What Should Estate Planning Involve?

Estate planning involves many things that, if postponed or ignored, can bring about bad results. The wrong person might end up handling your affairs when you get sick and after you die. Assets may go to people you did not want to leave things to after a lifetime of hard work, frugal living and self-sacrifice. Expenses might be incurred and taxes might be owed that could have been avoided with proper planning. 

Death is a certainty.  It’s tough to admit it but there is also a high likelihood that, due to an accident, illness or old age, you will someday become disabled, perhaps temporarily, perhaps permanently, perhaps partially or perhaps totally. Estate planning addresses these future occurrences and should include:

• Identifying, through a Last Will and Testament or a Living Trust, the heirs who will share in your estate. Unknown relatives from undisclosed relationships are now locating family members through DNA testing and may be able to make a claim in your estate if they have not been specifically disinherited by you.

• Designating who should handle the administration of your estate after you die, including identifying and taking control of assets, determining what bills should be paid, selling assets, filing tax returns and distributing the remaining assets to your heirs.

• Selecting appropriate Guardians to care for your minor children or your incompetent adult children.

• Establishing trusts to provide heirs with the benefit of assets and income without giving them the ownership of the assets.  Trusts can be created for young children or financially irresponsible adults, for a spouse or family member suffering from a debilitating medical condition, or for avoiding taxes. “Special needs trusts” allow disabled heirs to receive Medicaid and other government benefits that pay long term nursing care costs while leaving trust assets in place to make life more comfortable and enjoyable for the disabled person.

• Gaining an understanding of the probate process and determining the best manner of avoiding probate when possible, perhaps by utilizing a Community Property Agreement or a Revocable Living Trust.

• Designating, by way of a Durable Power of Attorney, trustworthy people to manage your income and investments, pay your bills and make your medical and personal decisions when you become physically or mentally incapacitated. Not having a well-written Durable Power of Attorney in place may result in the need for a Court guardianship that typically costs thousands of dollars and continues until your death. Avoid forms borrowed from friends or found on the Internet or at bookstores.

• Informing your family and your medical providers, by way of a well-written Advance Medical Directive, of the medical care that you want or do not want if you become terminally ill or lapse into a permanent comatose condition.

• Learning about the high costs of assisted living and nursing home care and the complex Medicaid qualification rules that help cover those costs.

• Learning about the significant risks of naming children or others on your bank accounts (often lousy advice frequently made by bank personnel).

• Naming beneficiaries (especially alternates) on life insurance policies, annuities, IRAs, 401(k)s and other retirement accounts. Your Will does not determine the disposition of these assets. Mistakes can be costly, especially when dealing with large retirement assets that are taxed as income to the recipient. Designating beneficiaries can get complicated, especially when trusts are involved and when beneficiaries want to “stretch” distributions over time to minimize taxes. Consideration must be given to the fact that your intended beneficiaries may predecease you.

• Other things that should be considered when updating your estate planning include estate tax concerns, life insurance needs, prenuptial agreements, lifetime gifting to children, charitable giving, succession planning for a farm or business and, perhaps most important of all, family dispute avoidance.

• The failure to regularly update all aspects of your estate planning can be costly on many levels and can lead to unintended and unfortunate results.