male and female couple smiling at eachother with professional male at a table wiht papers and laptop estate planning

While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones.  Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones some of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.

Providing for Incapacity

If you become incapacitated, you won’t be able to manage your own financial affairs.  Many people mistakenly assume that their spouse or adult children can automatically take over for them in the event they become incapacitated.  The truth is, in order for others to be able to manage your finances during your incapacity, you must have appointed them by an effective durable power of attorney prior to your incapacity. Alternatively, they must petition a Court to declare you legally incompetent and to request that they be appointed your conservator.  The conservatorship procedure can be lengthy, costly and stressful, and even if the Court appoints the person you would have chosen, he or she may be required to report to the Court every year to show how they are investing and spending each and every penny.  It is more efficient to execute a Durable Power of Attorney for Management of Property and Personal Affairs to designate the person or persons to whom you give authority to manage your financial affairs (e.g., withdraw money from your accounts to pay your bills, take distributions from your IRAs, buy or sell stocks, refinance your home if needed) should you subsequently become incapacitated.  A Will is ineffective for this purpose (a Will does not take effect until you die) and a Statutory Power of Attorney may be insufficient for your needs.

In addition to planning for the financial aspects of your affairs during incapacity, you should establish a plan for your medical care.  The law allows you to appoint someone you trust, such as a family member or close friend, to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself or communicate your wishes.  You can do this by using an Advance Health Care Directive in which you designate the person or persons to make such decisions.  Your Advance Health Care Directive can include provisions to inform others of your medical treatment preferences, including the use of extraordinary measures should you become permanently unconscious or terminally ill.

Avoiding Probate

If you leave your estate to your loved ones using a Will, everything you own will pass through Probate.  The process is expensive, time-consuming and open to the public.  The Probate Court is in control of the process until the estate has been settled and distributed.  If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for their living expenses while your estate is being settled.  It is not unusual for the Probate Court to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the Probate Court for cash needed to pay current living expenses. You can imagine how stressful this process can be.   With proper planning, your assets can pass on to your loved ones without undergoing Probate, in a manner that is quick, inexpensive and private.

Providing for Minor Children

It is important that your estate plan address issues regarding the upbringing of your children.  If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations.  You may also want to provide for special counseling and resources for your spouse if you believe he/she lacks the experience or ability needed to handle financial and legal matters.  You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short period of time.  A contingency plan should name the persons you’d like to manage your assets if neither you nor your spouse can, and name the guardian(s) you’d like to designate for your children if neither you nor your spouse can raise them.  The person or trustee in charge of the finances need not be the same person as the guardian.  In fact, you may want to purposely designate different persons so as to maintain a system of checks and balances.  If you do not formalize your wishes in your estate plan, the decision as to who will manage your finances and raise your children will be left to a Court of Law.  Even if you are lucky enough to have the Court select the person or persons you would have wanted, the court may place undue burdens and restrictions on them, such as requiring annual detailed accountings.

Another thing to consider in this respect is whether you’d like your beneficiaries to receive your assets directly (outright), or whether you’d prefer to have the assets placed in trust and distributed based upon a number of factors which you specify, including age, need and/or incentives based on behavior and education.  All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.

You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary.  Make sure that your plan does not create an additional financial burden for the guardian.

Planning for “Death Taxes”

No matter how overtaxed you think you are during life, Uncle Sam will want to review your estate at your death to ensure you don’t owe that final tax: The Federal Estate Tax.  Whether there will be any tax to pay depends on the size of your estate and how your estate plan works.  Some states have their own separate estate and inheritance taxes that you might need to be aware of. There are many well-established strategies that can be implemented to reduce or even eliminate estate taxes, but you must start your planning process early in order to implement many of these plans.

Charitable Bequests – Planned Giving

Do you want some of your estate to be used to benefit a charitable organization or cause?  Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death.  Depending on how your planned giving plan is set up, it may also allow you to receive a stream of income for life, or earn higher investment yield, or reduce your capital gains or estate taxes.

A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding conservatorship during your lifetime, probate at your death, and estate taxes and unnecessary delays.  You should consult a qualified estate planning attorney to review your family structure, financial situation and goals, and to explain the various options available to you.   Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.