Your Estate Planning Agenda

Estate planning is not primarily about taxes. There was a time when it was, because relatively modest estates were depleted by taxes. Now, only about 5,600 estates a year are estimated to owe federal estate taxes.

Yet, you need a complete, up-to-date estate plan more than ever regardless of the value of your estate. Failure to have a plan or to have a quality, updated plan likely will lead to dissipation of much of your lifetime’s wealth and be an impediment to achieving your plans and goals for the wealth.

Pushing taxes aside, almost every estate has a host of other significant issues that need to be addressed.

Medical care. A good estate plan defines how your medical needs will be addressed. First, you’ll need documents that provide which decisions will be made and who will make them in case you aren’t able to. That means you need a medical power of attorney and perhaps a living will. The documents will depend on the state you reside in. You also should consider if you want documents such as a do-not-resuscitate order. You need to focus on both the scope of the documents and, especially with the power of attorney, selecting the person or people to make decisions. I discussed these documents in detail in past issues of Retirement Watch, and details are in the Archive on the members’ web site.

The financial aspects of your medical care also should be covered. Do you have or should you buy long-term care insurance? If not, are you planning to qualify for Medicaid for any long-term care needs, or do you plan to meet the costs from your assets and income? Neglecting this issue leads too often to an estate being depleted to pay for care and the estate owner becoming a burden on others.

Avoiding disputes. When an estate owner doesn’t develop a plan, conflict and chaos often follow. Children, even adult children, can fight over how assets are divided and managed. The presence of a second spouse or other players can make the conflicts worse. You shouldn’t be content with thinking the kids can work it out. Any estate planner will tell you they often don’t. Even when an estate doesn’t seem to be worth much, there’s a need to clearly state how you want it divided and handled. In most families, there’s usually at least one person who’ll look for something to fight about if you leave an opening.

Probate. You might not be worried about taxes, but the probate process can cost a lot of money and delay settlement of your estate. Probate is the system that ensures your debts are paid, your assets are distributed how you intended, and heirs have clear legal title to assets. Some states have a streamlined and less expensive process, at least for smaller estates. But a number of states still use the older, expensive, cumbersome process. You need to find out which type of state you live in.

When the state has an unattractive probate process, consider avoiding the probate process and how to do it. You can use a living trust, partnerships, limited liability companies, joint title, and other tools. Each has advantages and disadvantages. Discuss them with an estate planner to select the tools for you.

When you live in or have property in more than one state, the processes of both states must be considered. The bulk of your estate will be governed by the state in which you are resident, and any real estate will be controlled by the state where it’s located.

Beneficiary forms. IRAs, annuities, employer retirement plans, life insurance, and some other assets aren’t affected by your will. They are inherited by whoever’s named in the beneficiary designation form. Be sure the copies of these forms in both your records and those of the firm sponsoring the asset reflect your current wishes. If you don’t do anything else toward estate planning, take this easy step.

Care of others. You might be helping or anticipate having to help a relative or other person. It might be an elderly parent or other relative. It could be a child or grandchild that has needs. If so, you probably want to develop a plan to ensure they have help when it’s needed.

Asset management. You’re probably managing investments and other assets well. You probably also determined who will benefit from the investment portfolio and other assets next. But who will manage the portfolio? Is your surviving spouse or other member of your family capable? If not, you need a plan.

One option is to find a money manager now. You can test drive a manager by giving one or more managers a portion of your portfolio to manage. That lets you see not only how they perform but how well they communicate and provide customer service. They’ll be in place and over time you can let your spouse or other heirs know that you believe the manager is good and that they should continue to use the firm’s services when they inherit the portfolio. If it’s the wrong manager, you’ll find out soon and be able to make another choice.

Succession. When you own one or more businesses, real estate, or complicated assets such as a collection, succession planning is a must. Look for someone in your family who’s able and interested in continuing management of the assets. Then plan the transition in management or ownership.

When there’s no suitable successor in the family, you might look for one or more employees who can continue management. They might want to buy the business from the estate or be willing to manage it while family members continue ownership. Or you should develop a plan for how the asset will be sold and the proceeds distributed to your loved ones.

You need to develop a succession or sale plan now. Too often, when a plan isn’t in place the value of the asset isn’t maintained during the transition. The estate doesn’t receive the full value the business once had.

You might have other issues to address, but these are the most common non-tax estate planning issues. Some of these you might be able to resolve on your own. But it’s best to meet with an experienced estate planner and discuss the goals and ambitions for your wealth, family, and the rest of your life. Then, you can identify the issues and develop a plan.

 

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