Estate Planning Basics
There is considerable confusion around the topic of estate planning. Moreover, many people do not want to think about this topic since it naturally involves the thought of passing away. That being said, estate planning remains a very important aspect that should never be ignored or put off. This article discusses estate planning basics and when to establish an estate plan.
When To Set Up An Estate Plan?
Many individuals think that estate planning is only for the elderly; something to consider only after you have hit the golden years of retirement. However, the truth of the matter is that an estate plan is something that should be in place no matter what stage of life you are in. It doesn’t matter if you’re in your 20s, 30s or 60s; an estate plan is vital in case of an emergency.
What Does Estate Planning Involve?
Simply put, estate planning involves planning a comfortable future for yourself, and/or loved ones. This includes both planning for the inevitable (death, retirement, etc) and also planning for unforeseen events such as physical and/or mental incapacity, disability, etc. Here are specific aspects involved in estate planning basics below:
Basic Wills – A will is a complex document that spells out your desires in detail. It should be updated throughout the year as major life changes occur that need to be taken into account. These documents set out your wishes after you die for your family and loved ones. This details everything from personal items to financial assets and what you’d like to do with them.
Living Wills – Life is uncertain, when someone isn’t capable of making decisions for themselves, a living will is needed. This legal document sets forth your desires in the event that you are in a coma or vegetative state. For reasons of legitimacy, it is important to have an attorney assist in drawing up a living will for you. This helps ensure that your desires are followed.
Trusts – Similar to a will, a trust is a document that allows assets/property to be passed on to beneficiaries after death. There are several differences with trusts as opposed to wills. For example, trusts are more likely to avoid probate. They can also protect government benefits (i.e disability). Furthermore, trusts may reduce estate taxes (death taxes).
Other Estate Planning Basics
The drafting of basic wills and trusts are generally the first thing people consider when it comes to estate planning. That being said, there are more specific documents and other aspects people should be aware of. More specific matters related to estate planning include:
Guardianship – If you have kids under 18 years old, then you’ll have to figure out who will take care of them when you no longer can. If your spouse or partner is still alive, guardianship will automatically goes to them.
Power Of Attorney (POA) – If anything happens to you, it’s important to have someone you trust make decisions for you. This person will distribute your assets as you have stated within your estate plan. A medical power of attorney is an individual that you have appointed to make decisions regarding your medical care. You can have one person for both positions or split the duties between two people that you know will make sure your wishes are met.
Probate – The term probate can be used in a few different ways. One way to think of probate is as the act of presenting a will to court officers for filing; often this is stated as to probate a will. The other popular way to think of probate is as the method that an estate is overseen and routed through the courts after your passing.
Reasons To Plan An Estate
There are many good reasons to plan your estate as soon as possible. Here are several of the main reasons why it’s a good idea.
Peace of Mind – The biggest reason is to give everyone the peace of mind knowing things are all taken care of ahead of time.
Specify who is to receive which assets after your death – In order to prevent any fighting or hurt feelings it is very important that you assign assets to everyone that will be mentioned in the will.
Helps to avoid probate headaches – If there was no will or trust everything would go in the court system and that is what is referred to as probate court.
State who is to be the guardian of any minor children – When you have minor children you have to consider who you will want to take care of them in the event that you were to die.
Name the executor – The executor is the most important decision besides who will be taking care of the kids. The executor will be responsible for making sure that all of the parts of the trust are carried out.
Establish a Power of Attorney for financial decisions – The power of attorney for making financial decisions needs to be settled in order to be able to pay any bills for care if you become incapacitated.
Establish a Power of attorney for healthcare – Like power of attorney for financial reasons, you also need to choose someone to make medical decisions in case you’re incapacitated.
Restrict minor children’s access to inheritance – This protects your children and keeps them from spending any of the money from inheritance. The usual time frame is 25-30 years old.
Shield the inheritance from tax concerns, divorce issues and creditors – Having a trust in place will help to protect the assets from taxes and divorce.
Consequences Of Not Having An Estate Plan
Estate plans are put in place not only to be your voice upon your passing, but also to express your wishes should you become incapacitated and are no longer able to make decisions for yourself. If you have not appointed an individual to make choices on your behalf, then the State will step in. If this occurs, your desires are left unknown and the State will step in to take over the process which is known as intestacy.
Intestacy rules vary from State to State. In general, however, the distribution of assets by intestacy requires a probate proceeding. Most families hope to avoid probate when a family member passes as it is costly, time consuming, and open to the public. It is also frowned upon as there is no way for the state to know what your desires would have been so your assets are distributed as they see fit.
If you do not have proper documentation in place and become incapacitated a judge will decide for you who will be in charge of you and your assets. This process is known as guardianship and conservatorship. It can be quite expensive for your family even if there isn’t a disagreement on your care or asset distribution. It can often cost more than what would have been paid to have in place a proper estate plan.
In order to avoid this situation, it is crucial to take the appropriate steps which can include an all-inclusive estate plan with a living trust and power of attorney in place. This ensures that if you become disabled or pass away the division of your assets along with your desired wished-for care are known by your family and easily executed without burdening your family.
When you least expect it, emergency situations can occur. It’s better to have an estate plan in place proactively, as opposed to not being prepared.
Not Updating the Estate Plan
It could be that when one was doing estate planning, the family was still small. With time, children are born, issues like divorce and deaths occur and other family matters. When an individual fails to update the plan, this may result in complications. It is crucial with every major change that your estate plan is updated.
Not Finding the Best Legal Advice
It is important to choose an experienced estate planning attorney, particularly within your State.
Do You Need An Attorney?
When creating an estate plan, it is always better to hire a professional than attempt to DIY. Although many people think they can write their own wills, the truth is, they’ll most likely leave out vital information. Moreover, your estate plan will not be sufficient in the event a will or trust is contested in court. You will save a significant amount of time and money when having a professional draft your estate plan.
An estate plan isn’t just a will. In reality, there are a variety of different estate planning documents you’ll need to ensure your estate is handled properly.
Instead of doing it yourself, let that responsibility fall on a professional with years of experience in writing these documents.
Michigan Estate Planning
Like many areas of law, certain States have their own specific set of laws regarding estate planning. For example, in Michigan, you may avoid probate if your estate qualifies as a “small estate.” According to Mich. Comp. Laws 700.3983,
“Upon a showing of evidence, satisfactory to the court, that the decedent’s funeral or burial expenses are unpaid or were paid by a person other than the estate, and if the balance of the gross estate after payment of the expenses would consist of property of the value of $15,000.00 or less, the court shall order that the property be first used to pay the unpaid funeral and burial expenses, or to reimburse the person that paid those expenses, and may order that the balance be turned over to the surviving spouse or, if there is not a spouse, to the decedent’s heirs.”
There are many other aspects to avoiding probate, and Michigan estate planning in general. As a result, it’s important to consult with an experienced lawyer that has knowledge of the law specific to your State.
Estate planning remains very important for families and should never be ignored or put off. Here are the main points regarding estate planning basics:
- It’s never too early to start. In fact, one should start as soon as possible.
- Planning an estate is not limited to setting up a will, but also important for emergency situations.
- Ensuring security for yourself and loved ones is important; it’s best to have your estate planned with an experienced professional.
About The Author
Sean J Nichols, PLLC is a Michigan law firm for estate planning with years of experience. If you have questions about estate planning basics and would like to speak with one of our experienced lawyers, call our offices today (734) 386-0224