Quick. When you think of estate planning, what comes to mind first? Is it wealthy folks living in mansions, travelling in private jets and riding in limousines? Actually, estate planning is for everyone. From the wealthy to the not so wealthy, beginning at age 18.
But what is meant by “Life & Estate Planning”? After all, isn’t estate planning just an after death plan for the distribution of your stuff? Oh, no. The focus is on planning to protect you, everyone you love, and everything you have whether you are healthy, incapacitated, or deceased.
As you can imagine, approached with this comprehensive mindset, this subject fills volumes of very dry, scholarly tomes. Unless your professional calling is to be an estate planning attorney, these scholarly tomes can (and will) cure anyone of insomnia. So, what do you really need to know to enjoy Life & Estate Planning Peace of Mind?
Let’s walk through a general overview of five (5) challenges that can only be overcome by proper Life & Estate Planning. They are:
No Life & Estate Plan will be of value unless it begins with solid planning for your own potential incapacity. Here is why: The law requires each adult American to make his or her own personal, health care, and financial decisions. However, if you have not legally appointed the agent of your own selection in advance of your incapacity, then a probate judge, who may not know you or your wishes, will appoint one for you. This process may invade your privacy by making your personal and financial circumstances a matter of public record. In fact, since it employs three lawyers (at a minimum), we call it The Lawyer Full-Employment Program.
At a minimum, each adult American needs a Durable Power of Attorney for Financial Decisions and an Advance Health Care Directive (i.e., Health Care Treatment Directive/Durable Power of Attorney for Health Care Matters and Anatomical Gift Declaration). Note: These legal instruments may be combined into one instrument or remain separate instruments. Why separate instruments? Which approach do I recommend?
You may want to appoint different agents to make your financial and health care decisions. For example, you might have the “numbers” person (a family member with a financial or business background) handle your financial decisions and the “medical” person (e.g., a family member or friend with a medical background) handle your health care decisions. Accordingly, my practice is to prepare separate instruments.
As Benjamin Franklin famously observed, there are but two (2) certainties in life: Death & Taxes. Unfortunately, only one of these certainties (taxes) can be completely avoided by proper planning. We will address that certainty first.
Upon your death, the transfer of your wealth to anyone but a bona fide charity is subject to taxation. However, the under the American Taxpayer Relief Act of 2012 (ARTA) each taxpayer may exempt $5 million* (as indexed annually for inflation) from this death tax. Yet a double exemption is not automatic for married couples.
Although a married couple may protect up to $10 million* of their assets from federal estate taxes through proper estate planning, close coordination between your estate attorney and your other professionals is required. Otherwise, you might be shortchanging your loved ones and unnecessarily enriching the IRS.
Since death is a 100% certainty on the actuarial tables of every life insurance company I have consulted (with a long history of anecdotal evidence in support), it seems only logical to make proper legal plans to protect your loved ones and your things when it is your turn. And planning is important, whether you have a little or a lot. For instance, silver and gold aside, most parents consider their children to be their most valuable assets.
Parents often devote considerable time and treasure to providing educations, social/athletic activities, and religious training for their children. Incredibly, however, these same parents may fail to legally appoint guardians (i.e. back-up parents) for their minor children in the event both parents die. Who would you appoint as guardians to take your place and rear your minor children to adulthood? What special instructions would you give the guardians regarding their upbringing? By the way, listing the guardians on a cocktail napkin in the airport lounge will not work. You must legally appoint the guardians in your Last Will and Testament and/or in your Revocable Living Trust in advance of tragedy.
Probate is the court process for transferring assets owned by decedents who did not make legal arrangements to avoid probate while they were alive. In fact, the only time and place a Last Will and Testament has any purpose is in probate. Much has been said and written over the years about whether probate should or should not be avoided. Bottom line: Probate is more burdensome in some states than in others and you should evaluate the cost-benefit of probate/probate avoidance for your unique circumstances. When all is said and done, the ultimate key to whether an estate plan is successful hinges on the proper creation, implementation, and maintenance of your plan over time.
Question: Would your loved ones, fiduciaries, and professional advisors know where you keep your legal, financial, real estate, tax, and personal records? We have a system to help you get and stay organized, so you do not send them on a very unpleasant “paper chase” or “treasure hunt” after you are incapacitated or gone.
[* Note: This estate tax exemption is indexed each year for inflation. Also, while this estate tax exemption amount under the ARTA 2012 is “permanent,” nothing in the political arena of tax law is truly “permanent” in my experience. Depending on your legal residence, be forewarned that many states are imposing their own estate or inheritance taxes, independent of any federal estate taxes. Kansas and Missouri do not have their own estate or inheritance taxes. Accordingly, careful monitoring of the economic, political, and legal climate is required.]
Have you ever noticed that no one values a dollar like the person who earned it? Appropriately then, the third challenge is Inheritance Protection. Indeed, an inheritance representing an entire life of work and thrift could be lost or taken if this challenge is ignored. How?
If you do not incorporate Inheritance Protection into your estate distribution planning to protect any inheritance for (and maybe from) your heirs, then your hard-earned assets could be squandered by your surviving spouse’s new spouse, your children/grandchildren, or lost to their divorces, lawsuits, or bankruptcies. Alternatively, instead of outright or staggered distributions of your estate, consider establishing Long-Term Discretionary Trusts with Spendthrift Provisions for your heirs. Such arrangements even may be include incentives to encourage positive behavior and to discourage negative behavior, too.
Believe it or not, there may not be an “estate” to plan (when it comes to assets, that is), unless you play a little legal and financial defense. For example, the type of assets you have and how title is held to them can protect them from potential creditors. Some of this protection is afforded by state law (Kansas and Missouri have some important differences here). Other less obvious protections are created by strategically analyzing your assets, then tactically repositioning and even retitling as needed. Sometimes specific legal entities need to be considered, too.
Do you have proper insurance protection? Well, I assume you have insured your things through auto, home, and umbrella policies. But have you insured you?
For example, disability income insurance is needed to continue your income should you become incapacitated during your earning years, life insurance is needed to protect your family upon your death (and perhaps to provide estate liquidity for post-mortem expenses, debts, and taxes), and long-term care insurance is needed to avoid depleting your estate due to nursing home costs. After all, you do not want the only thing for your children to inherit is an elderly you?
Many otherwise proper Life & Estate Plans unnecessarily risk failure due to inadequate risk management. Drawing on my education, training, and experience as a Certified Financial Planner® certificant since 1991, I am able to work with your financial professionals and accounts to help ensure these crucial financial risks are covered.
The Second Law of Thermodynamics is called Entropy. Basically, this means everything is in a constant state of breaking down and needing repair. Whether it is your home, automobile, or even your body, everything needs ongoing maintenance. So it is with your Life & Estate Plan.
Consequently, you should regard your Life & Estate plan as a Lifetime Process, not as a one-and-done event. To make sure your Life & Estate Plan preforms as intended when needed, doesn’t it make sense to periodically review your Life & Estate Plan?
Here are just a few of the many common life changes or activities that could alter your Life & Estate Planning needs.
As a rule of thumb, we recommend that all clients review their plans (at least on their own) every two years or when major life events occur. Unlike some estate planning law firms, we do not have a required “maintenance program” to keep plans current. We believe clients are grownups and will let us know when a review is needed. That noted, we do have a “system” to stay in touch. Our “opt in” system has served our clients well over the years.
Second, I have published a monthly estate planning newsletter since 1995. This newsletter helps us stay in touch with clients and their professional advisors. It is a subtle, friendly reminder to our clients each and every month that they have an estate plan. If they experience a major life event (e.g., like winning the lottery), then our clients are more likely to contact us and make appropriate adjustments to their plans. Click here to subscribe.
Third, every two years we send a four page letter by first class mail to all of our client households. That letter informs our clients of important changes in state and federal laws impacting estate planning. The letter also has a lengthy list of common life events that can trigger changes to an estate plan. The bottom portion of the last page of the letter is a “response card” that is perforated so it easily removes from the page. Clients are able to proof and correct their contact information via pen-and-ink changes directly on the response card. In addition, check boxes on the response card include options to indicate that all is okay at present and no estate plan review is needed, or to request that we follow up to initiate a formal review. The completed response card then fits neatly inside a pre-addressed (to us) number nine envelope that traveled to our clients inside the number ten envelope with the four page letter. When we receive the response card envelope, we take appropriate action by either filing the response card in the client file or by following up to schedule a formal review of their estate plan.
As you can see, Life & Estate Planning is about much more than an after-death plan for the distribution of your earthly things. Our focus is on planning to protect you, everyone you love and everything you have whether you are healthy, incapacitated or deceased.
When you are ready to experience true Life & Estate Planning Peace of Mind, then we can help you create, implement and maintain your Life & Estate Plan. We would enjoy welcoming you into our “client” family.
There are three ways to schedule your consultation: first, give us a call, second, send us an email or third, click on the Request a Consultation link. It is that easy. Really.