What Does Estate Planning Mean?

Yes, we all have an estate. Your estate consists of everything you own: your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions. So, big or small, everyone has an estate and regardless of size, you cannot take it with you when you die.

When the inevitable happens, you like most people, will probably want to control how those things are given to the people or organizations you love the most. Pull a few strings from the grave.  To ensure that your wishes are carried out, you need a plan; a set of blueprints you to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will also need, at times, to say specifically whom you don’t want to be the recipient of your belongings.  You will want this to happen in the most tax efficient way possible, and incurring few legal fees, and court costs.

That is estate planning—making a plan and decisions in advance, naming where you want your belongings to go after you die, and taking steps now to make carrying out your plan as easy as possible later. However, good estate planning is much more than that. It should also answer the following:

  • Who pays the bills if I become incapacitated before I die?
  • Include arrangements for disability income insurance to replace your income if you cannot work due to illness or injury, long-term care insurance to help pay for your care in case of an extended illness or injury, and life insurance to provide for your family at your death
  • Draft a buy/sell agreement.  This provides for the transfer of your business at your retirement, disability, incapacity, or death
  • Select a guardian for your minor children’s care and inheritance.  This ensures crazy Aunt Sally won’t be caring for the children.
  • Provide for family members with special needs without disqualifying them from government benefits.
  • We know our children and beneficiaries better than they think.  Provide for loved ones who might be irresponsible with money or who may need protection from creditors or in the event of divorce
  • Always keep cost and taxes in mind.  Minimize taxes, court costs, and unnecessary legal fees, where possible.  This may include funding assets into a living trust and completing and updating beneficiary designations.
  • Most importantly, estate planning is a continuous process, not a one-time event. You should review and update your plan as your family and financial circumstances change over your lifetime.

You’re never too Young for Estate Planning

Young adults seem to think they’ll live forever.  Estate Planning is not just for retirees, although people do tend to think about it more as they get older. Unfortunately, we cannot predict how long we will live. Illness and accidents can strike at any age.

Estate planning is not just for the wealthy either, although people who have accumulated wealth may think more about how to preserve it. Good estate planning is often more impactful for families with modest assets because the loss of time and funds as a result of poor estate planning is more detrimental.

If You Do Not Have an Estate Plan, Your State Has One for You and You Might Not Like It

If you become disabled and your name is on the title of your assets and you cannot conduct business due to mental or physical incapacity, only someone appointed by a court can sign for you. The court will supervise and ultimately control how your assets are used for your care.  Conservatorship and Guardianship appointments can become expensive and time-consuming, it is of public record to some extent, and it can be difficult to end even if you recover.

If you die without a valid estate plan, any assets owned in your individual name and without a beneficiary designation or other governing contract will be distributed according to your state’s intestacy laws, typically through a court-supervised probate proceeding. In many states, if you are married and have children, your spouse and children will each receive a share, even if your children are from a prior marriage or no longer minors. That means your spouse could receive only a fraction of your estate, which may not be enough to live on. If you have minor children, the court will control their inheritance. If both parents die (e.g., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.  The crazy Aunt Sally scenario again.

Given the choice, wouldn’t you prefer that these matters be handled privately by your family and not by the courts? Wouldn’t you prefer to keep control of who receives what and when? And if you have young children, wouldn’t you prefer to have a say in who will raise them if you cannot?

An Estate Plan Begins with a Will or Living Trust

A will provides your instructions, but it does not avoid probate. A will only directs how assets titled in your name and without a beneficiary designation or other governing contract will be distributed. The assets must still go through your state’s probate court before they can be distributed to your intended beneficiaries. The process varies greatly from state to state, but it can become expensive with attorney’s fees, executor commissions, and court costs. It can also take anywhere from a few months to two years or longer. In most cases probate proceedings are open to the public, and your creditors and any excluded heirs are notified of their opportunity to file for payment of a debt or a share of your estate. In short, the court system, not your family, controls the process.

Operation of Law

Not everything you own will go through probate. Jointly-owned property and assets that let you designate a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, and certain other accounts) are not controlled by your will and usually will transfer to the surviving owners or beneficiary without probate. However, joint ownership of assets can create problems and using this method for estate planning solely, is not a good idea. In addition, avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will probably require a guardianship until the child reaches the legal age of majority for the state, often between eighteen and twenty-one years of age.

A Trust is Often the Best Choice

For these reasons, a revocable living trust (combined with a pour-over will) is the preferred choice by many families and estate planning professionals. Establishing and funding a revocable living trust can avoid probate at death, prevent court control of assets if you become incapacitated during life, bring all of your assets together into one plan, and provide increased privacy. Because the trust is revocable, it can be changed by you at any time. The accompanying pour-over will is a backup measure in the event that any assets are not funded into your trust during your lifetime and provides that those assets should be poured over into your trust upon your death.

Unlike a probate, which will end at some point, a trust can continue long after your death. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit or longer to provide for a loved one with special needs; to protect the assets from beneficiaries’ creditors, spouses, and irresponsible spending; or to provide for future generations.

An estate plan that includes both a living trust and pour-over will is generally a bit more expensive initially than an estate plan that only includes a will, but it is more likely to avoid fees and costs later.

Planning Your Estate Can Help You Organize Your Records and Correct Titles and Beneficiary Designations

Planning your estate now will help you locate and organize your information and documents, as well as find and correct errors that may have been overlooked.

Often people do not give much thought to titles and beneficiary designations. Unintended innocent errors can create problems for your family at your incapacity or death. Beneficiary designations are often out-of-date or otherwise invalid. Selecting the wrong beneficiary on Retirement and other tax-deferred plans can lead to devastatingly expensive tax consequences. Correcting titles and beneficiary designations now can save time and taxes for your family later.

Estate Planning Does Not Have to Be Expensive

Pay now or pay later is a true adage when it comes to Estate Planning.  Being too cost conscious may have consequences that you did not intend. The assistance of an experienced estate planner will be able to provide critical guidance and peace of mind that your estate is prepared properly to meet your objectives.

No Time Like the Present to Plan Your Estate

No one likes to think about their own mortality or being unable to make decisions for themselves. This is precisely why many families are unprepared when incapacity or death does strike. Waiting is not an option. You can put something in place now and change it later—which is exactly the way estate planning should be done.

Help Protect the Ones you Love the Most

Having a properly prepared plan in place  will protect your family and give you  peace of mind. Estate planning is one of the most thoughtful and considerate things you can do for your loved ones.

Theo L. Morson, JD

Director

Cain Taylor Coleman Morson and Associates, Pllc

Estate Planning: The Big Disconnect Between the Rich and Poor

      Like many things in life the lines between the “haves and the have nots” has been clearly defined for many years, decades; well, since the beginning of time.  Society is not structured for everyone to be wealth and prosperous, at least not at the same time.  The United States is no different than other nations around the world when it comes to class warfare.  The rich continue to get richer and the poor continue to get poorer in the ever-increasing divide.  The effective use of Estate Planning and financial education could be one of many answers to bridging that gap.

     Yes, becoming educated about Estate Planning and finances sounds like a simple answer to a very complicated situation.  Regardless of your political persuasion, the answers to help narrow the ever-increasing wealth gap do not lie solely with the government.  Are there inequities in the system in regard to taxes and income distribution? Yes.  Can the government be part of the solution? Absolutely.

     Topics such as Life Insurance, Probate, Wills, Trust, and Powers of Attorney are not totally foreign to most people.  In fact, most people are aware of these terms and have had some dealing with them in the past.  Rich and more well-to-do families are introduced to these topics at much earlier ages and generally have teams of professionals that have assisted their families for generations.

     On the other hand, most working-class people are primarily familiar with Life Insurance and the need for it.  Life Insurance is often available through one’s employer.  However, the amount of insurance provided is normally enough to cover burial expenses and incidentals.   How much insurance should they actually have?

     Let’s say we have a family of four, husband, wife, and two children under the age of 10.  The family has a new home valued at $175,000 with a combined income of $80,000 per year, which comes to $3,333 per person before taxes.  Let’s assume that their total monthly expenditures equal $5000.00.  This leaves the family with $1666.00 per month for savings and miscellaneous expenses.  Sadly, the husband dies.  How much insurance should each have on their lives?

     The answer may surprise you.  The goal of life insurance is to replace what’s lost.  The sudden death of the husband leaves the family with $40,000 less in income per year.  A $1.4 million dollar policy received tax-free and invested to earn 3% per year would yield $42,000 per year before taxes on the income.    So, the family would need this amount of coverage on both husband and wife to provide the minimum amount of coverage and income replacement.  Future educational cost and inflation will actually require additional coverage.  There are many variables to consider and this is just one approach and insurance may be utilized in different ways.

     This is just one small example of how a little bit of information can go a long way.  The same is true in regard to knowing the differences between Wills and Trusts; how to fund a trust; how to name beneficiaries, how to avoid creditors and so on.  These are all questions and decision that can make a tremendous difference in terms of what you leave to your children.

     Everyone needs some sort of Estate Plan.  Of course, some plans will undoubtedly be more complicated than others.   And the cost for planning is much more reasonable than most people think.  An Estate plan can run from as little as $200 dollars to as much as $5000 dollars depending on the amount of time and work that goes into preparing the plan.

     It’s easy to think at 22 or 23 years of age that you have plenty of time to prepare your estate.  But Estate Plans are not just about money and who gets what when you die.  An Estate plan also answers very important questions such as, who’s going to make medical decisions for me when or if I can’t? Who’s going to pay my bills?  Who’s going to take care of my small children? Court appointed crazy Aunt Sally? Or responsible, loving Cousin Jane?  These are all items that can and should be addressed in a comprehensive Estate Plan.  This is only the tip of the iceberg.  This short article doesn’t even discuss accounting and financial services needs.

     Yes, there is a tremendous divide between the haves and the have nots.  Money plays a tremendous role in why this division exists.  However, the phrase, “A fool and his money shall soon part” holds very true.  There are many people who start out wealthy and don’t end up that way.  Look no further than some professional athletes.

     Knowledge is the key to helping solve this great divide.  Surround yourselves with a team of professionals and let’s start to teach our child the value of planning.  Without knowledge the mistakes of the past will be the same mistakes in the future.

Theo L. Morson, JD

Estate Planning Specialist

Cain Taylor Coleman Morson and Associates, PLLC

www.ctcmorson.com

Choose Your Life Insurance Beneficiaries Wisely

One of the most import estate planning decisions that one makes is choosing a beneficiary for their Life Insurance.  Naming who should get money after you die sounds like a simple and easy task; however, Life Insurance mistakes are common and can have devastating results.

Let’s examine several common mistakes made in regard to Life Insurance:

Naming a minor child

Life Insurance companies will not make direct payment of Life Insurance to minors until age 18.

Failing to plan in advance could be costly and time consuming once the courts get involved.

Beneficiary Designation Trumps a Will

It’s important, however, to know that regardless of what your will says, the life insurance money will be paid to the beneficiary listed on the life insurance policy. That’s why it’s important to contact your insurer to change your beneficiary, if needed.

Always Name Contingent Beneficiaries

Beneficiaries often predecease the insured.  Failing to name a contingent beneficiary could lead to complications. 

  • Heirs could face delays is getting the money.
  • The life insurance proceeds, which normally would be protected from creditors, can now be open to creditors’ claims.

Making a Dependent Ineligible for Government Benefits

Federal law sets guidelines limiting the amount of gifts and inheritance that a recipient may receive.  Naming a lifelong dependent, such as a child with special needs, as beneficiary puts the loved one at risk for losing eligibility for government assistance. 

Establishing a special needs trust and naming the trust as beneficiary could be the answer.  Contact our office to see if a special needs trust is an appropriate solution for your situation.

Update, Update, and Update

You should review your policy every year and after major life events, such as marriage, having children or divorce. Change the beneficiaries when circumstances change.

Unfortunately, many people forget to do so. These are only a few of the common mistakes that clients make in regard to Life Insurance.  Don’t wait until it’s too late.  Estate Planning is not for you, it’s for the ones you leave behind.  Help protect the ones you love the most.