Thinking about the world and how our loved ones will fare after we pass away can be very difficult. Although we all know that we will pass away at some point, this is not something most people like to dwell on. However, by proactively planning and prioritizing your goals, you can craft an estate plan that allows your wish to provide the best future for your loved ones to become a reality. The first step in creating an estate plan is to consider your priorities. Your goals and wishes will be unique to your circumstances, the needs of your loved ones, and your desires to support your favorite charities.
Getting clear on your priorities is important to the estate planning process because we need to work together with your other advisors to ensure that you have enough money and property at your death to carry out your wishes. This coordinated effort will also help ensure that your wishes do not contradict each other or create any significant issues.
Some Common Priorities You May Consider
Look at the following list and see if any of these priorities resonate.
- Avoiding probate. Many people want their loved ones to avoid the probate process because it can be expensive, time-consuming, and public. It can also be difficult for a loved one to manage while they are grieving. However, some people appreciate having a neutral third party (the judge) oversee the winding down of their affairs in the event there may is a conflict.
- Avoiding conservatorship or guardianship. Estate planning is not just about what happens when you die. There may come a time when you are alive but unable to manage your own affairs (this is commonly referred to as being incapacitated). If you have not legally appointed someone to manage your finances or make medical decisions for you, your loved ones may be forced to appear before a judge and petition to have someone appointed to take on these roles. This process can also be expensive and time-consuming and is public as well. However, if there has been a lot of familial flighting, a neutral third party may offer the consistency and oversight needed.
- Making postdeath administration easy for your loved ones. One of the reasons people have an estate plan is to make things easier for their loved ones. By having legally enforceable tools in place, your loved ones can follow your instructions and hopefully have a peaceful administration after you pass.
- Ensuring your loved ones have everything they need. How much your loved ones need will depend on their unique needs. If you have a loved one who will require a lot of care (a minor child or family member with special needs), they may end up taking a majority of the inheritance you leave behind, which means that there may be less money for other things.
- Providing and protecting an inheritance for your child or grandchild. Depending on their age and needs, children and grandchildren may not be best served by receiving an inheritance outright. You can instead create a plan so that the inheritances you leave to your beneficiaries are held over time, with distributions being made at certain ages, stages in life, or at the discretion of a trusted person you designate to be in charge. There are many ways to structure these types of inheritances, and you should know the pros and cons of each.
- Protecting your surviving spouse’s inheritance. Providing for a surviving spouse may be at the top of your list of priorities. However, it is important to consider how you want to protect their inheritance. The more protections you put in place, the less flexibility and control your surviving spouse will have over the inheritance.
- Disinheriting a family member. You may want to leave a family member out of your estate plan. If you disinherit a family member who thought they might receive something, there is a likelihood that the family member may contest the will or trust. There is also an increased likelihood of your loved ones ending up in probate court to settle the dispute.
- Providing for charities. Whether for tax or philanthropic reasons, giving money to charity can be a great way to leave a lasting legacy. Just remember, the more money you leave to charity, the less that will be left for your loved ones.
- Reducing estate tax liability. Although estate tax only impacts high-net-worth individuals, potential tax liability is always something that you should consider. If you want to include estate tax planning in your estate plan, you may have to decide between saving your loved ones from estate tax liability and retaining control over some of your money and property while you are alive.
- Reducing the amount of income tax a trust may owe. When a trust owns accounts and property that generates income, it is subject to income tax. Unfortunately, a trust reaches higher tax brackets faster than an individual would. If you want the income to be taxed at the beneficiary’s rate (likely lower), the income may have to be given to the beneficiary and treated as their money for income tax purposes.
- Avoiding will or trust contests. If your objective is to keep family harmony, especially if disinheriting a family member, you will want to ensure that your estate planning tools are clear about your wishes. This means you need to work with an experienced estate planning attorney who can counsel you on your options and help you choose the path that will result in the smallest number of conflicts possible.
What You Need to Do to Prepare
You can take the following steps now to ensure that your wishes are reflected in your estate plan and that we can help you create a realistic plan.
- Make a list of everything you own and any outstanding debts. You need to do a preliminary inventory to ensure everyone is on the same page regarding how much money may be available at your death. Although this amount may fluctuate with time, a current inventory gives your advisors a snapshot of your financial situation. Do not forget to include any life insurance death benefits in your calculation because, although you may not benefit from it during your lifetime, it will be part of the inheritances you pass on to your loved ones.
- Make a list of your priorities and the people or organizations you want to leave money to. Make a list of the priorities that you would like addressed in your estate plan. You can take this one step further by listing the loved ones and organizations you would like to provide for at your passing, an estimate of how much you would like to provide to each, and how you would like them to receive it. We can discuss these details further, but this will help you by getting all of your thoughts on paper.
- Rank your list. Looking at the notes you made in Step 2, put these gifts in order of priority. Should you run short on money, which gifts should take priority? You may be able to fund all of your wishes, but it is good to have a Plan B.
- Meet with your trusted advisors. After considering your wishes, meeting with your advisor team is the next step. Each advisor will be able to offer specific insights as to how we can help you carry out your plan. A financial advisor can look at your current financial situation and make investment recommendations to support the gifts you want to make at your passing. An insurance agent can help you acquire additional liquidity to fund your gifts. Your certified public accountant or tax advisor can look at what you currently own and see what strategies can be used to make the most of your gifts. As your estate planning attorneys, we can help you craft the important tools in a legally enforceable way that conveys your wishes.
Creating an estate plan can be one of the greatest gifts you give to your loved ones. Schedule an appointment to learn more about how we can design a plan to meet your unique needs.