The Definition of Estate Planning
Estate planning is the process of planning for the efficient transfer of assets at one’s death. In other words, it is planning what will happen to your assets when you die.
Upon hearing this definition, if you are like most people, your mind automatically turned to having a Will. Although you would not be entirely wrong, you certainly would not be entirely right. In fact, a Will is one of the least important aspects of estate planning because it only takes effect after your death! A truly well-rounded plan considers you and your assets during your lifetime, as well as at death, and may contain the following:
- A Revocable Living Trust. Having a Living Trust allows your heirs to bypass the Probate process with respect to the assets that have been retitled to the Living Trust. Since the Trust is revocable, you have the ability to make changes, or even revoke the Trust, at any time during your life.
- A General Durable Power of Attorney. With a General Durable Power of Attorney, you appoint someone, the “agent”, to make financial and property decisions, the “principal,” in the event you are incapacitated. In this way, if you are unable, the agent can file your tax returns, make changes in beneficiaries to certain policies, transfer properties into the Trust, and handle other items not attended to in the Living Trust.
- A Health Care Power of Attorney. Here, you appoint an agent to make medical decisions for you if you are no longer able to do so yourself.
- A Valid Will. A Will takes care of any property that remains in your individual name rather than in the name of the Living Trust.
Five Reasons Estate Planning is Beneficial for Everyone
Not only do people wrongly assume that estate planning mostly concerns the writing of a Will, they also assume that only the wealthy need estate planning due to taxation issues. Although minimizing taxes should be one goal of your estate plan, it certainly should not be the only goal.
- Estate planning plans for your potential disability. If you were to become disabled, what would your family do? Instead of having to go to court to have you declared incompetent and appoint a guardian, a Living Trust provides for this possibility without involving the court.
- Estate planning can help you avoid Probate. Probate is the court process that proves the Will, if any, is valid and carries out the instructions of the Will. Georgia is a probate friendly state and has a relatively streamlined probate process. However , without adequate planning, probate can be costly and time consuming. It is also a public process that, without adequate planning, allows anyone to know of your financial affairs and subjects your heirs to possible predators. Having a Living Trust keeps your assets out of Probate and provides a seamless transition of the Trust’s asset to your heirs upon your death.
- Estate planning can protect your assets from creditors. If you plan to leave property to a child outright through a Will, any creditor of that child will have the ability to take their share during the Probate process. If, however, the assets are transferred through a Will or Living Trust to a Trust for that child, creditors may not be involved in the process.
- Estate planning instills your values in your descendants. This is one aspect of estate planning that many people do not even consider, yet it is very valuable. Even though you are gone, an estate plan can provide a way to keep your values alive. For instance, if you want your children, grandchildren, or even great-grandchildren, to receive a college education, you can provide assets in trust for this purpose. You can also allow them to receive their inheritance upon completion of their education or deny them their inheritance without a college degree.
- Estate planning helps to minimize taxation. Although currently less than 1 percent of people who die have taxable estates, a good plan will help to avoid paying more taxes than you owe. Also, income tax due at death can be minimized or deferred with proper planning.
Are these the only issues estate planning addresses? Certainly not! Estate planning can also plan for nursing home stays, provide for special needs children, ensure that your estate lasts long enough to make it to your grandchildren, create specific inheritances based on the specific needs of the individuals involved, and so much more.
Why You Need to Find an Attorney That Focuses on Estate Planning
Now that you understand the need for estate planning, let’s look at the need for finding the right lawyer, because not just “any” lawyer will do. Don’t use a “dabbler.” If you plan poorly it’s not like you can do it over once there is a death or incapacity.
Would you go to a real estate attorney to file for divorce? Absolutely not. Why? A real estate attorney does not practice divorce law and could easily make mistakes that would be costly to you. The same holds true when planning your estate. Finding an attorney who practices estate planning law will help to ensure that your estate is planned thoroughly and without mistakes.
By planning with a qualified attorney, you can avoid these typical problems:
- Not all assets are designed to pass through a Will or Trust. Many assets, such as IRAs and 401(k)s have beneficiaries that do not take into account a Will or Living Trust. Qualified attorneys will not “forget” about these assets and will plan for them during the estate planning process.
- Each spouse is entitled to a federal applicable exclusion amount. This amount is $5.49 million in 2017. A qualified attorney can be sure that the deceased spouse’s exclusion amount is not lost upon death, but is used to pass assets in a manner that does not cause the assets to be taxed at the death of the surviving spouse.
- Many states now have death taxes that are in addition to the federal estate tax. If not planned correctly, sheltering the estate for federal estate taxes can produce higher state death taxes. Qualified estate planning attorneys know how to build flexibility into the estate plans to avoid these problems.
- In addition to factoring in estate taxes, a well-drafted estate plan also factors in income taxes. A qualified estate planning attorney can make sure that you understand the implication of your estate plan on future potential income taxes. For example, if you gift appreciated assets rather than cash, those assets will not get “stepped-up” in basis at your death. This would result in avoidable capital gains taxation upon the sale of those assets by your beneficiary.
If you plan your estate with a lawyer who does not stay on top of these ever-changing estate laws, they are very likely to make mistakes in these areas. This could be very costly to your heirs and has the potential to keep your children and grandchildren from ever seeing the money you intended for them to have.
No matter what your age, your marital status, or your financial situation, estate planning is important. It will provide for your family in the case of an untimely disability, allow you to control the distribution of your assets upon death, allow you to determine your own health care wishes, protect your assets from predators and creditors, keep taxation to a minimum, and pass on your values. Who needs an estate plan? The simple answer is: EVERYONE.