4 Steps to Effective Estate Planning

How to Control Your Assets through an Effective Estate Plan

What is estate planning?
It is planning (setting out a series of steps beforehand to accomplish a particular objective) your estate (the titling, control, and eventual transfer of all of your stuff to others).

Estate planning is done by working out how your affairs will be handled when and if certain events occur such as disability, incapacitation or death. This is done by working out a plan and implementing it through various legal documents and processes.

1) To begin, one must have an updated last will and testament. This is the document that is read in the probate court upon your passing that gives the court your wishes regarding the disposition of your probatable estate (those assets held only in your name for which there is no named beneficiary or other designations such as joint ownership, etc.).

Minimizing your probate estate is considered a good idea since probate costs can range in the 5-8% range of the value of the assets that go through the probate process.

2) Where possible one would own assets or title them in a way that would avoid the cost and public disclosure of probate. This can be accomplished in several ways:

A) Some types of assets have named beneficiaries. A beneficiary is some person or group that has the legal right to claim the assets upon your death. Types of assets that name beneficiaries are retirement accounts such as IRAs, 401ks, pensions, life insurance and annuities.

Upon your death, any assets that have beneficiaries will transfer directly to them and bypass probate. It is recommended that these beneficiaries are reviewed periodically to ensure they are properly designated to carry out your wishes.

B) Other assets may be jointly owned with another person. This could include real estate, bank accounts, investment accounts, etc. When one of the owners passes away, the joint owner then becomes the sole owner of the asset and probate is avoided.

CAUTION: Some people may believe that owning assets jointly with their children will also avoid inheritance taxes. Not so, while probate is avoided with the joint ownership, the assets will generally be included in the inheritance tax calculations.

C) Additional ways to avoid probate can include POD (Pay On Death) accounts. This is a designation on a bank account that allows the proceeds of the account to be paid to a designated person or group upon the death of the account owner.

TOD (Transfer on Death) accounts are designations on brokerage accounts that allow the Investment holdings to be transferred to a named person or group on the death of the account holder.

D) Owning assets in different types of trusts can also avoid probate. Trusts can be used to accomplish many different types of objectives such as to protect assets from taxation, public disclosure, and probate costs and procedures.

Estate planning also declares your wishes if you become incapacitated and cannot speak for yourself.

3) A durable power of atto
ey for health care is a document that lays out your wishes for your health care during incapacity and names a person who will make decisions on your behalf. Durable means that it is in effect during the duration of your incapacity.

A durable power of atto
ey states who will act on your behalf in financial and legal matters during your incapacity.

4) A living will is a document that declares your wishes regarding end-of-life decisions such as life support issues.

These documents are very important and are an integral part of an effective estate plan. If any one of these is missing, then the estate plan is not complete and will be ineffective to the degree these details are not addressed.