Why everyone needs an estate plan
No matter how large or small a person's estate is, it is important for everyone to have an estate plan in place that covers how and to whom assets will be distributed after one's death.
March 06, 2013
Why everyone needs an estate planArticle provided by Louis Pacella Law Offices
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No matter how large or small a person's estate is, it is important for everyone to have an estate plan in place that covers how and to whom assets will be distributed after one's death. Drafting a will or designating beneficiaries is not a one-time task, however. Estate planning is a process that evolves with life's changing circumstances, like getting married, having children, getting divorced and entering retirement. Having a plan that adapts to these changes is essential; otherwise, it is like one does not have a plan at all.
A will is only one piece of the puzzle
While many people understand the value of a will, a will is only one part of a comprehensive estate plan. In fact, other estate planning considerations, like beneficiary designations on financial accounts, can trump the wishes expressed in a will.
Wills are documents that declare individuals' wishes on how and when their assets will be distributed after their death. The individual who creates the will is called the testator. Testators may also name a person to execute the wishes in the will, known as a personal representative. A personal representative may be a spouse, adult child, lawyer or almost any other person. The person does not have to agree to be the personal representative, though, so it is important to name more than one person in case he or she cannot or will not serve.
Information about one's assets should be included in an estate plan, including a list of assets, their fair market value, the parties to whom assets should be distributed, when these beneficiaries should receive the assets and who should manage the testator's assets when he or she is no longer able to do so. Assets may be left to both people and institutions, including spouses, children, family members, friends and charities. Additionally, wills often designate how physical property, like furniture, real estate, jewelry and collectibles, are to be distributed.
Other important estate planning considerations
Wills can also designate who will become the guardianof surviving minor children and describe how the testator's remains should be handled. They may also arrange for the testator's funeral or memorial service and designate assets to pay for these services.
Lastly, testators can draft advance health care directives. Advance health care directives outline who should make and communicate medical and personal care decisions when an individual is no longer able to do so.
While the wishes outlined in a will are usually upheld, beneficiary designations on financial accounts will trump the provisions of a will. For example, if a will states that a new spouse should receive a 401(k) retirement account, but the beneficiary designation filed with the account is a former spouse, the former spouse will receive the asset. This is because the ownership of certain assets, called non-probate assets, is not determined according to a person's will. Therefore, it is important to review and update the beneficiaries on all financial accounts every year, including those on retirement accounts, life insurance policies, brokerage accounts, savings accounts and bank accounts.
The last piece of the puzzle: tax considerations
Another important consideration is that estate planning can sometimes help reduce the amount paid in estate taxes. Estates valued at a certain amount or greater ($5.12 million in 2013) may have to pay federal estate taxes. Estate planning can help individuals create a schedule for gifts to avoid hefty tax penalties. It may also estimate how much beneficiaries may have to pay in capital gains taxes when they inherit certain financial assets like stocks and bonds. Fortunately, there are many ways that good estate planning can help reduce potential estate tax liability.
Estate planning is an essential step for everyone. To learn more about estate planning or to draft an estate plan, contact an experienced estate planning attorney.