Do You Really Need an Estate Plan?
The answer is YES! Many assume only old people need an estate plan. Unfortunately, recent deaths due to Covid 19 have made us all too aware that death can come to anyone at any time. Therefore, it isn’t only old people who need to consider what happens to their assets!
The main purpose of an estate plan is to make sure that the assets you have accumulated during your lifetime are distributed to your heirs, as you would like them distributed. If you don’t have a will, your state will dictate to whom your assets will go at your death. This may mean that if you’re single, your estate goes to your parents, or if they aren’t living, to your siblings in equal amounts. If you’re married, it may mean part goes to the surviving spouse and part to your children.
Today, some people may think that estate planning is no longer important, since under current law (2020), the federal estate tax exemption for each person is $11.58 million. That means when you die, if your estate is worth less than that amount, you’ll owe no federal estate taxes. However there are two caveats—under current law 18 states and the District of Columbia impose state estate taxes on lower levels of assets. In addition, the federal estate tax exemption will be reduced to $5 million in 2025 (unless Congress changes it earlier).
Estate Planning Isn’t That Difficult
We think one reason people put off estate planning is they think it will be complicated. Actually, it isn’t that complex. The first step is to make a list of the assets and liabilities you currently hold in your name.
Exclude from this list your retirement accounts and insurance policies because these have a designated beneficiary (beneficiaries). Jointly held property will go to the joint owner. Make a separate list of these excluded assets so that your beneficiaries are aware of their existence since they pass outside the will.
Choosing a Personal Representative
Once you’ve determined what your estate assets are, next you need to select your personal representative (PR) who will take care of your financial affairs when you die. You also need to designator a successor in this role if the person you selected is unable or unwilling to serve. A PR can be a person or an institution, such as a bank. Many select a family member, but make sure you ask that person’s permission before naming him/her — you do not want it to be a surprise!
It should be obvious that it is important to choose someone to be PR who can be trusted as well as someone is competent. If you don’t have an appropriate family member or friend, you can delegate this duty to your lawyer or banker. A common mistake we see is someone naming all his/her children as PRs in hopes of preventing family discord. Actually, naming more than one person can cause the opposite effect. If multiple decision-makers are involved, settling the estate can become needlessly complicated and often leads to family fights. We recommend designating one person as the PR, preferably one who is geographically near.
if you have minor children, you need to designate a guardian. This is a difficult decision. You should have a frank conversation with the potential future guardian to make sure he/she is willing to accept this responsibility. You should discuss your wishes for the children’s futures and how those wishes will be funded. Sometimes it’s advisable to name two guardians — one who will take physical care of the children and another who handles the finances.
Work With a Lawyer
Regardless of the size of your estate, it’s important you work with an estate planning lawyer. He/she can discuss with you issues you might not have previously considered and will make sure your will is valid in your state of residence.
The lawyer will prepare a draft of the will for you to review. The final document must be in writing and signed by the testator (you). The testator must declare that the will is his/her last will and testament. She must do so in the presence of at least two witnesses who sign the document and aren’t related to you or are beneficiaries of the will. (Some states require more than two witnesses.) Your will should be dated so there is no confusion as to which is most recent.
Be aware that the original will which is signed in ink is the only effective one—not a copy. So make sure your PR knows where the will is located. Often the lawyer who prepared it keeps the original copy so your PR will need to know who your lawyer is and how to contact him/her.
Once you have a valid will, you should review it periodically or whenever you have major life events including inheritances, change of marital status or residence. If you become a resident of another state, all final legal documents should be reviewed by a lawyer to make sure they’re valid in your new state of residence. You can change your will as often as you want unless you become incompetent or are under undue influence of another person.Please note this article isn’t intended as specific legal advice, as that should only come from qualified legal counsel.