The purpose of estate planning, generally speaking, is to prepare you and your family the chance to plan ahead for both incapacity and death. There are various useful estate planning tools that can be used for this purpose depending on your specific goals. To make the process a little simpler, our Orange County estate planning attorneys provide the following easy steps to get you started.
Step 1. Create your will
The last will and testament is a very important part of every estate plan, and everyone should consider having one. Anyone who does not have a comprehensive estate plan, should at the very least, have a will. Yet, only 30% of Americans have an executed will.
Step 2. Consider creating a trust
A trust is basically a fiduciary agreement between a trustee and the person who creates the trust. Fiduciary means the agreement is premised on confidence and trust. The purpose of a trust agreement is to give the trustee authority to hold and manage the trust assets on behalf of the named beneficiaries.
The terms of the agreement will provide the necessary provisions for managing and distributing the trust property. There are many different types of trusts that have their own specific purpose. However, there are three basic steps required to create a trust: drafting the trust agreement, funding the trust with the property and settling the trust.
Step 3. Create your health care directives
An Advance Medical Directive is a legal document that allows you to delegate medical care and treatment related decisions to someone else, in the event you are not able to make those decisions for yourself. This estate planning tool allows you to select someone to manage your medical decisions for you. Advance Medical Directives are created so that they take effect even in cases of temporary incapacity.
Step 4. Establish a financial power of attorney
In addition to medical decisions, incapacity may also require assistance in handling financial matters as well. For this type of assistance, you should have a Financial Power of Attorney. This estate planning tool allows you to select someone you trust to manage your financial affairs.
Step 5. Take steps to protect your children’s assets
In most cases, spendthrift trusts are used by those who need to leave property to a beneficiary about whom there is a concern as to whether they can manage that property prudently. If there is a concern that the beneficiary may have issues with creditors, a spendthrift trust may also be a wise choice. A spendthrift trust works because it prevents the beneficiary from wasting the property all at one time.
Step 6. Complete necessary beneficiary designations
Identifying a beneficiary for your bank accounts and retirement plans means those particular accounts automatically become “payable on death” to your beneficiary. That also means the funds can bypass the probate process. The same is true, in most states, that you can register your stocks, bonds, or brokerage accounts in order to be transferred to your beneficiary upon your death.
Step 7. Purchase life insurance policies
Especially for families with young children, as well as homeowners and those who have a significant amount of debt, life insurance is a simple estate planning tool you should consider.
Step 8. Plan for potential estate taxes
The vast majority of Americans are not required to pay any estate taxes upon their death because the federal estate tax exemption is $5.45 million for each individual. Married couples double that exemption. What that means is, only the amount of your estate that exceeds $5.45 million will be assessed an estate tax. There are various tax-saving strategies that can be used to help avoid estate tax.
Step 9. Be sure to plan for funeral expenses
When it comes to ensuring that your funeral expenses will be covered, there are many different options to consider. Some clients opt for funeral prepayment plans but some find them somewhat unreliable. Another option is to establish a payable-on-death account at your bank that can be used to pay for your funeral and related expenses.
Step 10. Make your final arrangements in advance
Not only should you consider creating a living will to provide specific instructions regarding the type of medical treatment you agree to receive or want to refuse if you should ever become critically ill, such as Do Not Resuscitate orders or DNRs, but you also need to make your wishes known regarding organ and body donation and whether you want a burial or cremation.
Step 11. Take appropriate steps to protect your business assets
The ultimate goal for every business, upon the death of the owner, is a smooth transition of ownership into capable hands. Without a fluid shift of management, your business may be at risk and may not survive your retirement intact. A well thought out succession plan is the best solution.
Step 12. Store all necessary documents
One final step that many clients overlook is making sure that the appropriate people have access to the important estate planning documents you leave behind. Otherwise, all of the hard work you put into planning will be for nothing. In many cases, your chosen attorney-in-fact or executor will need access to your will, trust document, insurance policies, real estate deeds, and certificates for stocks, bonds, and annuities. You also need to gather other information about your accounts and debts and leave that information for your attorney-in-fact or executor.
If you have questions regarding the steps necessary for proper estate planning, please contact the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.