Introduction to Estate Planning
Estate planning serves two primary functions:
- Managing your property and assets now to protect your wealth
- Specifying distribution of property and assets after death
Proper Estate Planning:
- Ensures the financial security of your family while minimizing family turmoil
- Transfers assets to beneficiaries without delay
- Plans for incapacity or disability
- Reduces expenses and taxes
- Names individuals you trust to administer your estate
Your Estate Plan Needs to Address All of Your Property
- Your home
- Other real estate
- Tangible property such as cars or furniture
- Intangible property such as stocks, bonds, bank accounts, life insurance, pensions, and Social Security minus anything you owe
An inventory of all assets, as well as their location is critical.
Estate Taxes:
Since 2001, the size of an individual’s estate that can pass to someone other than a spouse has increased from $675,000 to $2,000,000 on the Federal level, but is currently at $1,000,000 for Minnesota residents.
As a result of these increases, most estates will have little exposure to the estate tax.
What a Will Accomplishes:
If you haven’t written a will, you may be surprised to learn that the state in which you reside has effectively written one for you. Every state has laws that will determine your heirs if you die “intestate” – that is, without leaving a valid will. States also have formulas to help decide the amounts that each heir will receive. In addition, a will is the only document which you can use to nominate guardians to take care of your minor children. This is a decision that the court will make for you if you do not have a will.
What a Trust Accomplishes:
Trusts may be created while you’re living (inter vivos) or upon death (testamentary, much like a will) and are either revocable or irrevocable.
A Revocable Living Trust offers the following advantages:
- May be revoked or changed at any time
- Requires no third-party approval, such as probate court
- Avoids any interruption after creator’s death
- Holds property for those unable to manage it
- Names successor trustees in event of disability
By creating a Revocable Living Trust and properly funding it, the assets in the trust avoid probate upon death and provide a vehicle for management of assets after death.
Other Important Lifetime Documents:
Durable Power of Attorney
The person or persons named as the attorney-in-fact in the Power of Attorney should be trustworthy and responsible.
Health Care Directive
Your Health Care Agents, who are named in the Health Care Directive, should be reasonable available in the event of a medical emergency and should agree to carry out your wishes when it comes to providing or withholding medical treatments when you are unable to decide for yourself.