What is Estate Planning?
This article defines estate planning and goes into detail regarding various aspects of estate plans so you can be prepared.
- Definition: Let’s first establish what an estate is: an estate is virtually anything someone owns (car, house, furniture, land, money, etc.). Most people have an estate, because most people own something. Planning for someone’s estate consists of the ideas, goals and plans for what he/she owns now and after they die. An estate doesn’t stay with someone when they die – it has to go somewhere. If someone has a plan for their estate, those assets will benefit those whom they choose.
- What/who does it effect? It affects virtually everyone that is involved with that estate.. It is up to the creator of the estate plan to choose whom they want to receive what. The sooner the estate plan is created, the more mistakes will be fixed, or prevented entirely. The ultimate goal of creating and estate plan is to provide benefit to loved ones when the estate planner dies.
- Estate Planning Components: The important components of an estate plan are the will and power of attorney. Here are some common components:
- Will: Someone’s last wishes for what is going to happen to them and their assets after they die. This is a very important component for the planning of one’s estate because assets do not go with them they die. The direct and clear plan for what is going to happen to them and their assets are included in their will.
- Trust: A pool of assets that become available while the creator of the trust is still living, or after they die. A trust is similar to a will in the fact that assets become available to beneficiaries at a specific time, the difference is when.
- Power of Attorney: A power of attorney is someone is who is chosen to act on behalf of the estate planner if they ever become incapacitated. This is especially important because anything can happen at anytime; being prepared will prevent much frustration and confusion.
- Medical Directives: A durable power of attorney is selected to make medical decisions for you if you are unable or incapacitated. If someone becomes seriously ill or is in a vegetative state, a living will has instructions to stay on or withdraw from life support.
- Beneficiary Designations: The whole of one’s assets included in the estate need to be transferred after the death of the estate planner. Beneficiary designations are the locations where the assets will be transferred. Many people choose their children, spouse, or parents as the beneficiaries.
- What if I die without an Estate Plan? If someone dies without having done any estate planning, there are a few things that can happen:
- Joint Tenancy is the possession of assets held by more than one person. For example, if a couple has joint tenancy and a spouse dies, all of the deceased spouse’s assets would be transferred to the living spouse.
- Intestate consists of rules designated to the assets that do not immediately transfer to the spouse in a joint tenancy. If someone dies without an estate plan and the living spouse still has jurisdiction over the children, then all of the assets will be transferred to the living spouse. If someone dies without an estate plan and he/she has children not legally guarded by the other spouse, the living spouse receives a fund from the deceased estate, topped off at $75,000, plus ½ of the spouse’s property; the remaining property goes to the children. If the person who dies is not married, their estate is transferred to his/her children. You can see why estate planning is so important.
- Common problems and how to prevent them:
- Unclear Jointly-Held Assets : Joint assets can be a nightmare if the writing in the will is not clear or direct. The will’s purpose is to clearly state who gets what. If things are supposed to be jointly-owned, the will needs to declare who is sharing that asset. If an asset is jointly-held, it can be taxed by the government and the state.
- Unclear directions in will: Along with this are errors in one’s will. If someone does not clearly state who gets what, then the frustration begins. This problem originates from the failure to continue to update one’s estate plan. It is recommended to either update or check on one’s will and estate planning every year.
- Wrong location for assets: Leaving one’s entire estate to a troubling teenager, someone who is not prepared or willing to take control, or leaving it to someone with emotional or mental struggles are not good ideas. An example of this could be leaving a very nice car to a teenager who has already wrecked several cars. In order to prevent this, one should think critically about the location of assets, instead of defaulting to people that ‘deserve’ those assets.
- Difficult location of Documents: It is hard enough to lose a loved one, and that loved one may not have recorded where documents are in order to carry out the estate planning properly; this can be very frustrating and counterproductive. In order to prevent this, first one should update or check on their estate plan and will annually. Next would be to keep all documents in one location, such as a folder or filing cabinet.
- Fix mistakes before they happen: The best way to prevent frustration from beneficiaries and the executor is to first find the mistakes, second fix them. Estate planning with an attorney will provide the best service for you and have the best outcome: little to no mistakes.