You need to make an estate plan before you become incapacitated, die or something else happens to you. Otherwise, it may be too late to leave a legacy, dictate your medical care, or have decisions made on your behalf. Estate planning, however, requires more than drafting a will.
Identify goals and assets
Individuals have different goals for their estates which should be identified when planning begins. These include ensuring minor children are cared for if their parents die, meeting the financial needs of family members, controlling the allocation of assets after death, protecting the family business and other property, assuring the care of their pets, detailing charitable giving, transferring assets without probate and avoiding taxes.
Other goals include taking care of special needs. These include a plan for having someone make health care or financial decisions on your behalf if you become incapacitated. Planning can limit use of an inheritance for education or another important need or assure that it is not allocated until an heir is 21 years old.
Your plan should also identify your assets. These generally include real estate, vehicles, business ownership, patents or monetized social media accounts, investments, life insurance policies and personal property such as jewelry, books, art and furniture. Designated beneficiaries, such as those on a 401(k), should be identified.
There may be risks to your assets that need identified and addressed. Claims against your business may be dealt with through incorporation. Nursing home costs may be handled with long-term care insurance or developing a Medicaid plan to protect assets. An irrevocable trust may protect assets against creditor claims.
Heirs and beneficiaries
You should identify family members and others to receive your assets or protect. These usually includes spouses, children, pets, parents, friends and business partners.
Potential heirs or beneficiaries may also have special needs. Minor children, for example, cannot receive a direct inheritance, need a guardian appointed for them and require substantial financial support. A trust is one mechanism to assure their financial needs are responsibly handled.
Money needs to be set aside for the care of pets. Creating a trust and providing specific instructions is a recommended approach.
Some heirs may be irresponsible and face problems such as bankruptcy or divorce or squander their inheritance. Mechanisms such as a spendthrift trust allows a trustee to manage assets passed to these heirs in accordance with your instructions.
You should also plan for disabled heirs who may have Medicaid or other benefits jeopardized if they receive a large inheritance. They may be unable to manage their assets. A special needs trust authorizes a trustee to manage assets for them and government benefits are not lost because they do not own the assets.
Probate is the legal process for transferring assets. The estate’s executor or representative must file legal documents, assure an accounting is made and provide notice to creditors and heirs or beneficiaries. The will is presented for probate and may be contested. This process can be costly and last months.
Transferring assets outside a will avoids probate. Alternatives include joint ownership where the property is automatically transferred to the joint owner, pay-on-death accounts where a person is designated to automatically inherit the account when you die and living trusts.
You should also prepare for the possibility that you are incapacitated and unable to make decisions. A living will can contain your directions on end-of-life extraordinary health care measures and items such as do not resuscitate orders. A healthcare power of attorney allows the appointment of an agent to make healthcare issues on your behalf.
A living trust with a backup trustee can help manage your assets if you become incapacitated. A durable power of attorney also allows for the appointment of an agent who may make financial decisions on your behalf and handle your daily affairs.
Estate plans must be periodically reviewed. Important life events such as divorce or remarriage require updates to wills, trusts, powers of attorneys and other documents. Beneficiaries and heirs should be reviewed and kept current.
An attorney can provide guidance on these and other estate issues. They can also help assure that documents are drafted that meet your needs.