Studies show that a majority of American adults do not have a complete and cogent estate plan in place. Failing to plan ahead for death and the likelihood of incapacity in our later years can be costly, both emotionally and financially.
Many people do not have an estate plan because they don’t understand the importance of estate planning. We will highlight some of the key reasons why estate planning is essential in this blog.
Avoiding Intestacy
If you pass away without any estate planning documents, the condition of intestacy will be the result. The state of California would ultimately be forced to use the intestate succession laws to transfer your assets via probate.
Under these circumstances, your own true wishes may not be carried out. Plus, the process of probate can be time-consuming. Thirdly, disagreements among family members could arise.
There is no reason to let the chips fall as they may. You can make sure that everyone that you love is provided for in the appropriate manner if you take the right steps.
Planning for Guardianship of Minor Children
If you are the parent of minor children, estate planning is a must, regardless of your age. When you plan your estate, you can nominate a guardian who would care for your children if both parents were to pass away together in an accident or through some other type of catastrophe.
A properly drafted Will or Trust could also provide for continuing supervision over the child’s inheritance until he or she reaches a designated age or has demonstrated sufficient maturity to be able to handle the funds.
Planning for Incapacity
If you were to become unable to make your own decisions, the court could appoint a conservator to act for you, and you may have no input into who this conservator will be. Conservatorship proceedings can also be expensive and they are a matter of public record.
You can avoid a conservatorship by planning ahead appropriately. If you were to create a revocable living trust to direct the transfer of your assets, it could include a disability trustee who would be empowered to act on your behalf in the event of your incapacitation.
Incapacity planning also routinely involves the selection of attorneys in fact to make medical and financial decisions for you should it become necessary via the execution of durable powers of attorney.
Incapacity planning is an important component to a comprehensive estate plan.
Special Circumstances
When you plan your estate, you can address special circumstances. For example, if you have a person in the family who is a spendthrift (a person who spends possessions or money extravagantly or wastefully), you could make this individual the beneficiary of a spendthrift trust. Assets in the trust would be protected from the heir’s creditors and divorce, and the trustee would manage the resources. You could leave behind instructions for the trustee to follow in the trust agreement, and the beneficiary could receive measured distributions.
Special needs planning is another example. You may have a family member with special needs. Many people with special needs are enrolled in government benefit programs that are only available to people with limited financial resources. A direct inheritance could result in a loss of benefit eligibility. Special needs trusts are used to address this type of situation. With this type of trust, the trustee could use the assets to improve the beneficiary’s quality of life without jeopardizing benefit eligibility.
You could also set up an incentive trust to encourage heirs to make choices that you feel are important and to help steer heirs away from destructive behavior. For example, you could allow the trustee to pay for college expenses and could allow for continued distributions as long as the heir stays in school and could even allow for a lump sum reward distribution upon graduation. You could also set up the trust so the trustee matches the beneficiary’s earnings with distributions from the trust to encourage a solid work ethic. Finally, if you have an heir who has a substance abuse problem, you could require ongoing testing and/or the completion of a treatment program before the heir receives any trust distributions.
These are just a few examples, but a well-constructed estate plan can address various different scenarios.
Estate Tax
High net worth individuals may face federal estate tax exposure. In 2016, the estate tax exclusion is $5.45 million.
If the value of your estate exceeds the amount of this exclusion, you must take steps to gain estate tax efficiency. The estate tax carries a 40 percent maximum rate, so a failure to act could cost your family a great deal of money.
Take Action
Estate planning is important for all responsible adults. If you are presently going through life without an estate plan, you are doing your family a disservice.
We would be glad to help you put the procrastination behind you. Our firm offers free consultations, and you can send us a message through this page to set up an appointment: Campbell CA Estate Planning Attorney. We also invite you to attend one of free estate planning seminars: Free Estate Planning Seminars and Workshops.
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