Life can be full of uncertainties, but two things are certain: death and taxes. How you plan for these eventualities will play an important part in how your family is cared for and how they will be able to move forward if you were to pass away. But what if you were to suddenly become disabled? How could you be sure that your wishes would be known, and your financial affairs would be managed by someone you trust? Proper estate planning keeps you in control of how your affairs are managed when life’s certainties and uncertainties strike. It can also spare your loved ones from having to deal with difficult decisions at emotional times and dealing with the expense, frustration, and delays associated with dealing with the courts.
Providing for Incapacity
Too many people are under the impression that if they were to become incapacitated through sudden accident or illness, their spouses or adult children would be able to automatically take over their affairs and manage their finances. If this were to happen without you previously legally designating a person or persons to handle your financial affairs, it would be left to the courts to make the decision for you.
Designating just a power of attorney or expressing your wishes in a will that will not be executed until you die, is often not enough to put someone in charge of your financial affairs. Without the needed legal documents, your family member or other trusted person would need to petition the court to have you declared legally incompetent. This can be an emotionally-draining, long, and costly process. If the court does approve the person you would have chosen, that individual will be required to provide an accounting to the court every year to defend how they have spent and invested every penny of your money that you would have entrusted them with.
For your wishes to be followed, you must state them in the proper legal documents that can be included in your estate planning documents. This will give your designated representative the legal authority they need to manage your finances, including your banking, investments, retirement funds, and your real estate without having to seek the permission of a stranger within the court system.
Another area to consider in the event you ever became incapacitated is who would make decisions regarding your medical treatment if you were incapable of making them for yourself. By creating a durable power of attorney for health care and a living will, you can dictate what your wishes are and designate a person you trust to make medical decisions for your or to ensure your wishes are followed. These two documents are a critical part of estate planning to inform others of your decisions regarding the use of extraordinary measures to prolong your life if you were to become permanently unconscious or terminally ill.
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 living expenses while your estate is being settled. It is not unusual for the probate courts 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 needed cash 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 Your Spouse & Minor Children
Estate planning addresses important issues in how your children will be raised and care for in the event you or your spouse were to die simultaneously or within a short duration between one another. Without a plan, these decisions about finances and raising your children would be decided by strangers in the courts. Even if your chosen guardians are selected, they will be subject to supervision by the courts and will need to make an annual accounting.
When creating a plan for your spouse and children, you have a system of checks and balances in place to ensure your survivors are properly cared for. Your estate plan may include having assets placed in trust and distributed according to factors you might stipulate, like age, need, or behavior or educational-incentives/milestones.
Strategizing for Estate & Inheritance Taxes
The laws regarding state and federal estate and inheritance taxes are always subject to change. The IRS will review your estate after your death to determine whether they are entitled to part of it. A good estate plan takes into account that the IRS will attempt to stake their claim. However, there are multiple strategies that you and your qualified estate planning attorney can implement to eliminate or reduce death taxes so that more of your estate can transfer to your survivors. These strategies should be implemented early in your estate planning process for the best results.
Strategizing for Charitable Bequests
Estate planning can provide you with a strategy for including charitable bequests with your estate that can begin at your death or while you are still living. Depending on how your plan is structured, you may be able to reduce your capital gains or estate taxes upon your death, or establish an annuity with a stream of income while you are still alive and earn a higher investment yield all while supporting a charity you believe in.
It can be uncomfortable to think about what will happen once you are gone or incapable of handling your own affairs. The right plan will help avoid guardianship through the courts if you become mentally incapacitated, help your survivors avoid probate, delays, and estate taxes upon your death. Estate planning can give you the peace of mind that you have put the framework in place to provide for you and your family’s well-being if the unthinkable happens.