ESTATE planning –The Foundation

The Purpose of Estate Planning

This overview provides general information about estate planning and various documents used, including: Wills, Trusts, Living Wills, Durable Powers of Attorney, and Durable Powers of Attorney for Healthcare.

Estate planning involves arranging your affairs to provide for the orderly management and disposition of property at the time of disability or death.

The primary concerns of an estate plan should include:

  • Assuring the right people receive the right property, at the right time, with proper management.
  • Minimizing expense, inconvenience, and publicity
  • Minimizing taxes due at death
  • Maximizing opportunities to protect assets

If you die without a Will, your probate property will be distributed according to the “intestacy” laws. The intestacy laws may not coincide with your wishes. Tax savings opportunities can also be lost. Intestacy laws do not provide the opportunity for gifting to individuals or charities. These problems can be avoided with a valid Will and/or Living Trust.

What is a Living Trust?

A Living Trust can minimize federal estate taxes. The current Federal gift and estate taxes can go up to 55%, not including income taxes payable at death on assets such as retirement funds. Currently, federal estate tax is payable if the taxable estate exceeds $5,000,000 (adjusted annually for inflation). Portability allows the surviving spouse to utilize any amount unused by the deceased spouse of the $5,000,000 with the proper election.

Timed Distribution of the Assets

A Living Trust can provide for a timed distribution of assets to your heirs. For example, distribution may be made to children as needed for support, education, and other similarly stated purposes at any age, with the unused money kept in trust to be distributed at ages you specify. Without such an arrangement, minors inhering property through the Probate process are entitled to receive a full distribution when they reach the age of majority.

Last Will and Testament

Your Last Will and Testament or “Will” is the most fundamental estate planning document. A Will is a legal document stating how your property is to be disposed of at your death. A Will must be recorded and usually probated. Your Will is the proper place to:

  • Name a personal representative or “executor” who will oversee the disposition of your estate.
  • Name guardians for your children in case the natural parent(s) cannot care for them.
  • Make gifts to individuals or charities.
  • Specify final takers of property should specified beneficiaries decease before you do.

A Will may be amended as long as the person making the Will, called the Testator, remains competent. A “Codicil” is an amendment to a Will.

Power of Attorney and Durable Power of Attorney for Healthcare

A Power of Attorney is a written authorization giving another person to act as your agent, signing your name for purposes specifically outlined in the authorization and generally becomes effective upon incapacitation. Another type of power of attorney is a Durable Power Attorney for Health Care which gives authorization to an agent to make medical decisions for you if you are unable to do so yourself.

Living Will

A Living Will is a document which states you do not wish to have your life artificially prolonged.

Probate

Probate can be expensive, time consuming and is a public proceeding in which a Court oversees the final distribution of all of your assets at death. Property passing by a contract (such as life insurance, retirement funds or living trust property) and property passing automatically by law (for example, joint property) are not subject to probate. Proper estate planning can reduce or eliminate probate costs.

Summary

Many other documents may be used in the estate planning process. Everyone’s estate plan will involve at least one of the documents or arrangements outlined above. Many estate plans will involve all of those documents.