A Sure Recipe for Legal, Financial & Family Conflicts
You may be among the 55 percent of American adults who LexisNexis says do not have a will or other estate plan in place. Note: Your last name does not have to be Gates, Branson or Musk to need an estate plan. If you are an adult who would like to provide peace-of-mind for your family and create an orderly transition of assets in the event of your death or disability, you are a candidate for an estate plan.
What’s at Stake?
In the absence of adequate planning, your becoming disabled due to illness or injury can multiply otherwise avoidable legal and financial challenges. Likewise, in the event of your death there should be a carefully crafted blueprint for the distribution of your assets, minimize estate and transfer taxes, specify care for minor children and eliminate likely conflicts among your family and heirs.
Those are the issues addressed by a well-designed and executed estate plan.
Who Should You Include in the Planning Process?
Most definitely include all parties who will be affected by your plan … and do so at the outset. That means those who will act as decision-makers, care-givers and beneficiaries. By doing so you will short-cut any anger or resentment and clarify your intent and motivation in developing the plan.
Additionally, you will need the advice and counsel of professionals who are experienced and proven in their estate planning competencies. Certainly, your attorney and accountant should be part of the team right from the start. As the plan evolves, others such as financial advisors may be asked to participate.
What Estate Planning Documents are Involved?
Estate plans are not a one-size-fits-all endeavor. The specifics of yours will be determined based on your needs, desires and estate valuations. If you are a business owner, your estate plan must address succession planning to avoid a “fire-sale” in the event of the death of you, the owner … which often results in significant financial consequences for the family.
A word to the wise! Estate planning is not a do-it-yourself project. Your best course of action is to seek help from experienced experts who specialize in estate planning matters. Once chosen, your advisors will determine the issues to be addressed and the appropriate documentation required to ensure instructions consistent with your desires.
Among the documents your advisors may recommend are a Will; Durable Power of Attorney for Health Care Decisions; Living Will; Durable Power of Attorney for Financial Matters, one or more Trusts; and a HIPAA Authorization. As you may anticipate, with so many possible combinations of documents and provisions of each, there is the potential for even simple mistakes to wreak havoc on the validity of your estate plan.
If the list appears daunting to you, that just underscores the need for competent, experienced estate planning advice.
A word about Trusts: As a general definition, a trust is a fiduciary arrangement under which one person or entity, called a trustee, holds legal title to property for a beneficiary or beneficiaries. Broadly speaking, trusts may be categorized as either “revocable” or “irrevocable” … each with different requirements and tax consequences.
The benefits of a well-crafted trust may include minimizing estate taxes and avoiding probate.
Often a concern is that beneficiaries of your estate may lack financial management skills or discipline. The trust may provide for how and when distributions are made and managed tailored to your assessment of the beneficiary’s needs
Finally, probate may diminish and complicate the value of an estate. Lawyer fees and court costs may take a significant bite out of assets subject to probate. A properly drawn trust or trusts may mitigate or eliminate those liabilities. More About Trusts
Who Will Implement My Estate Plan Upon My Disability or Death?
Your choice of capable people to administer your plan is critical. Your selection of decision makers may include executors, trustees, agents and guardians who will shoulder significant responsibilities in managing your estate plan directives.
A word about Executors and Trustees: Your choice of an executor and/or trustee is not in the category of a popularity contest, nor the ranking of a family member. Said another way, your executor will assume significant responsibilities on your behalf. Choices should never be made simply because an individual is a close friend or your oldest child. Your selection should reflect the individual’s capabilities and certainly never on the basis of hurting someone’s feelings.
Competency and willingness are the operative bywords in selecting the people or entities that will carry out your wishes at a time you are no longer able to do so. Any of these managing “slots” may be filled by one or more individuals or a corporate entity such as a bank - or some combination of all three. More About Executors, More About Trustees.
A word about family business succession planning: More than 70 percent of family-owned businesses do not survive the transition from founder to second generation. Often this is due to the entrepreneurial founder not recognizing that the ensuing generation’s challenges will be quite different.
Additionally, succession planning is a process fraught with emotions that require resolution through candor, conversation and collaboration – always with the survival of the business as the primary objective. Clearly there are relationships that complicate the process including sibling concerns/rivalries and possibly other relatives who must be part of the succession equation.
By dove-tailing the estate planning elements with the provisions of the succession plan your capable accountant and attorney team will help defuse emotions and focus on the principal desired outcome – an enduring business with the appropriate management, ownership and financial structure to prevail as a robust entity.
Estate plans evolve as changes in your financial circumstances, family status and health issues surface. There are some obvious life developments that will trigger revisions. For example:
· Change in marital status – marriage, divorce or death
· Birth or adoption of a child or grandchild
· Death of a family member or other beneficiary
· Death or resignation of a decision-maker/caregiver
· Material changes to estate values
· Change in residence may involve change of jurisdiction
· Altered work status, e.g. retirement, disability, unemployed
· Changes in federal and/or state laws re: income, estate, gift and inheritance taxes
So it’s important to periodically review your estate plan as life events unfold.
Depending on the complexity of your estate, your desires for your beneficiaries and tax-saving issues, your team of estate planning advisors will work with you to craft documentation and a plan that will satisfy your objectives. Your advisory team will likely enlist the aid of accounting, legal, investment and insurance professionals.
From the accounting side, we at Blair + Assoc stand ready to serve with consultation as well as filing the following documents:
· Court accountings
· Final income tax returns for the deceased
· Estate tax returns
· Trust income tax returns.
Finally, there are costs associated with creating and maintaining a trust. That means a conversation around ranges in costs, preparation time and ongoing administrative considerations are an excellent first step. Give us a call or drop an email to set up a no-cost initial consultation.
One last thought: we work with a number of skilled trust and estate professionals. If we can help with a referral … just ask.