Creating a responsible estate plan does not have to be as painful or difficult as many people believe. As a matter of fact, the whole process can be completed within a few weeks. More importantly, once it is complete, you will sleep better knowing that you are prepared for the inevitable and the unpredictable.
The Decision to Plan
The initial step of deciding that you are ready to take control of your assets and your family’s future can be intimidating; illness, death and the thought of leaving loved ones behind are not pleasant topics to think about or discuss. However, the right estate planning attorney and team of advisors should alleviate any concerns by addressing each issue clearly, such as account access in case of incapacity and transfer of assets after death.
The estate planning process for an individual or couple who has made this decision, described below, is designed to make achieving your goals—including asset protection, efficient transfer to beneficiaries and tax minimization—as painless as possible.
The Questionnaire
Once you have decided to take control of your estate planning, the next step consists of completing a short questionnaire which will help your attorney gain an understanding of your family relationships and the nature of your assets and goals. The preliminary information requested typically consists of a factual inquiry, such as your family, residency, citizenship, whether you have any existing pre- or post-marital agreements or estate planning documents and whether you have any previous marriages or children outside of your current relationship.
The Initial Meeting
After you have provided the preliminary information, your family, assets and goals for the distribution of your property will be discussed in detail during an in-person meeting. The issues to be addressed during the meeting will include how you would like your assets to be distributed, asset protection, tax considerations and planning opportunities that may influence these wishes. Additionally, it is important to discuss the agents that you would like to name to make decisions on your behalf if you are unable to do so. Positions to be filled include:
1. Guardian to care for your minor children (if applicable) if you are unable to do so;
2. Executor/Trustee to distribute your estate/trust after your death according to your desires stated in your documents;
3. Investment Advisor to advise the trustee and beneficiaries on the investment and withdrawal of trust assets;
4. Property Agent to make decisions regarding your assets during your life in the event that you are incapacitated; and
5. Health Care Agent to make decisions regarding your health care during your life in the event that you are incapacitated.
This meeting is also an opportune time to discuss your assets to ensure that no additional planning is necessary to reduce the size of your taxable estate and protest assets from creditors, divorce or bad decisions.
The meeting should be followed by recommendations regarding the estate planning documents and techniques that suit you best and will accomplish your goals in the most efficient way possible. Recommendations may vary from simple to complex depending on your particular circumstances. Some of the instruments that may be utilized in your estate planning include Revocable Living Trusts, Irrevocable Life Insurance Trusts, Charitable Trusts and lifetime gifts. More complex plans may also include the use of Limited Liability Companies, Grantor Retained Annuity Trusts or Qualified Personal Residence Trusts. The cost and purpose of each instrument should be clearly explained to you at this time.
The Documents
Once you make the decision to proceed with your estate planning, drafts of your documents should be prepared in accordance with your wishes. This process generally takes three to four weeks but can be expedited if necessary.
You will then receive drafts of all documents along with a letter summarizing your estate plan so that you have a chance to review and ask any questions before the documents are signed. In your review, you should ensure that you understand the provisions of the estate plan and that the names and relationships of the individuals named in your documents are correct. If you do not understand any of the provisions of your estate plan, please make sure to ask. It is important that the documents clearly reflect your intents and desires.
Once the documents have been reviewed, any questions can be addressed and desired changes can be made. The documents should then be signed at a time and location that is convenient for you. Your documents are effective upon proper execution.
Due to the frequent changes in tax laws, it is recommended that you review your estate planning documents periodically to ensure that they continue to reflect your desires. You should also consult with your attorney to discuss any significant changes in the law since your documents were prepared. Typically, your documents should not require updating unless your desired agents or distribution have changed or there is a significant change in your family, financial situation or the federal or state tax laws. Future born children or grandchildren should be provided for in your documents so that you do not have to spend your time and money updating your documents unless an otherwise unforeseeable event occurs.
The Funding
Once the documents have been executed, your attorney should guide you through the funding of your Revocable Living Trust. Funding or re-titling your property to your Trust is a very important, yet often neglected, part of estate planning. Proper funding of a Revocable Living Trust will allow you to retain full control of your assets while also minimizing the effects of taxes and reducing the size of your probate estate. Without proper funding, the benefit of avoiding probate may be diminished or lost altogether.
The Postponed Estate Plan
Regardless of the reason that you have postponed your planning up until now, the most important thing to remember is that the alternative to responsible planning is a much more difficult and expensive process.
If you are incapacitated without having Powers of Attorney in place, your family members must hire legal counsel to have a guardian appointed. This can handcuff your loved ones by delaying access to your accounts for your benefit and preventing them from making urgent medical decisions on your behalf. Unfortunately, it is the family members that must bear this burden. The process of having a guardian named by the courts costs far more and is much more difficult than putting a complete estate plan into place now.
Additionally, if you pass away without an estate plan (referred to as dying “intestate”), your individually owned assets must pass through the probate process, generally lasting at least a year. Wills do not avoid probate, but assets titled to your Revocable Trust do avoid probate. Additional costs such as hiring legal counsel, obtaining a bond to secure your estate or litigation resulting from heirs battling over assets will far exceed the cost of putting a complete estate plan into place now.
In addition to the perception that estate planning is a long and difficult process, many people also delay their planning because they put unnecessary pressure on the decisions to be made. It is important to remember that all of the decisions that you make regarding your Revocable Living Trust, Will and Powers of Attorney can be amended or revoked by you at any time during your life. While these are important decisions that should be thought out carefully, it is far better to have an estate plan which you may change in the future than to have nothing at all in place.