Did you know that approximately 60% of American adults do not have a written estate plan? Estate planning is extremely important, but most adults do not fully understand what estate planning is and how it works. Adults also do not fully understand that without an estate plan, a judge, who does not know you, your family, or your wishes, will determine who gets your assets and who will care for your minor children.
I want to spend the next few months educating consumers about the basics of estate planning. My 5-part series will begin with a definition of estate planning and the reasons you need an estate plan. Parts 2 through 5 of the series will focus on the estate planning tools listed below and the pros and cons of each estate planning tool. Each installment will be easy to understand, educational and enlightening.
Estate Planning Tools:
- Powers of Attorney and Advance Directives (Living Wills and Healthcare Directives)
- Guardianship Planning for Minor Children
What is estate planning?
Estate planning involves both planning for the possibility of mental incapacity and planning for death. It is one of the most important steps you can take to make sure your wishes regarding your assets and healthcare are honored, and that loved ones are provided for after you are gone. Though often overlooked or even put off, a comprehensive estate plan can answer a number of legal questions that often arise whenever anyone dies.
Through estate planning, you can determine:
- how and to whom your assets will be distributed after your death;
- how your assets are managed during your lifetime;
- who should handle your finances if you become incapacitated;
- who will manage your personal care and health care if you become unable to care for yourself;
- if your beneficiaries get their inheritance all at once, or in incremental distributions over a period of time;
- who will manage your estate after your are gone;
- who will care for your minor children; and
- how you can save taxes by using estate planning tools.
What Could Happen Without An Estate Plan
The following are true stories to illustrate the need for an estate plan and the need to review your estate plan regularly. Names have been changed or left out to protect privacy.
CASE STUDY 1: Jason never legally married his long-time partner, Cynthia, and mother of his daughter. In 2006, Jason died in a car accident and his Last Will and Testament left everything to his four children from a previous marriage. Cynthia, claiming to be David’s common-law wife, sued for a share of Jason’s estate. Unfortunately, the probate judge found that she and David were not common law spouses. The court’s decision left Cynthia and her daughter out in the cold. Was this what Jason wanted? No one will ever really know.
CONCLUSION: This story demonstrates not only the importance of basic foundational estate planning, but also the need to review your plan on a regular basis once it is in place to ensure it will work for your family when needed.
CASE STUDY 2: A couple, with a taxable estate valued at over $500,000, was advised to draft an estate plan, but they never followed through because they were just too busy. Months later, the husband was rushed to the hospital and his prognosis of recovery was grim. The wife was frantic and wondered what she could do now to get their affairs in order. Unfortunately, it was too late. If they had planned earlier while the husband was still competent, they would have had a solid foundational estate plan in place. Instead, the wife will be left to deal with the chaos resulting from not having an estate plan.
CONCLUSION: Plan now, while you are competent and can make decisions. Procrastination is your worst enemy.
In the next issue of this newsletter, I will discuss Wills and the pros and cons of having a Will as part of your estate plan.