WHO NEEDS AN ESTATE PLAN?
Quick answer: everyone
Despite what you might think, estate planning isn’t limited to only the rich and famous. In fact, your family is likely to benefit from a comprehensive plan that divides your wealth, protects your well-being and provides a compass for your family’s future.
Previously, avoiding or minimizing federal estate tax liability was a primary motivation for creating an estate plan. This isn’t as critical for most people now that the Tax Cuts and Jobs Act (TCJA) has doubled the federal gift and estate exemption from $5 million to $10 million, and the inflation adjusted amount for 2018 is $11.18 million. Nevertheless, reducing exposure to federal estate tax is still significant for affluent individuals, while a wider segment of the population must consider the impact of state estate taxes.
Dividing your wealth
Estate planning is often associated with the division of your assets, and this is certainly a key component. It’s typically accomplished, for the most part, by drafting a will, the foundation of an estate plan.
With a valid will, you determine who gets what, where, when and how. It can cover everything from the securities in your portfolio to personal property, such as cars, artwork or other family heirlooms.
In contrast, if you die without a will — referred to as dying “intestate” — state law will control the disposition of your assets. This may result in unintended consequences. For example, children from a prior marriage may be excluded if state law dictates that all assets are to go to a surviving spouse.
Typically, it’s best to rely on an attorney to draft your estate plan. In addition, you’ll need to name the executor of your estate. He or she will be responsible for carrying out your wishes according to your will. Your executor may be a professional, a family member or friend. Also, designate a successor in case your first choice is unable to handle the duties.
Understanding probate
If your estate plan includes only a will, your estate will most likely have to go through probate. Probate is a court-supervised process to protect the rights of creditors and beneficiaries and to ensure the orderly and timely transfer of assets. The complexity and duration of probate depends on the size of your estate and state law.
Be aware that certain types of property aren’t subject to probate or controlled by your will. For example, if you own real estate as “joint tenants with rights of survivorship” (JTWROS) with your spouse, the property automatically passes to your spouse upon your death. Frequently, a couple will own a principal residence as JTWROS.
Furthermore, if you transfer assets to a living trust, those assets are exempt from the probate process. Thus, a living trust may supplement a will, giving heirs fast access to funds.
Also, beneficiary designations made for certain assets supersede any dispositions in a will. For instance, the beneficiaries named in life insurance policies and retirement plan documents, including 401(k) plans and IRAs, will take ownership upon your death, regardless of what your will says. Review these designations as part of your estate plan.
Protecting your well-being
An estate plan can help ensure that your long-term health care is handled in the way that you wish. Notably, you can create a health care power of attorney. It grants another person, for example, a family member or friend to act on your behalf in the event you’re incapacitated. A power of attorney may be coordinated with a living will specifying your wishes in end-of-life situations and other health care directives.
Providing a compass
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