What comes to mind when you hear the term "estate planning?"
If you're like many people, you know it has something to do with having a will. You’d also be correct if you said it involves making certain other types of arrangements that would go into effect at your passing.
A good estate plan goes further and addresses several aspects of your current situation, as well as planning for how to thrive in the years to come. Consider this definition:
Estate planning is the process of caring for yourself and your assets while you are living, and planning for the orderly transfer of assets to other persons and organizations at your passing.
Why do estate planning?
Very few people wake up in the morning and wish they could spend the day working with their attorney to create an ‘estate plan.’ However, creating or updating your plan is among the most important things you can do, and you can gain much satisfaction as you go through the planning process.
With your estate plan, you can:
- Ensure the wealth you have accumulated over your lifetime goes exactly where you want it to go. (If you don’t have a will or living trust, the state you live in would impose a distribution plan for you, which may or may not match your wishes.)
- Give directions to be followed in case you become incapacitated and can’t make decisions for yourself.
- Organize your affairs and designate who will handle them when you are gone.
- Appoint a guardian for minor-aged children.
- Provide for any special needs your loved ones may have.
- Minimize possible estate taxes and probate fees.
- Remember and provide for friends, pets, and organizations you care about. (They would not benefit from the distribution plan dictated by your state.)
By planning, you also make things easier for your family. If something happens to you, it will already be a very difficult time for your family and other loved ones. How wonderful it would be if they know exactly what you want to have happen and have the means at hand to follow your wishes. Consider the planning you do now to be a future gift to your loved ones.
While estate planning can mean thinking about uncomfortable issues and may entail some difficult choices, it can provide a sense of relief and peace of mind when it is completed. You’ll know that you have done your best to plan and provide for yourself and for loved ones, as well as for the causes you’ve cared about during your lifetime. Like others who have already gone through the process, you also will likely find great satisfaction in knowing what your legacy will be.
The Key Elements of an Estate Plan
Related to your final wishes
- Will. A valid will is generally typewritten, dated, and signed by you as well as two legally competent witnesses. States differ as to the exact requirements for a valid will – for example, whether a handwritten will, with or without witnesses, is valid. After your passing, the probate court administers your will to carry out its instructions, charging fees to do so. Through the court process, your will becomes public record along with its related documents and proceedings.
- Revocable Living Trust. A revocable living trust can replace a will as the primary document that instructs the distribution of your property. You might hear it referred to as simply a “living trust,” named because you create it while you are living, or by its more technical term, an inter vivos trust. A living trust requires that you actually transfer your property into it, meaning your trust would then own the property, for it to be effective. You can retain the ability to change or revoke a living trust, and most often, people serve as the trustee for their own trust. A living trust allows assets to pass to heirs outside of the probate process – potentially saving probate fees – and keeps your affairs private.
Planning tip: If your estate planning attorney recommends a living trust, he or she may also suggest a will as a backup document, to cover any assets you own but hadn’t yet included in your trust at the time of your passing.
- Beneficiary Designation Assets. Distribution of certain assets such as your IRA, life insurance, commercial annuities, and financial or investment accounts, are controlled by a beneficiary designation form specific to each asset. You fill out this form when you establish IRAs or other types of retirement plans, or purchase a commercial annuity or life insurance policy. You can also request a beneficiary designation for a bank or investment account. Once you complete the form and file it with the administrator of the asset, the administrator knows to distribute the asset at your passing to the people and organizations you have named on it.
Important note: By law, your will or living trust does not control the initial distribution of assets like these. The beneficiary designation form is the governing document for the initial distribution. Since beneficiary designation assets pass outside of your will or living trust, beneficiary designation forms can have a profound impact on how your overall estate is distributed and should be part of any coordinated plan.
Planning tip: It may be possible for you to name your will or trust as a beneficiary of the asset, and then have your will or trust describe how these assets should be distributed. Consult with your attorney as to whether this strategy is right for you.
Provide for physical or mental incapacity
- For financial matters, Power of Attorney (POA). This document gives someone you trust the ability to act on your behalf for a variety of financial transactions and responsibilities. You decide when the POA will become effective as well as the extent of the authority it grants. A POA is effective only during your lifetime; it automatically terminates at your passing.
- For health care decisions, Health Care Power of Attorney (HCPOA). This document allows you to specify who is in charge of making medical treatment decisions for you if you are not able to make these decisions for yourself.
- For emergency situations, Physician’s Order for Life Sustaining Treatment (POLST). This document describes what health care treatment you want in case of an emergency. You work with your doctor to document your wishes regarding resuscitation and other life-sustaining procedures.
Managing and distributing your wealth
You might conceive of the estate planning process as constructing a pyramid from the ground up. At the base of the pyramid, you want to do what you can to ensure your own well-being. In doing so, keep in mind that it's not selfish to look out for yourself. Only by meeting your own needs now and in the future are you able to take care of others and build the next levels of the pyramid.
If you’re fortunate enough to accomplish some important basics, you’re then in a position to provide for family members and other loved ones. After you have done so, if you have the desire and the means, it becomes appropriate to think about a legacy you can leave to organizations and causes dear to you.
We hope that you will consider arranging a gift to Bentley when you create or update your estate plan. We realize that we will never replace family members and other loved ones in your plans, and we wouldn’t want to. Part of your planning process is to consider how much to leave to individual heirs. What remains can be used to fulfill your charitable dreams and desires.
How much to leave to children, grandchildren and other family members or friends is a judgment call. Some people transfer as much of their estates as possible to heirs. Others fear that transferring too much wealth may discourage productivity and undermine self-motivation. Still others realize that the community and world they leave to following generations is also part of their legacy.