Estate Planning 101

From Avoiding Probate and Assessing Assets to Establishing Directives and Understanding Taxes, Your Essential Primer to Estate Planning

Vicki Cook, Amy Blacklock

• Publisher: Adams Media
• Year: 2021
• ISBN:
  9781507216408
• Topic: Business
• Subtopic: Business General
• Index: Business

Discover the ins and outs of planning your own or your loved one's last wishes with this easy-to-understand guide to estate planning. No one likes to talk about death, but being prepared for any unexpected tragedy can help your loved ones navigate your loss more easily in the long run. From creating your advanced medical directives to designating your beneficiaries, estate planning can ensure that your wishes are carried out when you are no longer around.With Estate Planning 101, you can get your affairs in order before any unfortunate incident occurs. This easy-to-understand guide comes with detailed information on what needs to be done to protect your estate. With information on creating a living will, minimizing estate taxes, choosing an executor, and more, you will be prepared for the future, no matter what it brings. Estate Planning 101 offers you step-by-step instructions and checklists to keep you organized for whatever life throws your way.

Chapter 1 What Is an Estate, and Why Does It Require a Plan?

You may not consider what you own to be an estate. But as you read this chapter, we hope you’ll realize estate planning should start when you’re young, healthy, and beginning to accumulate money and valuable possessions. While your plan can evolve as you age, waiting to create one puts you, your family, and your assets at risk.

Chapter 1 introduces you to the estate planning process and provides an overview of several topics you’ll learn more about throughout the book. In addition to the “ins and outs” of different documents, we also address the emotional side of making decisions. Estate planning is rarely easy, and it can be more challenging if you have complex assets or family dynamics. But it’s worth all the effort. We think you’ll feel that way too, once you consider your heirs and estate and how you want to protect them.

YOUR NEED FOR ESTATE PLANNING

Protecting Yourself, Loved Ones, and Valuables

When reading the word “estate,” you may envision wealthy people with sprawling mansions, luxury cars, and millions in net worth. But when you own anything of value, you have an estate—and it’s essential to have a plan in place for it after you pass on.

Considering your mortality is no easy task. But it’s necessary to determine who’ll make decisions for you if you’re not able and how to divide your assets when you’re no longer here.

You may think you won’t deal with these issues until you start showing wrinkles. Yet the truth is, people get seriously ill or die in accidents every day, at any age.

Organizing estate planning is a smart move. While you can adopt habits promoting long and healthy living, planning for the worst is the best way to protect yourself, those you love, and your valuables.

WHAT MAKES AN ESTATE

Your estate comprises the assets you accumulate and hold at any one time. You may have a relatively small estate in your twenties and thirties, but it’s likely to grow over the years.

Your house, cars, and bank or investment accounts are all part of your estate. Your assets also include retirement accounts, pension benefits, and cash-value life insurance. If you own a business, it’s part of your estate too.

Everything you possess and value—including personal belongings—makes up the estate you’ll pass on to heirs and favorite causes at your time of death.

PURPOSE OF AN ESTATE PLAN

Perhaps, if you’ve looked into estate planning, you’ve heard that one purpose of it is to minimize taxes and the fees of probate. But what is “probate”? Briefly, it is the legal process of reviewing a deceased’s estate. Reduced taxes and fees are crucial aspects of estate planning, but there’s more to it than just saving money and court time.

An estate plan gives you control over protecting your property and possessions and distributing them after your death so they support heirs and beneficiaries the way you want them to.

Your estate plan also protects you. If you become mentally or physically incapacitated, is there someone to manage your healthcare? What about your financial and legal affairs? Who’s able to address estate matters when you die? You make those decisions during estate planning.

Legal Incapacitation

When suffering from incapacitation, you can no longer care for yourself, your property, or legal and financial matters. The court determines legal incapacity based on their judgment from medical evaluations and personal interviews. Depending on the cause, legal incapacitation may be temporary or permanent.

Estate plans protect your heirs too. In the planning process, you designate who receives which of your assets and when. If heirs are minors or otherwise immature or irresponsible, you can direct how they receive their benefits. An estate plan also helps your beneficiaries by protecting some of the assets from creditors, lawsuits, and bankruptcy.

Think of estate planning as a three-pronged approach to controlling your future. You’re in control of your estate plan in the present. It protects you if an accident or illness takes away your ability to earn an income or manage your money. When you’re no longer here, your plan controls the allocation of assets in your estate to heirs.

WHAT GOES INTO AN ESTATE PLAN

If you search “estate planning” online, you’ll find lists of tasks to complete and templates to fill out. But keep in mind, your plan is unique to you and your situation. It allows you full control in deciding how your assets provide for you and your family and the legacy you leave behind.

Estate planning goals focus on:

• Providing financial security for you, a spouse/partner, and immediate family
• Naming a representative to handle financial and medical matters
• Financial support or gifts of personal property and possessions to others
• Funding a college education for children or grandchildren
• Minimizing expenses such as taxes, fees, and probate or administrative costs
• Avoiding disputes over your estate and final wishes
• Providing financial support to favorite charitable causes
• Transferring business ownership to a child, partner, or agent

During the process, you’ll inventory your assets and liabilities. After considering future needs and those of your family, you’ll decide how to address them best.

You’ll choose between hiring an attorney or using templates or Internet-based DIY services to create your documents. You may decide setting up a trust makes sense for your estate. For small business owners, succession planning is a must.

Depending on your state of residence and your estate’s size, consulting with an attorney or tax professional to find ways to minimize estate and inheritance taxes may be necessary.

These are the essential building blocks of most estate plans. For personal or financial reasons, you may be ready to attempt only some of the previous steps. Just know, the more you can tackle now, the better prepared you’ll be. Estate planning isn’t a one-time event either. You’ll need to revisit your strategy as you grow older so it continues to align with your values and goals. Fortunately, once your fundamental plan is in place, making updates becomes more straightforward.

WHAT IF YOU FAIL TO PLAN?

When you can no longer make competent decisions or if you die suddenly without having an estate plan in place, the judicial system takes control. A court-appointed guardian makes decisions about your assets and healthcare. They also oversee asset distribution when you pass away.

There may be little left for heirs if you don’t plan accordingly. Creditors can seek payments, and estate taxes and court fees may devour any nest egg you save. Rather than receiving money to support them, your family may need to sell valuable belongings to cover your final expenses.

Worst of all, due to state laws, someone can ignore your wishes about guardianship for your children, end-of-life care, or division of your possessions when you don’t have a will. When you fail to plan, you’re giving up your rights to make those decisions.

You Need an Estate Plan

You may be putting off estate planning because you think it’s an expensive and emotional process. And it may be. But a little effort goes a long way, and paying some money now may help you save more later. To protect yourself and those you care about, the best time to start is today.

WHO TO CONSIDER IN YOUR PLANNING

Who You’ll Protect, Trust, and Gift To

Everyone’s estate plan is different. Individual needs vary depending on assets, family, goals, timelines, and more. But, as part of the planning process, we must determine who to protect, who we trust to carry out our final wishes, and who we want to receive our stuff.

IT STARTS WITH YOU

The first “who” to consider in estate planning is you. It’s vital to protect yourself, your income, and your finances if a disability or incapacitation leaves you unable to make medical or financial decisions. Don’t skip this because you’re young or healthy. Accidents and unexpected illnesses can happen to us all.

To protect your income, you can buy disability insurance. You can be sure healthcare wishes are followed by preparing medical directives authorizing someone to act on your behalf when you cannot. Through a power of attorney (POA) document, you can appoint an agent to manage your finances. This brings us to the next “who.”

WHO YOU’LL TRUST

It’s time to consider who plays a legal role in your affairs if you become incapacitated or die unexpectedly. Your choice may be easy when you lead an uncomplicated life, have modest assets, and have close family relationships. But if your situation is more complex, it’s necessary to balance emotions and the financial impact of decisions you make about guardianship, directives, trusts, and beneficiaries.

Designated Agent

Who do you trust to act as your designated agent in financial or medical situations when you cannot speak for yourself? It might be your spouse, sibling, child, another relative, or dear friend. While thinking over who’s trustworthy enough to act on your behalf during your lifetime, you also need to identify who can carry out your wishes upon your death.

Executor or Personal Representative

An executor or personal representative is named in your will to handle your estate. After you die, this person manages your legal and financial affairs, including payment of debts and property distribution. Depending on your estate’s size and complexities, this may be a time-consuming role that extends from managing funeral arrangements to your estate’s legal closing. The chosen executor should be a responsible, patient, and financially stable individual you trust to carry out your final matters.

Guardian for Minor Children

When you have minor children, establishing who assumes their guardianship in the event of your passing is a must. While a surviving parent usually has custodial rights, a court generally appoints a close family member as guardian when there’s no surviving parent or a valid will in place. This, however, may not be the person you’d choose to raise your children.

You’ll want to think about who can provide the love and care your children will need. When possible, choose someone who has values closely aligned with yours, and make sure they’re able and willing to accept guardianship in the event something happens to you.

Guardians for Dependents with Special Needs

If you have a child with special needs or have responsibility for a loved one with a disability, minor or not, executing a will and naming a guardian is imperative. Choose a willing individual who can best manage your loved one’s emotional, physical, and fiscal care.

Since there are many roles loved ones can play in your estate plan, you may decide to name different people to fill those parts. Look at each individual’s strengths and determine who could best handle taking on the additional responsibility of managing your care, the care of your children, and the distribution of your estate. Consider hiring a legal or financial firm to take on some of these responsibilities for you as well.

WHO YOU NEED OR WANT TO CARE FOR

In addition to protecting yourself, your plan hel...