People avoid estate planning for several reasons – it’s expensive, you have to talk to lawyers and the process is inconvenient. This advice will help you overcome these hurdles and put you in good shape for getting your plan done.
There are two kinds of estate plans – distribution plans and tax plans. Most people just need a distribution plan that focuses on how your assets should be used to take care of the people you care about. If you’re single and your assets are worth more than $5.25 million or if you’re married and your assets are worth more than $10.5 million, then you probably need a tax plan. Tax plans are automatically more complex (although the complexity can lead to significant tax savings). If you don’t need a tax plan, make sure you don’t get one. There’s no reason to live with unnecessary complexity.
We tend to think that an estate plan only comes into play when you die, but that’s not true. Your plan will also say what should happen to you and your assets if you become incapacitated. Whoever gets that job will have complete control over your life during incapacity. They’ll decide where you live, what kind of medical treatment you get and how you’re clothed. They’ll also step into your role in making decisions about your dependents. Think very carefully about who you want to give this responsibility to.
If your kids are under 18, your plan will identify the person who should take care of them. This person is called a “guardian,” and he or she will make all the day-to-day decisions about where your kids live, where they go to school, and so forth. The person you identify as the guardian may not be the same person you want to manage your money. You need to give instructions in case those folks disagree. Suppose your guardian wants your kids to drive a new Volvo because it’s safe, but the person controlling the money thinks a 10-year old Toyota will be just fine. If you really want your guardian making those decisions, then include an instruction that says the guardian’s decisions will be honored and related expenses will be paid.
One of the biggest decisions you’ll have to make is whether you want your spouse to have unlimited control of your assets. In estate tax plans, this rarely happens – the surviving spouse has complete control over half of the assets, but limited control over the other half. If your house is your biggest asset, that means the survivor won’t have control over his or her residence. That usually causes trouble. If you’re trying to keep things simple for the survivor, give him or her control.
Estate planning issues are very personal. You’ll need to talk about things that you try to avoid – substance abuse issues, histories of bad judgments, fears about remarriage, etc. When an attorney helps a couple with their estate plan, he can’t really take sides in these discussions. But that doesn’t mean you should feel like you’re being judged for sticking to your position. Make sure you feel comfortable with your attorney. Otherwise, your estate plan is going to be your attorney’s idea of what it should be, instead of what you want it to be.
Remember that you can change your estate plan right up until the day you die. Perfection is the enemy of progress in this area. You and your spouse may not agree on every little detail. Identifying guardians is an issue that couples often disagree about. But it’s better to get a starter plan in place and tweak it over the years than run the risk of dying without anything in place. And remember – it’s ok to disagree. Some people never agree about guardians for their kids, so they name different people. You may not be thrilled with the idea of your brother-in-law raising your kids, but that’s better than leaving the issue completely up to a judge.
If you don’t need tax planning, then your plan can be as simple as, “Take care of my spouse, then take care of my kids, and if we’re all gone, give my assets to my other family members.” If you don’t need tax planning, then avoid any planning that includes “irrevocable” documents effective during your life.
Did you know that you can protect your kid’s inheritance from bad decisions he might make after you’re gone? Simple is usually better, but this is one area where a bit of complexity is invaluable. If I leave my assets “to my kids,” then at the end of the day my kids have complete control over their inheritances. But if I leave my assets to my kids “in trust,” then their inheritances are protected from their creditors. Lifetime trusts also mean that if my son gets divorced, his inheritance won’t end up getting divided by a divorce court. These are invaluable protections, and they’re well worth the added complexity they bring.
Lawyers love to talk in acronyms – ABC trusts, QTIP trusts, bypass trusts, ILITs, QPRTs, etc. Some use those terms as short cuts in the conversation, and those lawyers will probably be very glad to explain a concept in more detail. But some will bristle when you ask for more detail because they think you’re questioning their knowledge. Remember – this is your plan. Ask as many questions as you need to ask so you’re comfortable with what’s happening. If your lawyer bristles, do yourself a favor and find another lawyer.
Compile and evaluate all of your assets and think about how you’d want them safeguarded after you’re gone. Think about how you’d like your spouse and kids cared for. Finally, consult with an attorney that you trust and that will help you understand an estate plan so you can make the best decisions for your loved ones. These steps will help you create a well designed plan that can put you and your family at ease for the future.
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