Estate planning is like exercise. Everyone knows it’s a good idea, but most of us just can’t seem to get around to doing it! It’s much easier to procrastinate. The certainty that the only certainties in life are death and taxes has existed almost since time immemorial. These certainties are a fundamental part of life and nobody should shy away from these difficult issues simply because they are difficult.
Most of us go through life thinking we are going to live forever, even though we all know we will die eventually. But for the reasons outlined below it but it is incumbent upon each and every one of us to plan for this event. And the first and best way to plan for these certainties is by creating an estate plan. An estate plan is a basic set of documents that helps us plan for life’s certainties.
The phrase “estate plan” sounds like a complicated set of things that only very wealthy people need. But in reality, it refers to the critically important documents that almost everyone needs, whether our financial and familial affairs are simple or complex. All of the documents that comprise an estate plan help us avoid problems that often arise upon death.
Many of these are problems are things we never think about during life, or things which may be so troubling or overwhelming that we push out of our minds. However, in the absence of a solid estate plan, these issues- if they arise- will have to be resolved by the courts and state law. A properly-prepared estate plan lets each of us decide for ourselves the best choice for our own families (such as who should care for my minor children, who should receive my property, which charitable organizations should receive a share of my assets, and who should wind up my affairs).
BENEFITS IN ESTATE PLANNING
But if you fail to plan, you plan to fail! Let’s talk about all the benefits of getting a plan started right now!
GET ORGANIZED!
Rather than leaving your family stuck with trying to piece together a jumbled mess in the event something happens, get your papers in order now! Make a list of your assets, and be sure to have an updated list of all the beneficiaries on your life insurance policies, retirement accounts and other financial accounts.
Remember that your will only dictates who will receive the assets you hold in your own name. Your other assets- called “non-probate assets” (such as your 401(k) account, “transfer on death” accounts, “pay on death” accounts and life insurance policies—will be transferred to the beneficiaries you have named without the need for probate.
Write a letter: Rather than leave your heirs with a jumble of documents and a scavenger hunt to locate all your important documents (such as insurance policies, etc.) it’s a good idea to write your children (or other heirs) a heartfelt letter NOW telling them how much you love them AND telling them where all your assets are located.
Attach a list of your bank and other financial accounts with addresses and account numbers, together with beneficiary designations. Include all real estate documents, safe deposit box details (including box number, location and keys) and your e-mail, Facebook and other Internet user names and passwords. It is helpful to keep all of your key documents in properly-labeled files in a single banker’s box so your heirs do not have to search for everything.
APPOINT A GUARDIAN FOR YOUR (MINOR) CHILDREN
If you die without a will and you have minor children, the courts will determine who will take care of your children. The most important reason for having a will is that YOU can make this decision for yourself. A major benefit to properly planning an estate is the naming of the guardian.
Many people who have minor children do not think about who would take care of their kids in the event that both parents pass away. However, if such a terrible event were to occur the law requires that the court appoint someone to care for the children. A court’s decision regarding these matters can never be as good as a parent’s own choice. We have all heard stories of “wards of the state”.
A will allows a couple to make this fundamental decision themselves without interference from a judge who can never know your children and their needs as you do.
PLAN FOR YOUR INCAPACITY
You need to execute a “durable power of attorney” authorize a family member or a trusted friend to oversee your finances, pay your bills and handle your financial accounts if you are no longer able to care for yourself. A “durable” POA allows your “attorney in fact” to act on your behalf even if you become incompetent. Once you die, however, the POA becomes null and void.
PLAN FOR HEALTH CARE DECISIONS
Estate planning also means planning for illness and infirmity in your later years or in the event you encounter serious health problems. An “advanced directive” relating to your health care explains the sort of healthcare treatment that you would like to receive before your death.
There is a great deal of variation in how we choose to make decisions at the end of our lives, and an advance directive on healthcare can give voice to our own preferences. A proper estate plan includes a document that authorizes a family member or a trusted friend to care for you and make medical decisions for you—including possibly moving you into a nursing home– if you are no longer able to care for yourself.
A person should always have the ability to determine what type of care they receive. Without these documents, a person runs the risk of having these decisions made for him or her, and not necessarily in accordance with his or her wishes. If you have an accident or a medical problem that makes it impossible for you to speak for yourself, hospitals and health care providers will require your loved ones to petition probate court to appoint a conservator to make those decisions for you.
It is much cheaper and quicker to prepare your customized “Minnesota Health Care Directive” now! Minnesota law allows you to appoint the person you want to make health care decisions for you if a doctor determines that you are unable to do so. It also allows you to give written instructions about the medical treatments you want based on your wishes and your unique views about life and the circumstances.
EXECUTE A WILL
If you die without a will, the Minnesota laws of intestate succession will determine how and to whom your assets will be distributed. In general, your property will pass to your closest relatives. State law is indifferent to your individual needs or wishes and operates to distribute assets regardless of a person’s desires. However, state law only specifies how a person’s assets will be divided when you die without a will.
Most people assume that the state gives all of the assets to the surviving spouse, but this is not the case. In Minnesota and most states, the state grants only a portion of the assets (between one-third and one-half) to the surviving spouse. The rest of the estate goes to certain other family members.
The state laws do not take into account any personal relationships a person may have. The state laws do not take into consideration a person’s own preferences. A properly drafted and executed “last will and testament” is the best line of defense against these indifferent state laws.
A “will” is a legal document that is designed to ensure a relatively easy and simple passing of one’s property from generation to generation. Your will allows you to direct that your spouse should inherit the assets you choose, or which child should get the family china, or which organization should receive your support.By executing a will you can determine who your assets are distributed to and in what percentages to each heir.
APPOINT YOUR PERSONAL REPRESENTATIVE
Like all states, Minnesota has laws that specify who may wind up the personal affairs of someone who has died. This position is commonly referred to as the “executor” or the “personal representative”. State lawmakers have created a very expansive list of people who may be appointed executor (including even your creditors!). This may well mean that the interests of your executor might be at odds with the interests of your family!
Moreover, even when a creditor is not named as your executor, the court might appoint one sibling to serve as executor–to the exclusion of the other siblings. Fights often ensue within the family, with each member of the family claiming that he or she did not receive a fair share of the inheritance or that they should have received grandma’s jewelry, etc.. With a will, one can avoid these horrible scenarios by appointing someone to serve as your executor who will be fair and honest. You can choose anyone you want to fill this position, thereby reducing the chances of potentially ugly post-death battles.
ESTABLISH A TRUST (IF NEEDED AND DESIRED)
For many situations, a “trust” can be very helpful for There are many different kinds of trusts for different purposes and all trusts can be either “revocable” or “irrevocable”. One of the most popular trusts is the “testamentary trust” which is created by a special will after your death. Since minors cannot legally own property if both parents die a “trustee” can be appointed who will manage and administer the trust assets until the children reach the age specified by parents at which time the assets can be transferred to them outright.
Other trusts can be established to avoid probate, to allow a married couple to shelter their estate from estate taxes, to use life insurance to reduce estate taxes, and to make donations to charities and receive favorable tax treatment.
TAX PLANNING FOR LARGE ESTATES
If you are one or the “1 %” who has to worry about estate taxes, estate planning can help avoid or minimize the amounts that might be payable to the state or Uncle Sam upon your demise. Generally, the federal government taxes the value of a person’s property that exceeds about five million dollars. The state of Minnesota, however, imposes a “death tax” on property worth more than one million dollars.
This amount is inclusive of retirement savings and life insurance policies. While a thorough treatment of estate tax planning is beyond the scope of this overview, it is worth noting that consulting a knowledgeable estate planning professional can greatly reduce your potential tax burden if you are one of the few who has an estate large enough to worry about it!
In conclusion, a properly crafted estate plan provides the best means to ensure that we pass our hard-earned wealth to our descendants with a minimum of cost (both emotional and financial). Your estate plan will also give you peace of mind knowing that all of your affairs are in order. Your will allows you to appoint the guardian of your choice for minor children if both parents die. Your will can also specify how your property should be divided and apportioned, and it can help avoid any taxes that may be due upon your death.
An advanced health care directive and durable power of attorney effectuate many of these same goals during a person’s life. No one wants to build a beautiful family only to see that family fights over their possessions when they are gone. To prevent this, you need a professional estate plan tailor-made to your unique requirements and specifications.