A well-considered estate plan is imperative for everyone who wants to protect their assets and keep the peace among their family members. An effective estate plan can care for your loved ones, and it can also keep them from engaging in legal disputes after you’ve passed away. Good estate planning, conducted with the insights and guidance of an experienced Washington, D.C. estate planning attorney, can eliminate fear and confusion, and it can also provide genuine peace of mind.
If you own your own home or your own business, and if others rely on you, taking the eight steps listed here will help your family in the event that you die or become incapacitated:
1. CREATE A DURABLE POWER OF ATTORNEY
A durable power of attorney is a reliable, straightforward way to make sure that someone you trust will have the authority to handle your financial affairs if you should become incapacitated. Every person over the age of age 18 should have a durable power of attorney. A durable power of attorney can go into effect immediately, or it can be written to take effect only if a physician confirms that you have been incapacitated. It’s a document that gives your family – or anyone else you choose to designate – the direction that will be needed when you can’t provide it. The person you designate is called your “agent” or your “attorney-in-fact.”
2. PROTECT THE PROPERTY OF YOUR CHILDREN
You should name either a property guardian, a custodian, or a trustee to manage the money and property you leave to your minor children. This may or may not be the same person as the personal guardian you name in your will. Generally speaking, a will transfers your estate to your beneficiaries after you pass away. If you have a minor child or children, their guardian – in the event of your death – should be named in your will or living trust.
3. PURCHASE SUFFICIENT LIFE INSURANCE
If you have school-age children or own a home, or you may owe some large debts or estate taxes when you pass away, so life insurance is most likely a good idea. Life insurance can pay off debts, final medical bills and funeral expenses, mortgages, and tuitions or college loans. An estate planning attorney can help you determine if your current life insurance is sufficient to meet your needs.
4. SPECIFY “PAY-ON-DEATH” BENEFICIARIES
A “payable-on-death” or POD form provided by your bank or retirement plan – not in your will or trust – makes the account payable on death to the beneficiary and lets those assets skip the probate process. A transfer-on-death or TOD is comparable but is used with brokerage accounts. If you’re married, your spouse will probably be your beneficiary, but if a beneficiary dies and you do not revise the POD and TOD forms, any assets in those accounts will go through probate. Likewise, in most states, you can choose a beneficiary for your stocks, bonds, or brokerage accounts in the same way, and in some states, vehicles may be transferred this way, too.
5. AVOID ESTATE TAXES
Your heirs may have to pay estate or inheritance taxes. Unless you’re exceedingly wealthy, you won’t need to be concerned about federal estate taxes because you can leave up to $5 million tax-free, and spouses can leave up to $10 million together. However, some states impose estate or inheritance taxes, and if you live in one of those states, you may want to plan to reduce your tax liability. Assets that you give away while you are alive will not be subject to estate taxes.
6. PROTECT YOUR BUSINESS INTERESTS
If you’re the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buy-sell agreement. Many new business partners fail to create a buy-sell agreement (sometimes called a “buyout” agreement), but a buy-sell agreement is imperative for protecting your investment in a partnership. When you create a buyout provision for your partnership, you and your partners will be protected and prepared if one partner leaves, divorces, files bankruptcy, becomes incapacitated, or passes away.
7. COVER YOUR FUNERAL EXPENSES
Instead of a prepaid funeral plan, which may not be dependable, you can establish a Totten trust with your bank and deposit funds in the trust to cover your funeral and burial or cremation. Extensive legal regulations govern how the funeral industry may invest or otherwise handle the funds you set aside for services in the future, but many cases of abuse have been reported, including stolen and mismanaged funds.
If you are interested in setting aside funds for your final arrangements, a better idea is talking with your banker about establishing a Totten trust – an account set aside to pay for final arrangements. Unlike traditional prepaid funeral plans, Totten trust funds are easily transferred or withdrawn if you need them, and you retain complete control over the money during your lifetime.
8. SECURE YOUR ESTATE PLANNING DOCUMENTS
Have you stored your estate plan information where your attorney-in-fact or your executor can find it? Paper documents hide in unusual and inconvenient locations, and they’re inevitably difficult or impossible to locate when they’re needed. You must have permanent, secure document storage. Digital “vaults” may eventually become the option of choice for document storage, but as of 2017, only several states recognize digital wills, so in most states, you still have to store paper documents. Your attorney-in-fact or your executor will need to have access to the following documents:
• wills or trusts
• insurance policies
• real estate deeds
• information regarding bank accounts, mutual funds, and deposit boxes
• retirement plans, 401(k) accounts, or IRA info
• certificates for stocks, bonds, annuities
• information regarding any debts: credit cards, mortgages and loans, utilities, and taxes that are unpaid
• info about any Totten trusts or prepayment plans for funerals, as well as any instructions about final arrangements that you have made
Estate planning is no one’s idea of fun. It makes us think about the possibility of incapacitation and about the certainty of death. Good estate planning is not done quickly or casually. It is more than merely drafting a will, and it’s not just for the affluent and wealthy, but for every adult. Right now is not too soon to begin, either. If you do not have an estate plan in place, an experienced Washington, D.C. estate planning attorney can help you get started or review and update your current estate plan.