So what is estate planning? Estate planning is the process of providing for the care of your loved ones and disposition of property following your death or disability. Estate planning is necessary to ensure that your wishes regarding health care and property are honored during your life and that your loved ones are taken care of when you are gone.
The Two Components of an Estate Plan
Most people immediately associate “estate plan” with “Last Will and Testament.” A Last Will and Testament allows you to leave enforceable instructions for who will receive your assets at your death. By incorporating testamentary trusts into your Will, you can also control the timing and circumstances under which distributions will be made. And if you want to avoid probate at your death, a living trust can be used to accomplish the same goals as a Will.
These “at death” considerations form the death planning component of estate planning. But too often people neglect an equally important component - lifetime planning.
Lifetime planning deals with managing your affairs while you are still alive, but unable to make decisions for yourself. As our population ages, age-related diseases like dementia and Alzheimer’s are becoming a reality for a higher percentage of elderly people. And even for younger people, an unexpected accident could leave them temporarily or even permanently unable to make financial or healthcare decisions. Incapacity planning can help avoid a costly conservatorship or guardianship proceeding in these circumstances.
Lifetime planning can also help you protect your assets. Some individuals – such as small business owners, real estate developers, and physicians – are at a higher risk for frivolous lawsuits than the general population. Asset protection planning can help mitigate these risks.
How Does an Estate Plan Work?
The term “estate plan” actually refers to a variety of tools that are used to manage your property and provide for your loved ones after death. These tools work in combination with each other to achieve your overall goals. The most common tools are wills, trusts, life insurance, powers of attorney, and living wills. A qualified estate planner can use these tools to:
- Provide for the guardianship and financial support of your children
- Ensure that your property will be distributed how you like, with minimal legal hurdles
- Avoid the costly and time-consuming probate process by using revocable trust and survivorship accounts
- Minimize estate taxes and administrative expenses
- Provide cash for your heirs to pay estate taxes and administrative expenses through trusts and life insurance
- Dictate your decisions regarding your own health care should you become incapacitated through medical powers of attorney and living wills
Which Estate Plan Options are Right for Me?
There is no one-size-fits-all estate plan. The estate plan that is right for someone else may be totally wrong for you. And given the recent fluctuations in exclusion amounts and transfer tax rates, the plan that worked for some people yesterday might be disastrous today. Understanding your options is a complex undertaking, and there is no substitute for a qualified attorney. A qualified estate planning attorney will help you identify your estate planning goals and decide between potential options.