Estate Planning Discussion
If you thought that estate planning was only for the very rich, get ready for a surprise. It may be even more important for those with modest incomes to plan carefully, to conserve the maximum value of their assets for distribution to their chosen heirs. Consider the following three situations, and imagine the consequences:
All In The Family
John and Mary are in their early forties with four children, and most of their assets are listed in John’s name only. John wants these assets to go to Mary when he dies, but he has never made a formal will. When John dies suddenly, Mary is shocked to learn that the estate laws of their state require that the assets be divided among her and the children because no will exists. Rather than inheriting her home and other assets, Mary is left with only one-fifth of John’s estate!
The Doctor’s Wife
Rajesh, a successful physician, dies unexpectedly, leaving his assets to his wife Sushma. Although Sushma worked in Rajesh’s office for years, she never participated in financial decisions, and knew very little about his income or types of investments. Without an estate plan, it took Sushma more than two years to sort out Rajesh’s estate, and the estate paid much more in taxes, and also more accounting and legal fees than was necessary.
The Concerned Couple
Bob and Ann were concerned about how their retired parents would manage financially as they grow older. It appeared likely that their parents would eventually need full-time nursing care, but Bob and Ann aren’t sure whether they could afford it. But, since this was a sensitive subject, Bob and Ann procrastinated in dealing with it. Each month their parents grew weaker, and less able to manage their own affairs. Now they are paying $1,500 per month as part of their parent’s nursing home bill!
The Cost of Procrastination
These three real-life scenarios are typical of individuals who don’t make plans for protecting their assets or passing them on to their heirs. All three could have avoided unpleasant situations by developing an estate plan, which can help eliminate the poor decisions that are sometimes made under stress, or without sound financial advice or knowledge.
What is an Estate Plan?
An estate plan is a coordinated strategy for conserving the assets you accumulate during your lifetime, and distributing them according to your wishes at the time of your death. For married persons, this strategy may include spouse’s assets. The estate plan outlines who will manage the settlement of an estate, and who will care for and manage the affairs of any minor or dependent children. It can also take into consideration special circumstances, such as care for aged or infirm parents, a disabled child, or gifts to a favorite charity.
Why Have an Estate Plan?
Because planning for death is not a pleasant subject, many people avoid it altogether. Yet an estate plan will help you reach the goal of leaving the maximum amount of property to whomever you wish by minimizing legal complications, tax obligations, and settlement costs.
There is another compelling reason to prepare an estate plan: in the absence of a formal document specifying your wishes, the laws of the state in which you live will determine not only how your assets will be distributed, but will control such decisions as the guardianship of your children as well. Ultimately, the court’s decisions may be radically different from your own.
What is Involved in an Estate Plan?
Your estate plan should be designed to protect your assets now, and ease the process of transferring them to your loved ones after your death. A good place to begin is to collect the documents and information your survivors will need to settle your affairs, and put them in a safe place where they can be easily retrieved. These can include your will and/or trust documents, birth and marriage certificates, an inventory of your assets, information on insurance policies, bank and investment accounts, and more.
Next, you need to decide how you wish to distribute your assets. Your objectives, the size of your estate, and state and federal tax laws are major factors that affect your plan. Because each decision will have a variety of legal and tax implications, and because tax laws are complicated and change often, an objective financial advisor with estate planning expertise is invaluable.
