What is Estate Planning? Estate Planning 101

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What is Estate Planning?

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.

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?

Unfortunately, there is no one-size-fits-all estate plan.  The estate plan that is right for someone else may be totally wrong for you.  Furthermore, with the increasing estate tax exemptions and planned repeal and reinstatement of the estate tax, 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.  

Do I Need an Estate Plan?  10 Reasons You Can’t Afford Not to Have an Estate Plan

Many people mistakenly assume that implementing an estate plan is too costly and time consuming for all but the ultra-rich.  This is simply not the case.  In many cases, the choice comes down to whether to pay now or pay later.  The question you should ask is whether you can afford not to have an estate plan.  Consider the following:

  1. Without an estate plan, you lose control over who gets your property at your death. If you die without a will or other estate plan arrangement, your state will determine how your property is distributed.
  2. Without an estate plan, you have no ability to restrict your beneficiary’s access to their inheritance. Many people have loved ones they would like to provide for, but would like to control the circumstances under which the loved one can access the money.  Examples include loved ones who are children, disabled, or too immature to responsibly manage their finances.  Estate planning allows you to provide for your loved ones on your own terms.  You can control not only who receives your property, but when they are able to access it. 
  3. Without an estate plan, you may lose asset protection opportunities. No one wants to leave property to a loved one, only to have it lost in a frivolous lawsuit or irresponsibility. Estate planning can restrict a creditor’s ability to reach the assets you leave to your loved ones.
  4. Without an estate plan, you have no privacy with respect to your personal finances at death. Many people would prefer to have their financial profile made public record in a probate court proceeding.  A proper estate plan can avoid this disclosure and keep your personal information private.
  5. Without an estate plan, a substantial portion of what you own may be paid to the Federal and state government at your death. If you are a high-net-worth individual, you may lose a portion of your property to the Federal and state government through death taxes.  This loss can be minimized or avoided by proper estate planning. 
  6. Without an estate plan, your heirs may pay unnecessary probate expenses. If your estate is not properly planned, the state will implement its own estate plan, which can be costly in terms of probate and court costs.  An estate plan can use special trusts to hold assets, thereby avoiding the necessity of probating those assets. 
  7. Without an estate plan, you may not have made provision for guardianship and financial support of your children. If you have minor children, you (and not the court) are in the best position to determine who should care for your children if necessary.  A well-drafted will allows you to nominate a guardian for minor children and a conservator of assets for them should both parents die.
  8. Without an estate plan, you may lose hard-earned equity in any business you own and control. Business owners often fail to consider how their business will continue to operate after they are gone.  If cash is unavailable to your successor, your business will be at risk during the transition period following your death.  Proper planning can provide the business with what it needs to continue.
  9. Without an estate plan, you may lose the ability to prove for your own well-being in the event you become disabled. If you become irreparably brain damaged, the decision of whether to allow you to die can be expensive, time-consuming, and emotionally exhausting.  You can provide for these situations ahead of time through proper planning.
  10. Without an estate plan, family conflict is more likely after your death. If you leave no clear indication of how you would like your property distributed, your loved ones may be left in conflict about your true wishes.  This conflict can lead to lawsuits and bitter family disputes.  You can avoid these risks by leaving a clear estate plan that expresses your wishes.

Thinking about what will happen to your loved ones following your death isn’t a pleasant activity, but it is a necessary one.  With proper planning, you can enjoy the peace of mind of knowing that you have made provision for your property and your loved ones after you are gone.  Contact an estate planning attorney today to find out how we can help you with your estate planning.