Estate Planning Essentials
Estate planning does more than distribute assets upon death. It protects people during life and after death, preserves and even protects assets and manages tax liabilities. A comprehensive estate plan protects you and your family.
Securing Control Through an Estate Plan
A Last Will and Testament contains a provision naming someone you want to serve as executor. The executor is responsible for everything from obtaining death certificates and establishing an estate bank account to paying taxes and distributing assets. The Last Will is also used to nominate a Guardian (i.e., back-up parent) for minor children. Creating an estate plan allows you to decide who will serve in these roles, rather than having a court make the decision.
How an Estate Plan Protects During Life
Several documents permit another person to act as your healthcare agent if you are incapacitated. While the names used for these documents may vary depending on where you live, they generally include the Healthcare Power of Attorney, HIPAA Release, MOLST (Medical Orders for Life-Sustaining Treatment) form, DNR (Do Not Resuscitate) form and an Advance Health Directive.
Another reason to have these documents in place is to remove any questions about what medical care you want if you are incapacitated. Asking loved ones to make life-or-death decisions without the benefit of these documents imposes a terrible burden on them.
Everyone over age 18 should have a General Durable Power of Attorney. This empowers another person, known as the agent or attorney in fact, to manage financial and legal matters in case of your incapacity.
In the absence of these documents, the family will need to petition the court to obtain guardianship for medical decisions or conservatorship for financial and legal decisions. These are lengthy and arduous processes that can be easily avoided with proper estate planning. What if the court names a person on your behalf whom the family knows to be untrustworthy or names a professional conservator whose fees are out of control? Preparing these documents in advance is a far wiser and simpler solution.
Estate Plans are Used to Protect Assets
An estate plan often includes trusts that are used to transfer assets out of direct personal ownership and place them under a trust, which is a separate legal entity. A trust can control how and when assets are distributed to beneficiaries and determine how the funds are used, all without the need for probate. If the trust is an irrevocable trust, then trust assets may be protected from future creditors.
Ownership of privately held companies and real estate properties is often coordinated with the estate plan through the creation of partnerships and other corporate structures. Family Limited Partnerships and Limited Liability Companies are commonly used to create a shared ownership structure, transfer wealth out of the estate and distribute interests in the FLP or LLC upon the death of the original owners.
A family-owned business should create an estate plan in conjunction with a succession plan. Doing one without the other could undermine both.
Why Everyone Should Have an Estate Plan
Regardless of the size of the estate, having an estate plan is necessary to protect yourself and loved ones from the inevitable events of life and to make their lives easier upon your death. Completing this task provides peace of mind and allows you to turn your attention to enjoying life to its fullest.
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