While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones the expense, delay and frustration associated with managing your affairs if you become disabled or when you pass away. A good estate plan will work for you during your life, at your death, and for your family after your passing. The Khaled Law Firm can assist you in completing a well-rounded estate plan by addressing the follow concerns:
- Providing for incapacity
- Avoiding probate
- Providing for minor children
- Planning for death taxes
- Planning for charitable giving
Providing for Incapacity:
If you become incapacitated you will not be able to manage your own financial affairs. Many people are under the impression that their spouse or children can automatically take the role of manager and decision-maker in the event of incapacity, but it is not that easy. If you do not plan ahead, it will be up to the courts to declare you legally incompetent and appoint someone of their choosing. That person, even if it is the same person you would have chosen, may have to return to court on an annual basis to show how they are spending and investing every penny of your monetary assets.
By executing the proper legal documents, you can choose someone you trust to handle your affairs immediately after you become incapacitated. They will have the authority to manage your finances, including withdrawing funds from your account(s), paying bills, taking distributions from your IRA(s), selling stocks and refinancing your home. Since a will does not take effects until after your death, it will not help you in the event of incapacity, and power of attorney may be insufficient.
In addition to planning for your financial affairs upon incapacity, you should establish a plan for your medical care. By executing a durable power of attorney for health care, you can appoint someone you trust to make decisions for you about your medical care if you lose the ability to do so. In addition, you should have a living will. A living will informs others of your medical treatment preferences, including the use of extraordinary measures should you become permanently unconscious or terminally ill. By making your wishes known, you will save your loved ones from making very difficult, emotional decisions.
Avoiding Probate:
If you leave your estate to your loved ones using a will, everything you own must pass through probate, a process that can be expensive, time consuming and is open to the public. Additionally, there is a mandatory probate fee that must be paid to the state, which is a percentage of your probate estate. The probate court is in control of the process until the estate is settled and distributed and has discretion to freeze the estate’s assets until a final order is issued. Your family and loved ones, including your spouse and/or children, may not be able to access the assets in your estate to pay living expenses without getting permission from the court. With proper planning, your estate can pass on to your loved ones without going through the probate process, in a manner that is quick, inexpensive and private.
Providing for Minor Children:
It is important that your estate plan address issues regarding the upbringing of your minor children. If you children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations. You may also want to provide resources for you spouse to ensure legal and financial matters are handled appropriately.
In the event you and your spouse die simultaneously or within a short period of time, you should have a contingency plan, naming a trustee to handle your affairs and a guardian who would be responsible for the children’s upbringing. The trustee and guardian can be the same person or different people; there are pros and cons to both options. If you do not plan ahead, the court system will make these decisions for you.
If your children will be receiving assets from your estate, it is often wise to place these assets in a trust, to be distributed based on a number of factors you designate. All too often children receive substantial assets before they are mature enough to manage them properly, leading to devastating results.
Planning for Death Taxes:
Two things in life are certain – death and taxes. Even after you pass away, the government will examine your estate to see if you owe one final tax – the federal estate tax. Whether there will be a tax to pay depends on the size of your estate and how your estate plan works. Many states also have estate and inheritance taxes that are separate from the federal taxes. There are many well-established strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to fully utilize these strategies.
Planning for Charitable Giving:
Your estate plan can accommodate charitable giving in a variety of ways, either during your lifetime or at your death. Depending on how your giving plan is set up, it may also let you receive a stream of income for life, earn a higher investment yield, or reduce you capital gains or estate taxes.