Why Create an Estate Plan?

While many think estate planning is just for the wealthy, it can benefit anyone, whether they are leaving behind millions in assets or just a vacation home. At some point, everyone should give serious thought to their estate plan. For larger estates, implementing these strategic steps can help minimize potential federal estate tax exposure while protecting the relationships you cherish most by clearly detailing exactly how your assets should be distributed according to your wishes.

The rationale for creating an estate plan is often motivated by a desire to provide financial assistance to dependents and heirs. Money can be a blessing or a curse. Just as lottery winners often end up arguably worse off down the road, an inheritance can cause more problems than it solves. Every situation is unique, but sometimes it makes sense to structure a trust for an inheritance in such a way that a child or grandchild inherits one third at ages 30, 35, and 40 rather than all at once. Because asset protection rules vary significantly based on whether a trust is revocable or irrevocable, working alongside an estate attorney is essential. If you are utilizing a trust structured specifically for asset protection, forcing distributions can inadvertently strip away those legal safeguards, exposing the distributed assets to lawsuits or divorce proceedings.

The basic documents are the will, durable power of attorney, and the advance healthcare directive.
The will provides direction as to paying final debts and expenses as well as the distribution of assets upon death. Language can also be added to the will to create trust accounts for assets upon death. Always make sure someone in your family knows where to find your will if something were to ever happen to you. Your will is of no good locked in a safety deposit box that only you know about.

Durable power of attorney authorizes an individual to act on your behalf in terms of accessing financial accounts for your benefit, if you are unable to do so yourself (incapacitated).

The advance healthcare directive indicates your wishes with regard to end of life decisions such as beginning or ending life support.

There are nuances to asset distribution, and an estate plan should be customized for you and your family. Generally speaking, estate planning is particularly valuable for those with blended families and second marriages. It is also instrumental in enacting the wishes of those with philanthropic inclinations and business owners interested in succession strategies.

Beyond the basics

Consulting an estate planning attorney to review your situation is highly recommended. Many advanced tools are available. The most common of these is the revocable living trust. It functions much like a will, but provides more control over asset distribution. It will also allow you to amend and make changes to the trust in the future if need be. Also, a successor trustee can be designated to take over the role of safeguarding assets after you die or should you become incapacitated.

When structured correctly, a trust can be a foundational component of a wealth management strategy. Assets held within a trust typically bypass the public probate process, saving your heirs time and potential administrative costs while maintaining family privacy. Depending on whether the vehicle is revocable or irrevocable, certain advanced trust strategies can also help protect assets from external liabilities or minimize potential estate tax exposure for larger estates.

All trust strategies should be reviewed with a qualified legal professional to evaluate their specific tax and asset-protection implications.