It can be difficult to start the estate planning process as it involves thinking about negative outcomes of life such as death, disability or incapacitation.
It’s incredibly important to have these documents lined up early in life. Doing so can help preserve assets, reduce unnecessary taxes or expenses, protect your privacy, and help ensure that your assets are passed on to the right people should something happen to you.
What are the common estate documents you should have in place?
Powers of Attorney – these are documents that you use during your lifetime in which you name an agent to act on your behalf in the event you are unable to advocate for yourself. There are two kinds that we typically suggest: financial and healthcare.
A Financial Power of Attorney is someone who can act on your behalf for all legal matters (i.e. paying your bills, filing tax returns, or entering contracts), while a Healthcare Power of Attorney can make decisions in regard to your medical care while you are incapacitated. With a Healthcare Power of Attorney, you generally also prepare a living will.
Living Will – this is a document that outlines exactly what kind of healthcare decisions you want your agent to make in the event you can’t advocate for yourself. Having your wishes clearly written helps alleviate the chances of family conflict or controversy and takes some of the pressure off of your loved ones in times of high stress.
Powers of Attorney are effective when you’re alive, but when you pass, your will is going to let the world know how you want your assets to be distributed.
A term that commonly comes up in estate planning is probate, what is probate?
Probate can vary drastically from state to state but in general, it is a court-supervised process that assets have to go through to be passed on to beneficiaries and includes three primary steps:
1. File Will with the Court – the executor that you have identified will be responsible for this step and must go to the courthouse to present your will to the court.
2. Provide Notice – your executor must then provide notice to all interested parties and to the general public that assets are being transferred.
3. Account for all Assets – this process in itself is not complicated but can open your assets up to all sorts of unnecessary risks such as will contest or creditor claims.
It’s also critical to know that going through probate is a very public process. If you don’t want your personal financial statements to be public knowledge, then you really want to avoid probate.
What can I do to avoid probate?
A well thought out and documented estate plan can eliminate the need for probate. Probate only applies to assets held in your sole name, so any jointly held asset will skip probate entirely and pass directly to your surviving joint owner. Similarly, if you designate a beneficiary for life insurance policies, brokerage accounts (transfer on death), bank accounts (payable on death) and retirement accounts, those assets are not subject to probate and will go directly to your appointed beneficiary. At the same time, you do want to make sure that enough assets will be available to the executor to pay any outstanding debts, taxes, and end of life expenses. In addition, trusts can sometimes be a good solution to avoiding probate.
What are some of the most commonly used trusts?
Revocable Trust – This type of trust allows you to avoid probate while retaining control of your assets. Although you don’t technically own the assets you put in your trust for probate purposes, you can name yourself as a trustee and still retain control. The downside with this type of trust is that these assets are still included in your taxable estate so it does not offer incentives for estate tax savings or creditor protection.
Irrevocable Trust – This type of trust offers more asset protection but requires you to relinquish control of your assets. When you create an irrevocable trust, you select the terms of the trust and designate a trustee but after that you have no say in what happens to those assets. The upside of this option is that by effectively removing assets from your control, you are able to isolate said assets from any kind of litigation.
If all you’re trying to do is avoid probate, a revocable trust can be a great tool but if you want to take advantage of asset protection benefits, then an irrevocable trust might provide the strategy you are looking for. If you are interested in a trust, you should consult a legal professional for their advice on which strategy best suits your situation.
How often should you revisit your estate plan documents?
Your estate plan should evolve throughout your life. Anytime you have a major life event, such as the death of a loved one, a marriage, a birth of a child, you really do need to revisit your plan.
Barring any significant life event, we suggest sitting down with your estate planning attorney every three to five years.
What are some common estate planning mistakes to avoid?
The most common estate planning mistake we see is not really with the estate plan itself, but with the communication of the plan. You don’t really create an estate plan for yourself. You’re doing it for your family in order to alleviate stress during times of high emotion. Most legal documents will effectively name the people to carry out your plan, but it’s wise to have that conversation with your family ahead of time to avoid any conflict when you’re not around to explain the decisions that you made.
It’s equally important to communicate your estate plan with your financial advisor. Your advisor should be in partnership with your estate attorney to ensure all parties are aware of your plans. If interested in connecting with one of our advisors to start the process of creating an estate plan, please contact us at [email protected].
About Schneider Wealth Management
Schneider Downs Wealth Management has been providing investment and retirement services since 2000. Although our service platforms continue to evolve, commitment to our clients remains our first priority. Our service is tailored to your individualized goals but built on the fundamental principles of our practice: fiduciary guidance, fee transparency and goal-based decision making. To learn more, visit our dedicated Wealth Management page.Â
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
