system, not your family, controls the process.

Operation of Law

Not everything you own will go through probate. Jointly-owned property and assets that let you designate a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, and certain other accounts) are not controlled by your will and usually will transfer to the surviving owners or beneficiary without probate. However, joint ownership of assets can create problems and using this method for estate planning solely, is not a good idea. In addition, avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will probably require a guardianship until the child reaches the legal age of majority for the state, often between eighteen and twenty-one years of age.

A Trust is Often the Best Choice

For these reasons, a revocable living trust (combined with a pour-over will) is the preferred choice by many families and estate planning professionals. Establishing and funding a revocable living trust can avoid probate at death, prevent court control of assets if you become incapacitated during life, bring all of your assets together into one plan, and provide increased privacy. Because the trust is revocable, it can be changed by you at any time. The accompanying pour-over will is a backup measure in the event that any assets are not funded into your trust during your lifetime and provides that those assets should be poured over into your trust upon your death.

Unlike a probate, which will end at some point, a trust can continue long after your death. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit or longer to provide for a loved one with special needs; to protect the assets from beneficiaries’ creditors, spouses, and irresponsible spending; or to provide for future generations.

An estate plan that includes both a living trust and pour-over will is generally a bit more expensive initially than an estate plan that only includes a will, but it is more likely to avoid fees and costs later.

Planning Your Estate Can Help You Organize Your Records and Correct Titles and Beneficiary Designations

Planning your estate now will help you locate and organize your information and documents, as well as find and correct errors that may have been overlooked.

Often people do not give much thought to titles and beneficiary designations. Unintended innocent errors can create problems for your family at your incapacity or death. Beneficiary designations are often out-of-date or otherwise invalid. Selecting the wrong beneficiary on Retirement and other tax-deferred plans can lead to devastatingly expensive tax consequences. Correcting titles and beneficiary designations now can save time and taxes for your family later.

Estate Planning Does Not Have to Be Expensive

Pay now or pay later is a true adage when it comes to Estate Planning.  Being too cost conscious may have consequences that you did not intend. The assistance of an experienced estate planner will be able to provide critical guidance and peace of mind that your estate is prepared properly to meet your objectives.

No Time Like the Present to Plan Your Estate

No one likes to think about their own mortality or being unable to make decisions for themselves. This is precisely why many families are unprepared when incapacity or death does strike. Waiting is not an option. You can put something in place now and change it later—which is exactly the way estate planning should be done.

Help Protect the Ones you Love the Most

Having a properly prepared plan in place  will protect your family and give you  peace of mind. Estate planning is one of the most thoughtful and considerate things you can do for your loved ones.

Theo L. Morson, JD


T.L. Morson and Associates, Pllc