It is human nature to delay thinking about an unpleasant life event – death or disability. However, if we can get past that mental obstacle and recognize that our death is a certainty, and disability a real possibility given that advancements in medicine will keep us alive longer and longer, it is clear that a proactive approach to estate planning is the greatest gift we can bestow on our family. The time and resources invested in that exercise will pay dividends for generations.
This Article will highlight the exercises you can take to help you organize your thoughts, and by doing so hopefully allow you to become proactive and recognize the real gift that an estate plan can provide for your family.
*Calculate Your Net Worth
Begin by determining your net worth. For this exercise, rough estimates of the values of all of your assets should be sufficient – such assets including bank and investment accounts, personal property (jewelry, collectibles, cars, boats), retirement plans (401ks, IRAs), death benefit of life insurance, business interests, monies owed to you, oil and mineral rights, and real estate – and then subtracting from this total all of your liabilities – including credit card debt, car and other personal loans, and mortgages. Then, you will need to figure out if your estate will be liable for federal estate taxes. You will also need to know if your state assesses its own separate estate tax and/or inheritance tax. The current federal estate tax exemption amount for deaths in 2014 is $5,340,000. Also, North Carolina currently has no separate state estate tax, however, if you own property in another state that has a separate estate tax, the laws of that jurisdiction should be researched since most of the state estate tax and inheritance tax exemptions are much lower than the federal exemption.
*Assess Your Financial and Family Needs for an Estate Plan
Irrespective of federal or state estate taxes, you will still need to look at other financial reasons why you will need an estate plan. Probate can be very expensive and time consuming, and yet it can be avoided with proactive planning. A complicating factor is if you own one or more businesses, have significant retirement assets, will be expecting a large inheritance, if you have minor children or a blended family, if you’re single, or if you own homes in two different states, then you will need an estate plan to insure that your property (1) can be managed by someone of your choice in case you become incapacitated, and (2) goes where you want it to go.
*Find and Hire a Qualified Estate Planning Attorney
You will need the help of an experienced estate planning attorney to walk you through all of the choices that you will need to make in creating a good estate plan that will actually work for you and your loved ones when it’s needed. Remember the old saying, “You get what you pay for?” Do-it-yourself, homemade wills are a bad idea and the only way to insure that a Last Will and Testament, Revocable Living Trust, or other legal estate planning document will work when it’s needed is to find and hire a qualified estate planning attorney.
McGuire, Wood & Bissette, P.A., has an experienced and qualified team of attorneys, paralegals and assistants that can guide you through this process.
THE TEAM APPROACH – Note that if you work with a team of professional advisors, such as an accountant, banker, insurance agent, and/or financial advisor, then this is the point in the estate planning process to get them involved.
Your accountant can provide valuable information to your estate planning attorney, such as when you purchased a piece of real estate and for what price, or how your business is structured. Aside from this, your accountant will need to know, particularly if you do any advanced estate planning or asset protection planning, the tax status of the trusts you’ve created and the tax consequences of the gifts that you’ve made.
Involving Your Banker, Insurance Agent and Financial Advisor
Your banker, insurance agent or broker and financial advisor can also provide important information to your estate planning attorney, such as how your accounts are titled, cash values and beneficiaries of your life insurance policies, and values and beneficiaries of your retirement accounts and annuities. In addition, these professionals should be instrumental in making sure that your accounts are properly titled and your beneficiary designations are updated to comply with the terms of your new or updated estate plan.
*Determine if You Need a Will or a Revocable Living Trust
Once you’ve hired an experienced estate planning attorney (and assembled the team), the next step is to determine if you need to go beyond a simple Last Will and Testament and set up a Revocable Living Trust. With the help of your estate planning attorney, you will be able to weigh the pros and cons of using a Revocable Living Trust in your particular situation. Once you’ve determined if you’re going to incorporate a Revocable Living Trust into your estate plan, you will need to create a plan for what will happen to you and your property if you become mentally incapacitated.
*Create a Plan for What Happens if You Become Mentally Incapacitated
Disability planning is an important part of any estate plan, and yet it’s often given less attention than planning for what happens after someone dies. Without a good disability plan, your assets may end up in a court-supervised guardianship or conservatorship and, in turn, your loved ones will lose control of you and your property:
* Create a Plan for What Happens After You Die-
Once you’ve designed a good disability plan, then create a plan for what happens after you die. This will include deciding who will inherit what and when they’ll get it. Only you can decide if you want to leave your estate to family, friends, and/or charity. Once you decide who, you will need to make a plan for when they’ll get it.
Aside from this, if you’re married, then you will need to understand the North Carolina elective share laws and if you have moved to North Carolina from a community property state, how the North Carolina community property statute impacts your situation. In North Carolina, like in most other states, you can’t completely disinherit your spouse unless he or she waives all inheritance rights in a prenuptial or postnupital agreement. You will also need to think about your funeral arrangements (burial or cremation?) and make a plan for where the cash will come from to pay your final expenses, including the estate tax bill if your estate is taxable at the federal and/or state levels.
Funeral/Burial, Etc. – Do not make your will or trust the only place where you write down your funeral wishes. While your Last Will and Testament or Revocable Living Trust may contain your wishes as to what you want to happen to your property after you die and who should be in charge of making sure that your property goes where you want it to go, these documents should not be the principal place where you list your funeral wishes. By the time your will or trust is located and read, your loved ones will have already made all of the decisions about the disposition of your remains (burial or cremation) and memorial, if any. Talk to your loved ones about your funeral wishes. Send them a letter expressing your wishes, and make sure that letter can be located with ease. If you are not inclined to write down your final wishes or document them online, then instead, consider talking to your loved ones about your final wishes. It could be as simple as saying that you would never want to be buried, or you would never want to be cremated. This will help to ease stress and anxiety during a difficult time.
*Choose Your Fiduciaries Wisely
An integral part of your estate plan is deciding who should be in charge of carrying out your wishes as described in your Will or Revocable Living Trust. if the people you’ve chosen don’t want to or simply can’t serve, or if the people you’ve chosen do a bad job, then your beneficiaries will be unhappy and resort to time consuming and expensive judicial proceedings may become necessary. The investment in terms of money, time and emotion made in creating your estate plan may be lost. A fiduciary is a person or institution given the power to act on behalf of another in situations that require great trust, honesty and loyalty. Fiduciaries you may already be familiar with include accountants, attorneys, business advisors or financial advisors who have the legal duty to act in your best interest and must set aside their own personal motives in favor of your goals. In some cases the person you name to serve as the fiduciaries in all of your estate planning documents will be one in the same person. For instance, if you’re married, your spouse may be named in all capacities. If you’re single, however, you may decide to name different people or institutions to serve in different capacities. In addition, it’s important to choose one or more alternative fiduciaries if your first choice can’t serve, or a court will be required to select a successor for you. It is also important to note that you can choose different people or institutions to fill different roles and multiple people or institutions to serve together, such as two people and an institution to manage finances and one person to make health care decisions.
Who are the “fiduciaries” in a typical estate plan?
Personal Representative/Executor – This fiduciary will be responsible for administering your estate in accordance with the directions contained in your Last Will and Testament; can be one or more individuals and/or an institution such as a bank or trust company
Trustee – This fiduciary will be responsible for managing the assets that you title in the name of your Revocable Living Trust or any other type of trust you create in accordance with the directions contained in the trust agreement; can be one or more individuals and/or an institution such as a bank or trust company
Health Care Agent – This fiduciary will be responsible for making medical decisions on your behalf in accordance with the directions contained in your Power of Attorney for Health Care; can’t be an institution or a health care provider who is currently treating you.
Attorney in Fact – This fiduciary will be responsible for managing assets that are titled in your individual name in accordance with the directions contained in your financial Power of Attorney; can be one or more individuals and/or an institution such as a bank or trust company
Guardian for Minor Children – This fiduciary will be responsible for taking care of your minor children in the event you die while the children are still minors; you can designate this fiduciary in your Last Will and Testament.
*Review and Update Your Estate Plan
Once you’ve completed the prior steps, unfortunately you won’t be done with your estate plan. Why? Because things will happen day in and day out that will have a direct impact on your estate plan. For example, you could get married or divorced; have or adopt children; buy or sell a business; retire; move across the state or country; win the lottery; lose your spouse or other loved one due to an illness or injury; or inherit a small fortune from a family member or friend. Also, both state and federal estate and gift tax laws can and will change. All of these things will have a direct impact on your estate plan, and so you will need to keep on top of these things in order to keep your estate plan up to date so that it will continue to work as you expect it to work as the years go by. In sum, an estate plan is a work in progress, not a one shot deal, and your plan needs to change as your life and the laws change.
Look for “Assess Your Need for Advanced Estate Planning” in my next blog