Why Estate Planning Is Important
“Everyone needs estate planning!”
First, what is an estate?
Your estate is simply everything you own-your home, other real estate, bank accounts, investments, retirement benefits from your employer, IRA’s your insurance policies, collectibles, and personal belongings.
When you start adding it up— especially when you add in the death benefits from your insurance policies– you may find, like most people do, that you actually own a lot more than you think.
Why do people do estate planning?
Most people do estate planning because they want to control who will receive their assets after they die, and they want this to happen with the least amount going to legal fees and taxes. But estate planning is not just about what happens after you die. A good estate plan will also protect you at incapacity. It will let you–not the courts– keep control of your assets and control of decision about your medical care when you can no longer handle your own affairs.
Estate planning includes the following plans:
- Specialized Will (Companion Will)
- Trust (Revocable/Irrevocable aka Medicaid Trust): managing your assets during lifetime or in the event of incapacity, distributing and protecting your assets at death
- Powers of attorney for health: appointing someone whom you sincerely trust to make medical treatment decisions for you if you are unable to communicate your wishes to doctors
- Powers of attorney for property: appointing someone whom you trust to make decisions for you when you are unable to manage your own financial affairs because you lack mental capacity
- Living will: a written document that directly informs your doctors that you do not want extraordinary medical measures taken, especially those that would cause you pain or discomfort, if those measures would only prolong the dying process
- HIPAA: a written authorization from the patient that a health care provider or health care clearinghouse cannot disclose medical information to anyone other than the patient or the person appointed under state law to make health care decisions for the patient.
Trust Management
A trust is a legal document that “entrusts” property to a trustee (a bank, attorney, individual or trust company) to manage for the maker/trust owner. And when applicable distributed to person(s) designated by the maker/trust owner known as the trust beneficiary. Trusts usually involve very specific and detailed instructions on how a trustee is to carry out the duty of managing or distributing the property on behalf of the maker and beneficiary.
Trusts are most often used with estate planning. The purpose of estate planning and preparation is to minimize the cost and streamline the process of distributing assets to the beneficiary. Here are some of the more common reasons people create trusts in estate planning.
- To avoid probate
- To minimize or eliminate estate taxes
- To create life insurance trusts
- To avoid capital gains taxes on the sale of property
- To create an annuity income through charitable gifting
- To receive a charitable gifting income tax deduction
- To manage assets on behalf of a minor or someone who can’t handle his or her own affairs
