What is Estate Planning, Anyway? And…
By Pat Sells, Financial Adviser, Peoria, AZ
Estate Planning can be defined as the process of accumulation, administration, and distribution of a person’s, or family’s, assets to minimize the effects of taxes and inevitable shrinkage on those assets. Now, if you don’t have much in the way of assets, you may think there is no need for such planning. However, you may have another think coming!
Let’s take a quick inventory of what the average family possesses in assets. If you own your house, what is that worth? If you have a Life Insurance Policy, how much is the amount? Vehicles? Personal belongings, including jewelry? Retirement plans?
Making arrangements for your final days and beyond isn’t just about helping your family through difficult times. It also lets you designate representatives to make decisions about your care, withdraw money from your accounts to pay your bills and celebrate your existence in exactly the way you want. There is a process to accomplish this, and it consists of a number of steps.
Start With a Will
Just over one-third of Americans have a Will. If you die without a Will you let complete strangers decide how to split up your Estate and raise your children. It’s called dying intestate, an act (or failure to act) that leaves the divvying-up process to state law. In lieu of a will, the court gives first dibs to a spouse and children, followed by other relatives. If you have no family, your property goes to the state. And, unless you appoint a guardian for your minor kids in a legally executed will, their future will be determined by the court.
You can make out your own will for $70 or less at a do-it-yourself Web site, such as www.legalzoom.com. If your circumstances are at all complex, you’ll need a lawyer, who will charge about $300 to draw up a simple will and $1,000 to $3,000 for an estate plan that involves a will and a trust.
Be sure to update these documents periodically to account for major events, such as the birth of a child. If you don’t, you could create the very mess you were trying to avoid.
Establish 3 critical End-of-Life Documents
Some people think that estate planning is only for when they die, but it’s also to take care of us during our lifetimes. To help family members carry out your wishes if you cannot, provide them with these documents:
A durable power of attorney lets your Agent manage your finances and legal affairs.
A release-of-information form gives doctors permission to share your medical records with designated representatives.
Advance directives. A durable power of attorney for health care names a representative to make medical decisions on your behalf. A living will specifies the medical treatment you do or do not want at the end of your life.
To listen to some people, you’d think that probate was the worst possible financial outcome. The probate process, by which your Executor settles your debts and distributes your property, could be a simple matter of filling out forms and paying the filing fees. But it could also be a months-long ordeal that ties up your Estate and costs thousands of dollars in legal fees and other expenses.
Before you start fretting, consider that some property isn’t subject to probate at all. Life Insurance death benefits and the money in Retirement Accounts pass directly to your named beneficiaries, and property owned jointly with the right of survivorship — say, a house or a car — transfers automatically to the co-owner. You can also arrange for bank and other accounts to be transferable or payable on death, giving the recipient immediate access to the money.
One good reason to avoid Probate is privacy. Probate is a matter of public record. If you don’t want people to know what you’ve got, consider getting a living/family trust.
Living or Family Trust
This is typically a more comprehensive document than a will, although not all the time. In contrast to a will, a Trust is a private document, and the general public need not know about your estate or your affairs. One important facet of a Trust is to make sure it’s funded; that means to put all of your assets into the Trust, which may include re-titling real estate, or other property.
Plan your Memorial Service
Prepare a script to be read at your service. This will alleviate last minute stress of what to say. Also, decide in advance, whether you will have a funeral and burial service, or cremation.
Perhaps the most important reason for Estate Planning is to minimize the stress that your family will face with your demise. The more you do for them in advance, the less they will contend with when you are no longer there to help them!