Some people are just not planners. They just let things happen, feeling like they really cannot control the outcome. Well that’s just not true when it comes to estate planning. Estate planning is an area that you can get very predictable outcomes if you put some time and effort into it. The purpose of this article is to summarize several key points about estate planning, and how you can achieve great results and avoid surprises.
Everybody Needs an Estate Plan. Benjamin Franklin famously said that a failure to plan is a plan to fail. This is especially true when it comes to estate planning. Regardless of where you are in life (single, married, young kids, no kids, grown kids, divorced, etc.), you need an estate plan. Although many people see the idea of signing an estate plan as “tomorrow’s work,” the time spent in developing and signing an estate plan is never as bad as what people envision it will be.
The process starts by making sure we have a good understanding of your property, marital status, and any unique issues (e.g. special needs children, 2nd marriage, kids with spending issues, etc.). Then we make sure we have a clear understanding of what your intentions are about your estate (transfer what, to whom and when), and who you want to handle your affairs. With that information, we are able to draft an estate plan that fits your circumstances and carries out your desires. Oftentimes after we have a client who signs their estate plan, they say something like “that wasn’t near as difficult as I thought it would be—I don’t know why I put it off as long as I did.” The peace of mind gained by clients signing their estate plan is especially rewarding from an advisor’s perspective.
Health and Financial Powers of Attorney. Powers of attorney are also a key part of your estate plan. People become disabled every day. Things happen (oftentimes completely unanticipated) that prevent someone from taking care of everyday activities (paying bills, etc.) or making health-related decisions. When this happens, you need to be prepared by having appointed a third party (e.g. a spouse, child or trusted friend) to act on your behalf via health and financial powers of attorney. Without these powers of attorney in place, your loved ones will find themselves in a position of having to get a court-appointed guardian and conservator appointed to act on your behalf. The court process is time consuming and more expensive, and puts the determination of who will act for you in the hands of the Court.
Avoiding Probate. If there is one word that can make a client’s head hurt, it may be “probate.” Anyone who has to go through a probate (e.g. a child for a deceased parent) comes to know first-hand the time, effort and expense that must be expended in this court-administered and publicly open process by which a deceased person’s assets are transferred. The probate process can become especially cumbersome when a client owns property outside the state they are a resident of, because it results in a probate in both their state of residence, as well as the state where the out-of-state property is located. And when the child comes to understand that the entire probate process could have been avoided with a proper estate plan and proper asset re-titling, the child really wonders why their parent didn’t take the time to do this properly while they were alive. In fact, oftentimes when a child has to go through a probate for their deceased parent, we find the child promptly signing their own estate plan and doing the necessary asset re-titling, just so they don’t leave a similar job for their own children to go through.
Keeping Beneficiary Designations Current. Certain assets pass on the basis of a beneficiary designation (and not based on the terms of your will or trust). For example, a beneficiary designation determines how retirement accounts and death benefits from life insurance move after you die. Because of this, attention needs to be given to the beneficiary designations to make sure they are accurate and up to date, and are otherwise consistent with the rest of your estate plan. Similarly, “transfer on death” designations (sometimes used for cars and homes) and “payable on death” designations (commonly used on bank accounts), can prove to be helpful tools to use as part of your plan, but these designations must also be kept current.
Federal Law Changes. We live in an ever-changing world. While federal law currently provides each individual with a very generous federal estate tax exemption (i.e. $11.4 MM), this higher exemption amount is currently scheduled to be automatically reduced (to $5MM-plus) at the end of 2025. Between now and the end of 2025, we will have two presidential elections, plus elections which could change the balance between the Democrats and Republicans in Congress. All of these events could drastically impact the steps you should take with respect to your personal estate plan.
Take the First Step Now. Having practiced law for over 30 years, I still find it astonishing the things that get in the way of people getting an estate plan in place. Whether it is people who just cannot dare to think about dying (something we don’t control by the way), or those who think that if they sign an estate plan, then they’ll die (yes, I’ve heard it, and no, there is no scientific proof this will happen), you just have to take the initiative and get it done. Don’t get caught failing to prepare.
Whether it is you or your client, if you do not have an estate plan in place, or there’s a plan in place but it has not been reviewed by an attorney in the last 4 years, I urge you to contact any member of our Tax Practice Group so we can discuss this and take the necessary steps to protect you, your family, and your clients and their families. I promise you, you will be glad you did.