Key Concepts 

• Estate planning has great value for wealthy families, but it can benefit people at almost any income level. 
• A lack of planning can erode the value of an estate, taking money away from heirs and leaving a court to decide on the custody of minors.   
• Depending on the estate, an individual might need any or all of these: will, trust, power of attorney, healthcare directives and beneficiary designations. 

No one likes to think about what happens if they die or become incapacitated, but the reality is it happens to all of us. One of the greatest gifts we can give to our loved ones is to get our financial affairs in order and have a solid estate plan in place. This is true whether your estate involves millions of dollars in assets and a dozen beneficiary designations, or you have relatively modest assets and one beneficiary. Responsible individuals need to look into the question: What is estate planning? 

Estate plans go beyond purely financial matters. These include legal documents such as a power of attorney, a medical power of attorney and a living will. Estate planning also addresses control of personal property and the ability to designate who makes financial decisions for you.  

An estate plan can spell out your desires for funeral arrangements and final wishes. For someone with minor children, this can include plans for their future.   

Moreover, no one wants the Internal Revenue Service taking more than its fair share of their estate. Good estate plans minimize your taxable estate. Naturally, that reduces estate taxes and tax liability. Adequate estate planning can make sure your estate’s assets, no matter the size, go to your intended beneficiaries promptly. 

What is estate planning useful for?   

Nearly everyone has an estate. Anyone who has a savings account, owns a car, possesses real estate, has life insurance or other insurance policies, has prized personal possessions, has assets in a retirement plan or has family members has an estate. This means you almost certainly need to engage in estate planning. As we have noted, it allows you a measure of control over what happens to your assets when you die. Estate planning can reduce estate tax and gift tax liability and preserve more of your estate for your beneficiaries. Having the right estate planning documents can go a long way toward ensuring that your wishes are carried out.   

Because estate planning covers things like wishes for medical care, it often includes granting a medical power of attorney so that you can choose who will make medical decisions for you if you lose the ability to do so.    

Although it’s tempting to put off estate planning, it’s not a good idea. The truth is no one knows when they might become incapacitated or die unexpectedly due to an accident or illness. If you die without a will, the courts will distribute your assets as they see fit. This can result in high costs, high tax bills and fighting among your heirs. Although everyone hopes that they live a long and healthy life, it is essential to have a contingency plan.  

It is never too early to consult an experienced estate planning attorney or other service provider to determine beneficiary designations and get legal advice.    

Problems with probate court  

Nearly all estates go to probate, which is the legal process for paying off the debts and distributing the assets of a deceased person. Probate court is the state or local legal system that handles estates. The typical duties of a probate judge include: 

• Deciding whether a will is valid.  
• Approving the executor named in a will or appointing one if there is no will. 
• Considering any challenges to a will from heirs. 
• Ruling on claims from debtors. 
• Approving the actions of the executor. 

When someone dies with a will and a valid estate plan, they can avoid probate. A probate judge can simply verify the validity of the will and all the documents involved, such as trusts. The executor then distributes assets without further delay according to the decedent’s plan. The contents of bank accounts and real and personal property go where the decedent wished.    

If someone dies without a will or other estate planning documents, they are said to have died intestate. The probate process becomes more complicated, time consuming and expensive. Property ownership, financial accounts and other financial assets may remain in limbo for years. In these cases, a probate judge will look at what an estate includes and who potential beneficiaries are. If the court finds that there are no valid heirs, the court will transfer assets to the state.  

There is another argument for estate planning. Probate documents become part of the public record, so the decedent and beneficiaries may lose privacy through this process.          

Five components of estate planning 

Although every situation varies depending on the value of an estate and a person’s personal wishes, there are five main components to consider when planning your estate. Individuals with more assets might need all five. Those without as much wealth to manage might need fewer components.  

Will 

A will is the primary document most people think of when they think of estate planning. In your will, you can specify many things, like who receives your assets and who gains custody of minor children. You can also designate an executor for your estate. This is the person who will oversee the execution of the estate plan you developed. 

Trust 

Wealthier clients often set up trusts, although nearly anyone can use one. A trust is an effective way to minimize tax liability. Trusts provide other benefits as well. A trust is a mechanism whereby funds are held by a third party for the benefit of the trustee. One aspect of this is that a trust allows someone to maintain control over how inherited funds are spent. A trustee could, for example, make sure that money is used for educational or housing purposes. A trustee can ensure that minors are provided for until they can make responsible decisions about their inheritance.  

A trust can also be a great way to provide for charitable giving. There are some disadvantages to establishing a trust, such as the costs and strict record-keeping requirements. Many people, however, find that the benefits outweigh the downsides.    

Power of attorney 

A power of attorney is a legal document that gives someone the right to make decisions on someone else’s behalf. You can grant someone a power of attorney to make legal, financial and healthcare decisions.  

There are different types of documents that constitute a power of attorney. For example, a durable power of attorney stays in effect until the person who signed it dies or revokes it. You also can set up a power of attorney allowing someone to make only one type of decision. You could, for example, grant someone durable financial power of attorney to make only financial decisions for you. Medical power only can be granted.     

Healthcare directives 

The most common type of healthcare directive is a living will. Healthcare directives specify your wishes for medical care if you become unable to make or communicate these decisions yourself. These apply only in limited situations, such as if you are in a coma, terminally ill or develop dementia. In some states these directives convey the same powers as a healthcare power of attorney. Because tragedy can strike at any time, healthcare directives are not just for the elderly.   

Beneficiary designation 

A beneficiary designation is the act of naming who will receive your assets when you pass away. This can be done through a will, life insurance policies, a retirement account or through other documents. You also can name a contingent beneficiary, in case the beneficiary dies or either cannot accept or declines the inheritance.  

Who needs estate planning?   

Although everyone needs an estate plan, some might need additional assistance based on their wealth, family situations and holdings. The options range from do-it-yourself wills and online forms to hiring an attorney to hiring a wealth management firm. Which route you chose will depend on your resources and the value of your estate.  

A consultation with an experienced estate planning attorney might be a good place to start. For example, it might not occur to everyone to designate a primary beneficiary and contingent beneficiaries in case the primary beneficiary cannot accept part of the estate. There may also be creative options for inheritance, such as allowing for joint ownership of all the property and other assets in the estate or creating a trust agreement or revocable living trust.   

Someone who does not need the full services of an estate planning attorney might benefit from consulting with a tax advisor to minimize tax liability for their heirs.  

Conclusion   

The best place to start the estate planning process is to consult with a firm like Cope Corrales, which has a proven track record in estate planning. A qualified estate planning attorney, tax advisor and other professionals experienced in estate planning are there to help you see that your final wishes are carried out. They will also help to ensure that your beneficiaries receive the maximum amount possible from your estate rather than paying more than is absolutely necessary in taxes.  

Adding children or grandchildren to your family, amassing additional real estate, increasing your estate’s assets, changes in law and the tax code, or even buying a larger life insurance policy are all reasons to revisit your estate plan from time-to-time. A fiduciary, full-service provider like Cope Corrales can help you adjust your estate plan as your life evolves.