What is Estate Planning?
Estate planning is a process that allows you to plan ahead for future incapacity and for transfer of your assets at death. Part of the process is identifying certain goals and concerns, assets and liabilities, and individuals and entities to whom your property will be transferred at death.
How Do I start the Estate Planning Process?
You will probably need the help of a lawyer in preparing your estate plan. You may also need the assistance of one or more other professionals, such as an accountant, a certified financial planner, a life insurance advisor, an investment manager or a broker. Those professionals should work together to tailor your estate plan to your particular situation, needs, and goals. They will also help you carry out your estate plans once they are set up.
You can help your advisors by making a list of the assets you own. The list should include both the assets you own in your name alone and those you own with others. The list should also show the names and addresses of joint owners, how title is held, the approximate value of each asset, and any mortgages or liens on the assets. You should also prepare a list of family members, including yourself, with birth dates, addresses, phone numbers, and Social Security Numbers (if you know them), indicating how each person is related to you.
Prepare another list showing the same information for other individuals or organizations whom you want to receive part or all of your estate after you die (called your “beneficiaries”) and the individual(s) or organization(s), along with alternates, whom you would want to administer your estate after you die (called your “personal representative” or “executor”) and whom you would want to handle any trusts you may create through your estate plan (called a “trustee”). If you have minor children, you should also include the same information about the person(s), along with an alternate, whom you would want to raise your children in the event you died before your children were grown (called a “guardian”).
Set up an appointment with an attorney who specializes and is experienced in estate planning. Bring to the appointment the lists you have made, as well as any existing estate planning documents you may already have, including wills, trusts, powers of attorney, and living trusts. Bringing copies of real estate deeds, life insurance policies, brokerage account statements, and premarital agreements will also help your attorney tailor the estate plan most appropriate for you.
What does an estate plan include?
The foundation of most estate plans is a will. Your will allows you to name the beneficiaries of your estate and when they will receive their shares of the estate. In some cases a will can include one or more trusts that make final distributions of the trust estate to individuals who are many generations beyond yourself. Your will also names the personal representative(s) who will administer your estate when you die, the trustee(s) who will administer any trusts created under your will, and the guardian(s) who will raise your minor children. Your personal representative(s) will identify and locate your assets, pay your debts, collect money owed to your estate, and distribute the balance of your assets according to your wishes. Your trustee(s) will manage the assets that go into the trust(s) you create, pay the trust’s expenses, collect trust income, and make distributions to trust beneficiaries. You should carefully consider the abilities of the individuals or organizations you name to fill those roles.
Your will is a powerful tool. It, however, might not control the distribution of all of your assets. If, for example, you own assets with others as joint tenants with rights of survivorship (or, in Wisconsin, as survivorship marital property), your ownership interest in those assets will pass to the other owners automatically, by operation of law, not by any instruction in your will, when you die. Similarly, assets such as life insurance policies, IRAs, annuities, and deferred compensation and retirement plans, all of which have beneficiary designations, generally do not pass through your will (unless your estate is the named beneficiary). Instead, they are distributed according to your beneficiary designations directly to the named beneficiaries.
You may choose to create a revocable living trust as your core estate planning tool. You may name yourself as both trustee and beneficiary during your lifetime. You will probably transfer most of your assets to the trust before you die to avoid the estate administration (probate) and probate fees that might be required if a will were your primary estate planning tool. Even with a revocable living trust, however, you will need a will, called a pour-over will, that transfers to the trust the assets not held in the trust at your death. The assets transferred under the pour-over will could be subject to estate administration and probate fees.
In addition to your basic estate planning document–either your will or your revocable living trust–your estate plan should include additional documents that will help you accomplish your estate plan goals. Those documents include a durable power of attorney for financial matters, a power of attorney for health care, and, if desired, a living will (sometimes called a declaration to physicians).
A durable power of attorney for financial matters designates an individual (and generally an alternate), called your “agent,” who will take over your financial responsibilities and rights if you become incapacitated or are otherwise unable or unwilling to exercise those rights and responsibilities. If you wish, the durable power of attorney for financial matters can state that it is effective immediately, regardless of your current health condition.
Your health care power of attorney designates an individual (and generally an alternate), called your “health-care agent,” who will make health-care decisions for you if you become incapacitated. This document goes into effect when two physicians or a physician and a psychologist who have personally examined you certify in writing your incapacity–either the inability to understand your health-care situation or the inability to communicate your health-care wishes. In most states, the health care power of attorney allows you to give your health-care agent the authority to withhold or withdraw feeding tubes and the authority to admit you to a nursing home for long-term care if such care becomes necessary. In Wisconsin and some other states, the health care power of attorney also provides the opportunity for you to express your desire to be or not to be an organ donor.
You may also wish to have a living will, sometimes called a declaration to physicians. This document generally states your wishes as to the application of life-sustaining procedures (and in many states, feeding tubes) if two physicians certify in writing that you are in a persistent vegetative state or have a terminal illness and death is imminent. You should consider signing a living will if you do not want your dying artificially prolonged in the event you have a terminal illness or are in a persistent vegetative state.
Other estate planning documents that may be appropriate for your situation include a community/marital property agreement, a special needs trust, a charitable remainder trust, or an irrevocable life insurance trust. Your attorney can advise you about which you may need.
Gifting may also be an important component of your estate plan. To avoid or reduce estate taxes, your attorney may suggest that you reduce the size of your estate. You generally may give any individual up to $11,000 per year without income or gift tax consequences. If you make a gift to a qualified charity, you may be able to claim an income tax deduction on your tax returns.
Remember, estate planning is a process. It is an ongoing process, not a one-time event. Just as important as the documents your advisors help you prepare is the periodic review of your estate plan. Laws may change. Your family and financial situation may also change. You should be sure your estate plan follows those changes.
Finally, estate planning can be fun! It can be a way to involve your children or other beneficiaries in the plan you develop for leaving a legacy. It can be an opportunity to show those you love what is important to you and how you want to pass your values, including, perhaps, charitable giving, on to others. Enjoy!