Why You Need An Estate Plan
After a lifetime of working hard to support your family, a strong estate plan can safeguard the fruits of your labor. In the same way, a weak one can lead to disputes, excessive taxes, and other unwanted diversions.
By taking the time and effort necessary to plan your estate, you will be able to:
1. Specify family members and friends as your beneficiaries, thereby preventing your assets from ending up with strangers, antagonists or the undeserving. Without an estate plan, state law decides who gets your assets. Only you (not a court or your state legislature) know who is deserving and who is not, and who needs special help and who does not. You can also achieve your philanthropic goals by naming religious, educational and other charitable organizations as a beneficiary.
2. Appoint a guardian for your minor children. If you are the parent of small children, you need to prepare for the unthinkable possibility of leaving them prematurely. In your will, you can specify who should raise your children if you pass away while they are young. Without a will that names a guardian, the courts will step in to determine one.
3. Choose executors and trustees for your estate. Your estate plan is only as good as the people you name to carry out the instructions you leave in your will or revocable living trust. If you fail to make a selection, a court will do so for you.
4. Reduce risk of conflict and ease the strain on your family. As part of the estate planning process, you will make important decisions about your own health care and who will make health care decisions for you; how to plan and deal with your own incapacity and who will make related decisions for you; what kind of funeral arrangements you want; who inherits your property; who carries out the instructions in your will or revocable living trust; and who will be the guardian of your children.
Every decision you make and express clearly will reduce the risk of conflict among your survivors.
5. Reduce delay and cost. Good estate planning minimizes the delays and costs of transferring property to beneficiaries. When survivors disagree, each party incurs legal fees, carrying costs mount up, beneficiaries are denied access to assets and fiduciary fees grow. Even if no conflict arises, however, the following simple planning steps will minimize delays and costs: (a) prepare a properly drafted will or revocable living trust; (b) nominate qualified people or financial institutions as executors and trustees; (c) provide quick access to cash (via a revocable living trust or other means) to cover early expenses and necessary support for survivors; (d) provide a way to raise cash to satisfy debts, expenses, taxes and legacies; and (e) take steps to reduce estate and income tax obligations that arise from death.
6. Provide for special circumstances, including arrangements for any beneficiary who requires extraordinary help and guidance. The most common special circumstances that may affect estate planning decisions are:
- Blended families: How do you reconcile the desire to provide for a spouse with the desire to provide for children of a prior marriage?
- A beneficiary’s unhappy marriage: Will the beneficiary’s divorce expose their inheritance to claims of the divorcing spouse?
- A beneficiary’s creditors: Will the beneficiary’s creditors become the ultimate recipient of the inheritance?
- A beneficiary who is receiving public assistance: Will the inheritance disqualify the beneficiary for the assistance, or will the government take your bequest for reimbursement?
- A beneficiary who suffers from a mental or physical disability
- A beneficiary’s immaturity: Is the beneficiary too young or immature to manage the inheritance?
- A spendthrift beneficiary: Will the beneficiary waste the inheritance by spending it extravagantly or irresponsibly?
As part of the estate planning process, you can provide for the beneficiary while shielding the assets from the risks associated with such special circumstances.
7. Provide for special assets. The management and disposition of certain assets will require special knowledge, skills and attention. For example, business assets require knowledge of the business’s employees, customers, products, regulatory environment and markets.
Your valuable collections of art, coins, precious metals, jewelry, photographs, antiques, firearms, and all the other fascinating trinkets and gadgets that people collect require special knowledge and attention if their monetary or subjective value is to be preserved and realized. Authors, artists, inventors and designers may have intellectual property (patents, copyrights and trademarks) that requires special attention. Digital assets present new opportunities and risks.
As part of the estate planning process, you can provide special instructions for the management and disposition of such assets; appoint the proper person (your executor or trustee) who will be responsible for managing, liquidating or distributing such assets; and provide guidance regarding consultants, appraisers and brokers who may be helpful to your executor or trustee.