Life is lived in stages. And the rhythm of our lives mirrors the rhythm of the natural seasons. Whether you are in the spring, summer, autumn or winter of life, your Life & Estate Planning objectives will inevitably change. This article is relevant regardless of whether you currently have a Life & Estate plan. If you do not have a Life & Estate Plan, it will help you appreciate the need for proper planning. If you already have a Life & Estate Plan, it will reinforce the need to keep your Plan up-to-date as you move between seasons.
In the context of Life & Estate Planning, spring begins on your 18th birthday. On that magical day you become responsible for your own personal, health care and financial decisions. The adults in your life suddenly become your peers in a legal sense.
Unless you give your parents, or other trusted adults, proper legal authority in advance, they cannot make your personal, health care or financial decisions on your behalf should you become incapacitated due to an injury or an illness. For example, they would not be able to select a rehabilitation setting for you, have access to your medical records, represent your interests regarding the course of your treatment or even file your income tax return. The failure to make proper legal plans in advance could force you and your loved ones into the Incapacity Probate process by default, because these decisions must be made even if you are unable to make them yourself. Making proper legal plans now could avoid creating potential problems for your loved ones later.
As you grow older, you may get married. It has been said that a marriage may be made in Heaven, but the maintenance must be done on earth. As part of your marital maintenance, you should review and update your Life & Estate Plan. For instance, your legal plans should be updated to appoint your spouse as the primary decision-maker for personal, health care and financial decisions. In addition, ensure that your separate and mutual assets would be distributed as desired should either spouse predecease, or in the event of your simultaneous deaths.
First comes love, then comes marriage, often followed by a baby carriage. If you have children, make sure your legal plans are updated to appoint back-up parents should your minor children be left without parents.
When your children become adults, you may wish to update your legal plans and appoint your children as secondary decision-makers should your spouse be unable to serve. Consider creating Long-Term Discretionary Trusts for your children to protect their inheritance both from them and for them. Otherwise, your financial legacy could be lost to squandering, divorces, lawsuits or bankruptcies.
While you are at it, consider including remarriage protection provisions in your legal plans to protect the children’s inheritance by disinheriting your surviving spouse’s next spouse in the event of remarriage.
Is a major asset in your estate a family business? To preserve both the business and your family relationships, proper business succession planning is a must. (This planning is essential, especially since family businesses have a dismal survival rate.)
Through advanced legal planning, you can even disinherit the IRS and leave more wealth to your descendants by maximizing the Generation-Skipping Transfer Tax Exemption available under the Internal Revenue Code.
Have you made proper legal plans for the distribution of your charitable legacy to your favorite causes and institutions? In fact, many of the charitable legal plans available can help you increase your current income and offer valuable tax deductions!
Regardless, be sure to seek appropriate legal counsel to ensure compliance with tax laws. This is not a “do-it-yourself” project.
The Three P’s Protocol
Quick. If you were incapacitated or died today, what would happen to your loved ones and your property? Who would assume responsibility to make sure everything is okay? How would anyone know your plans for the care of your loved ones and your property?
Even if you have answered these fundamental questions through proper estate planning, it is essential to review your answers periodically, because they may change over time. To help ensure that your planning and reviews are thorough, remember to cover the Three P’s of proper estate planning: People, Property and Plans.
From the time we are born until we die, our life experience is enriched by the relationships we develop with other people. Truly, none of us is an island. Who are the important people in your life right now? Depending on your unique circumstances, your list may include your spouse, children, grandchildren (even great-grandchildren), parents, siblings, nephews, nieces or friends. Beyond these, your important people also may include religious and non-religious charities. And be sure to remember any pets, whether they have feathers, fins or fur.
In addition to collecting relationships with other people during our lifetimes, we tend to collect relationships with property along the way. In this context, property encompasses more than just real property (i.e., real estate), including all of your assets independent of form. What property have you accumulated? Have you inventoried and valued your things, or will you send your loved ones on a very unpleasant and lengthy treasure hunt?
The foundation of every comprehensive estate plan is the selection and appointment of your successor decision-makers to make your personal, health care and financial decisions in the event of your incapacity. Likely, such successors would continue to manage your property following your death, as well. Who have you appointed as your successor decision-makers? Do they have the time and expertise to serve? Would it be wise to appoint professional assistance to help them with the details? Perhaps a professional successor decision-maker, such as a trust company or a certified public accountant, is more appropriate given your unique circumstances.
Issues surrounding the division and distribution of property can shipwreck family relationships upon the death of the property owner. Do you have sentimental, one-of-a-kind items? A recent study found that most family fall-outs result over the failure to make legal arrangements for the distribution of such items.
In conclusion, time spent on your Three P’s will be time well spent. Poor (or non-existent) inheritance planning can cause the loss of a family business, blended family brawls, affluenza among idle heirs (along with their divorces, lawsuits and bankruptcies) and unnecessary dissipation of your life’s work due to avoidable estate taxes.
Note: Nothing in this publication is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisors regarding the same. [See IRS Circular 230.]
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