Why You Need an Estate Plan

There is a common misconception that estate planning is only for the wealthy. Too often individuals neglect putting an estate plan together for this very reason, leaving families and loved ones to make complicated and sometimes heart-wrenching decisions without the proper input and guidance from the individual who should have the most say – you.


In its simplest form, an estate plan helps ensure that that your wishes are carried out, should you  be unable to do so.  This protects your family from making tough decisions as well as ensuring that your assets are divided in a way that you would have wanted. It includes how your assets would be transferred to chosen beneficiaries, at the right time with the right supervision, while minimizing tax consequences.  Also, proper documents can ensure that your financial and medical affairs are handled according to your wishes should you be incapable of making these decisions. 


Getting Started


There are a few key steps that you can take to create an estate plan so you can protect your family and your assets.  The first thing that you should do is take an inventory of all of your assets.  This includes, but is not limited to, real estate holdings, bank accounts (i.e. savings, Certificates of Deposits, money markets), investment accounts, retirement assets (pensions, 401(k)s, IRAs, annuities), collectibles, jewelry, motor vehicles, life insurance policies, and other personal property. In order to properly assess the value of your assets, you may need to seek professional assistance from a real estate appraiser or collectibles appraiser.


The next step you should take is to work with an estate planning attorney to draft a will.  A will is a legal document naming one or more persons to manage your estate upon your death. If one should happen to pass away without a will, also known as dying intestate, the intestacy law of your state of residence will determine who is entitled to your property, and this may or may not be in line with your personal wishes.  This can be quite traumatic to the family left behind. Additionally, if you have no apparent heirs and die without a will, it’s possible that your state will claim the estate.  Also, remember that once you create a will it needs to be updated as life events arise – i.e. getting married, having children, adopting a child, purchasing a home, death of a spouse, or getting a divorce.


In your will you should name an executor to carry out or execute the instructions stated in the document. This is a very key role and meant for someone you can trust to carry out your wishes, even if they are opposite the executor’s personal beliefs. Therefore, most people choose their spouse, adult child, relative, friend,  trust company or attorney to fulfill this duty. To help insure that everything goes smoothly, be sure to check with the individual first to be certain that he/she would be comfortable in that role. The executor will be charged with responsibilities like submitting your will to probate, collecting your assets, paying creditors and outstanding debts including taxes, and distributing assets as stated in the will.


If you have children who are minors, or dependents who cannot care for themselves, your will should name a guardian for them. You will want them to have the best possible care in your absence so put them under the care of someone you trust and are comfortable with.  Creating a will gives you the opportunity to select the person you believe can provide for their best possible care.  Be sure to consider the guardian’s age, health, and willingness to care for your children while making this decision.  If you do not name a guardian to care for your children, the court will appoint one, and it may not be someone you would have chosen.


Taxes and the Current Tax Law


Another thing that you want to keep in mind when it comes to your estate is taxes, whether they are federal and/or state income, estate and/or inheritance taxes.  Remember, it is the law that is in effect at your death which determines your estate tax liability.  While your estate may not be subject to an estate tax if you pass away today, the law at the time of your death may confer such liability, and vice versa.  No one is able to predict the future.  Both tax law and mortality are unpredictable events in your life.


Under the current tax law (Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010), for years 2011 and 2012 the applicable exclusion amount is increased to  $5,000,000 per person ($10,000,000 per married couple). Many may feel that because their estate is below the increased exclusion amount there is no need for current planning. However, individuals should not be lulled into a false sense of complacency just because their estate may be less than the $5,000,000 exclusion.   Remember, this law is for individuals who pass away in calendar years 2011 and 2012 only. In 2013 the rates are scheduled to revert back to an exclusion amount of $1,000,000 with a top estate tax rate of 55%. As mentioned earlier, no one can successfully predict their demise, so it would be most prudent to plan now.

Even after your death, the assets you leave behind – whether it is real estate, bank accounts, and/or investments – may be subject to various levels of taxation, if you have not properly addressed these in your estate plan. It will be up to your heirs to pay off any debts you may owe, regardless of whether or not they want to take personal and financial responsibility for your assets.


There are many different ways that you can ease the tax burden for the recipients of your estate; for example, by utilizing the unlimited marital deduction and/or applicable exclusion amount. To ensure that you take advantage of all applicable tax benefits, you should speak with a qualified legal and tax advisor to be sure to that you have an effective tax strategy in place.


Planning Pays


Having an estate plan can help you achieve peace of mind and protect your family in the event that you are unable to make decisions or pass away.  It can take the burden of making tough decisions off of your family and ensure that your wishes are carried out.