10 Reasons to Have an Estate Plan
1. Save over $780,000 in Estate Taxes
With a relatively simple and inexpensive estate plan, a married couple can save over $780,000 for the benefit of their children or other beneficiaries. As the estate tax exemption increases above the current $2 million, the potential tax savings will also increase.
2. Choosing Guardians for Minor Children
If both parents of a minor child die without a will, the court will appoint a guardian to care for the child. This may or may not be the person the deceased parent(s) would have chosen. Having a will gives a parent the opportunity to choose, based on the best interest of the children, the person who will care for the children should both parents die while any child is under age 18.
A trust can also be established in a will, so that funds held for the children's benefit can be distributed for certain purposes or at certain ages. Funds can be held in trust for the benefit of a child even after the child reaches the age of majority. Without such a trust, assets payable to a minor will be paid over to a court-appointed guardian, who is generally required by law to give the assets to the child when the child reaches 18.
3. Providing for Family Members with Special Needs
Family members who have physical or mental handicaps often require special care. If the person responsible for providing such care dies without planning for the continuation of the care, the health and financial status of the disabled family member could be jeopardized.
For example, a disabled adult child may be receiving Supplemental Security Income (SSI) and Medicaid, along with special services offered to recipients of such benefits. If a parent dies and leaves any property to the child, the child will probably become ineligible for SSI and Medicaid and will be forced to spend virtually all of his or her inheritance to become eligible again.
This can be prevented by having the disabled child’s share of the inheritance paid into a special needs trust. Funds from the trust can be used to provide “extras” and special care for the child, who remains eligible for the governmental benefits.
4. Controlling Inheritance in Blended Families
In these days of 50% divorce rates, second marriages have become increasingly common. Often one or both spouses have children from a prior marriage. While most persons in second marriages wish to provide for their spouse in the event of their death, they also do not wish to disinherit their children. Trusts can be designed which provide ample support for a surviving spouse, yet preserve the bulk of the assets for the children.
5. Protection from Predators and Creditors
In almost every family, there is someone who is not capable of handling money responsibly. He or she may spend foolishly, racking up debt, or be easily duped by dishonest “friends” or business associates. Property received outright by such a person may not last very
long. However, a trust could be used to protect the funds from such creditors and “predators,” while still allowing the funds to be used for the benefit of the family member.
6. Planning for the Continuation of the Family Business
Many family businesses do not last for more than one generation. Often this is due to poor planning or failure to plan at all. Planning for the transition of business from one generation to another is crucial. Buy-Sell Agreements can be used to keep the business out of the hands of in-laws and others who were never intended have a say in running the business. Life insurance is often used in combination with Buy-Sell Agreements to provide the cash to purchase a deceased family member’s interest.
7. Avoiding the Cost and Trouble of Probate
While probate is generally not as burdensome and expensive as is rumored, the probate process can cost several thousand dollars. If you die owning real estate in a state other than your state of residence, a probate proceeding will be required in that state as well. A living trust can avoid the cost of probate and keep personal family financial matters out of the public record.
8. Avoiding Incompetency and Guardianship Proceedings
If you become mentally incapacitated, a family member will not be able to take action and make decisions on your behalf unless he or she is appointed as your guardian. This involves filing a petition with the court alleging that you are not capable of handling your affairs. If, after a hearing, the court finds that you are incompetent, then a guardian will be appointed. Because of court fees, the necessity of posting a bond, and legal fees, guardianship can be very expensive.
Signing two relatively simple and inexpensive documents, a durable power of attorney and a health care power of attorney, will enable family members or others to act on your behalf if you become incapacitated, avoiding the expense and trouble of guardianship.
9. An Estate Plan can be Very Flexible and Preserve Your Options for the Future
With proper estate planning, flexibility is maintained for changes in your family or financial situation, as well as the tax laws. The use of disclaimer credit-shelter trusts is one example of this “wait and see” estate planning.
10. Peace of Mind
Once your estate plan is completed, you will have the benefit of knowing that you have taken those important steps to protect yourself, your family and preserve your assets.
