When we last talked about Bob and Mary they had just completed their insurance analysis.
When we last talked about Bob and Mary they had just completed their insurance analysis. However, they weren't quite done with the planning process. In order to have a complete financial plan, they need to do estate planning.
Proper estate planning in layman's terms is having a plan to address how you want your affairs and property handled when you not only deceased but also if you are incapacitated. Now I am not an attorney, so I will cover the basics from a financial advisor's perspective. Down the road, I will ask an attorney or two to discuss some of these topics in more expert detail.
As an investment advisor, when I do a financial plan, I review the status of a client's estate planning. Unfortunately, in far too many cases, folks have done little or no estate planning. When we start talking about estate planning, most folks think only about wills and trusts solely as tools to distribute assets at death. Estate planning is more than that. Proper estate planning should address:
A plan to distribute your assets after death
Minimize expenses and taxes
Avoid legal complications
Transfer business interests efficiently
Appoint guardians for minors
Provide charitable giftsThe primary tools for accomplishing these objectives are wills and trusts. A will is an individual's instructions on how they want their assets distributed after death. It should accomplish some or all of the objectives listed above.
Probate is the process which settles an individual's estate by paying remaining bills and distributing assets. Personal property is probated in the state of domicile, which is the state of the decedent's personal residence. Real property is probated in the state where it is located. There are fees on assets that go through the probate process. Probate fees include:
Appraisal fees for probate assets, for example, real estate or business interestsCourt filing feesAttorney's fees, and other administrative expensesNow if an individual does not have a will; they are considered intestate. In those cases, state law dictates the distribution of property. So, if you want to get a vote in the process; have a will.
Another estate planning tool is a trust. There are a number of different types of trusts so we'll skim the basics. Trusts tend to be more expensive to prepare than a will but have more utility. A trust can be used not only as a tool to distribute assets at death but it can also dictate your care and quality of life should you become incapacitated, i.e., unable to make decisions for yourself. This has become increasingly important as we are living longer and more of us require some form of long-term care in our later years.
Basically, your trust can specify how you want you and your spouse's care handled to include conditions by which you want to remain at home or go to a nursing home, etc. Of course, this also assumes that your trust has the funds necessary to pay for it. Folks who have a trust typically title their homes, property and appropriate financial assets in the name of their trust. Property that is titled in the trust does not go through probate and therefore is not subject to probate fees or public record.
One area of particular concern is blended families. You know, where one or both of the spouses are remarried and have children from a previous marriage. Too often, financial advisors and attorneys have witnessed family members from a previous marriage get completely bypassed, usually unintentionally, because a lack of attention to estate planning.
Another area of concern is special needs family members. Families with special needs members should conduct estate planning to address the long term needs of that special needs family member.
Other estate planning tools that can assist you when you are incapacitated include:
Durable power of attorney. This is a legal document which gives the authority to someone you appoint to make financial decisions on your behalf when you're incapacitated. This is very important between couples because without one, a spouse cannot access any accounts that are in the other spouse's name.Healthcare proxy or healthcare power of attorney. This is a legal document which gives the authority to someone you appoint to make healthcare decisions on your behalf when you're incapacitated.Living will. This is the document where you specify your wishes regarding how you want to be kept alive in case of terminal illness or a continuous state of unconsciousness.I encourage each of you to visit with an attorney and discuss your situation.
Previous articles are posted on my web page at http://theretirementexperts.us/. If you would like to comment or make any suggestions, contact me at larrymartin@ theretirementexperts.us or call at 651-4321.
Larry Martin is a registered investment advisor offering advisory services through Main Street Advisor, LLC (MSA). The opinions expressed in these articles may not represent those of MSA. 1407 Main Street, Hays, KS 67601. The Consultants Financial Services, LLC and MSA are not affiliated