What is Estate Planning?
Basically, estate planning involves safely transferring your property and other financial assets to your family and loved ones in the event of death. A will is the most common document associated with estate planning and it is critical to plan your estate with professional attorneys who understand your values and long term goals for your property and wealth. It can also involve living irrevocable trust, general/durable power of attorney, healthcare power of attorney, and living wills.
What is Asset Protection?
Essentially, asset protection is the process of protecting your wealth (investments, property, assets, etc) from the possibility of future creditors attempting to take it from you or your family in the event of a bankruptcy or some other financial tragedy. Asset protection provides you with financial security and confidence that your wealth will be protected from any potential fiscal pitfalls.
I’ve done well for myself, but I’m far from a Gates, Buffet, or Zuckerberg. Why do I need an estate plan?
Everybody needs an estate plan, regardless of wealth. In most of the cases discussed below, wealth is not the driving factor of your estate plan; it is more about the assurance that you will have control over who gets all of your “stuff” and when.
Through an estate plan, you can name a guardian for minor children and trusts for them so they don’t receive assets at too young an age. You can also name your personal representative (otherwise known as an executor) instead of having the court select the person, and you can save that person from having to post a bond to the court to protect against errors. If you have any special collections you can decide who should receive them. If you are charitably inclined, you can leave some of your assets to your favorite charities.
Additionally, having a plan in place can make things easier for those you left behind, as it is a clearly laid-out plan detailing your wishes so that there should be no question as to what should go where.
I already have a will. Do I need an estate plan, too? What’s the difference?
A will is just one part of your estate plan. Other parts, depending on your needs, include durable powers of attorney, health care directives (also known as living wills), trusts, life insurance, and beneficiary designations for retirement plans, annuities and life insurance, to name the most common. Most people need at least some of the additional tools of an estate plan.
Depending on a person’s financial situation, a living/revocable trust may be appropriate. Generally, having a revocable trust will not only avoid the need for probate when you die, but if you become incapacitated, a successor trustee can step in fairly easily and continue to manage your financial affairs.
What is the difference between a durable power of attorney and a healthcare power of attorney?
The short answer is a durable power of attorney appoints an agent to handle financial affairs. A medical power of attorney appoints an agent to make medical decisions during incapacity.
More specifically, a durable power of attorney is a written document that creates an agency relationship between the person granting authority and an agent, or attorney-in-fact, the person to whom authority is granted.
By signing a durable power of attorney, you authorize another person to engage in specified business, financial, and legal transactions on your behalf. It is called “durable” because it does not terminate if you become disabled or incapacitated.
A medical power of attorney, on the other hand, is a document that allows you to designate a trusted family member or friend to make medical decisions for you in the event you become unconscious or mentally incapable of making those decisions for yourself.
The person you designate to make medical decisions for you is called an agent. The agent is given broad authority to make any health care decisions you could have made if you were not incapacitated, unless you specifically restrict his or her authority.
I want to transfer as much wealth to my family as possible. What are some ways to reduce the taxes associated with this process?
There are few taxes - There are a few ways to do this. First, consider gifting assets during your lifetime. In 2018, you can gift up to $15,000 to as many individuals as you like without being taxed, which means if you are married and have four children, you and your spouse can gift a total of $120,000 ($15,000 for each child from you and $15,000 for each child from your spouse) each year without worrying about gift taxes. If your four children each have spouses and/or children, the amount you can gift increases even more.
Second, you could set up an irrevocable trust. This method requires more expertise and should be done with the help of a qualified estate planning attorney. Before considering such a trust, be aware that any gift made to an irrevocable trust cannot be taken back, plus you lose day-to-day control over how the assets in the trust are used.
A third possibility is purchasing life insurance. Life insurance can enable to you replace any assets you may spend down in your lifetime and can also be used to either replace estate taxes that you may owe or to simply pass assets to your heirs income-tax free.
If you are charitably inclined, a good strategy to reduce taxes is to leave your IRAs and other retirement assets to charities and to replace those assets with life insurance to go to you heirs. You will then reduce your estate’s and heirs’ future income taxes, receive a charitable deduction for your estate, and pass assets to your children in a tax-advantaged manner.
How often should I review my estate plan?
You should probably review your estate plan every 3 - 4 years, though that does not necessarily mean you will have to change your plan each time you review it. Other times to review your plan are when changes occur in either federal or state estate or tax laws, in your family situation (e.g., birth, death, marriage, divorce, etc.) or in your financial situation (e.g., receipt of a large inheritance, or loss of a job that causes you to drain your assets faster than expected).
At what age should I consider a Living Will/Healthcare Power of Attorney for my child?
When a child reaches 18 years old, you should consider having him or her sign a Living Will/Healthcare Power of Attorney. If something happens to him or her, the doctor or hospital may not discuss his or her medical records with you. Here is an interesting NPR article discussing the issue: https://www.npr.org/sections/health-shots/2016/05/31/479751997/parents-may-be-refused-details-of-adult-childrens-medical-care
What happens if I don’t have a will or an estate plan?
Your assets will pass according to state law regardless of your wishes, and your estate may end up paying more in taxes and probate fees. If you have minor children, they will receive the assets outright at either age 18 or 21, depending on the state. Spouses of second marriages may only receive half of your assets while the other half is left directly to your children. Relatives you would otherwise have left out of your will (or whom you have never met) may receive some or all of your assets.
Federal and state estate tax laws are complicated, and there’s no doubt that it’s in your best interest to have a trusted professional help you with your plan. The estate planning attorneys are ready to work with you to meet your values and objectives.
This is for informational purposes only and should not be considered specific advice for any individual. Please see your legal, tax or financial advisor regarding your individual situation.
Frequently Asked Questions
Gadarian & Cacy, PLLC provides professional insight on common questions about Estate Planning, Tax Strategies, and Asset Protection.
These Q&A's are for informational purposes onnly and should not be considered legal advice for any individual.
Gadarian & Cacy, PLLC
2200 E River Rd, Suite 123
Tucson, AZ 85718