Below are answers to six common estate planning questions we hear all the time.
Q: I don’t have a lot of money or other assets, do I still need an estate plan?
A: Yes! Estate planning is not just for the Gates or Buffets of the world. Estate planning accounts for some of life’s most personal and important decisions. It is something that all people need, regardless of age, health, or value of assets. Comprehensive estate planning ensures that the right people are in place to make medical, financial, parental, and business decisions on your behalf – both while you’re alive (incapacity planning) and long after you’re gone. It makes certain that the right people and/or organizations inherit your assets (regardless of their value) and that they are distributed in the time and manner in which you intended. A properly executed estate plan should also provide protection against the misuse, squandering, and mismanagement of assets, due to a reckless beneficiary, divorce, lawsuit or creditor.
Q: Do I really need an attorney to draft my will?
A: Yes! Working with an attorney licensed in your state is very important.
The dangers of creating documents such as Wills, Advance Directives, Powers of Attorney, etc., on your own, far outweigh any perceived cost savings – which is the main reason people attempt to do it. First of all, each state has its own requirements for each of the various legal documents. If you create your own and don’t meet the specific requirements for Maryland, for example, your documents may not be effective. Similarly, Medicaid is very state specific. The rules that govern Medicaid in Maryland can be completely different from the rules in Washington, DC or Virginia. And, as we all know, laws are changing all the time! Even “simple” estate and Medicaid planning isn’t simple. There are legal requirements for documents, gift tax, estate tax, capital gains tax and income tax issues in even small estates, Medicaid issues, etc. Failure to properly execute legal documents may make them invalid. So, while you may have saved money drafting documents online, often legal fees to “fix” what was done incorrectly (if it can be corrected at all) far exceeds the cost of planning with an attorney.
Q: Do I need a trust?
A: This question comes up even more frequently since Congress passed the
Tax Cuts and Jobs Act of 2017, which increased the federal estate tax exemption amount from approximately $5 million per person to $11 million per person or $22 million per couple. The answer is always, "It depends!" Trusts allow you to protect your assets and property from going through Probate Court at the time of your death. If your assets are already in the name of your trust, then the assets need not transition ownership or title at the time or your death. Moreover, a Settlor can personalize a trust so that its impact is felt over time. Whether trust planning makes sense depends on your goals and concerns, assets and net worth, state law, and other concerns such as a desire for privacy, the existence of a special needs beneficiary, charitable interests, and/or wanting to protect against a family member squandering their inheritance.
Q: I have a complete package of estate planning documents. Am I finished with my planning?
A: No! Estate planning as a process, not a product. In the days, months and years following your first completed estate plan, the inevitability of change (with respect to both life and laws) makes for another critical part of the process, which is keeping your estate plan current.
Having an outdated or improperly prepared estate plan is as dangerous as having no estate plan at all. As a general rule of thumb, we recommend having your documents reviewed and updated if necessary every four years to ensure that:
- they are in compliance with current Federal and State laws.
- that you have all of the documents that you need (ex: medical directive, power of attorney, etc.).
- that they reflect your current wishes (ex: beneficiaries are correct, division of assets, long-term care, etc.)
- that they account for any changes that may have occurred in your life (ex: divorce/remarriage, change in residency, new children/grandchildren, significant change in assets, you decide to leave money to charity, etc.)
Q: If I add my child to my bank account, do I still need a power of attorney?
A: Adding someone’s name to an account typically means that they have become a joint owner of your account. This may have legal ramification such as subjecting your funds to the claims of the joint account holder’s creditors or passing outside of your will despite your intent for multiple individuals to share in your estate. In addition, a joint owner on a bank account can’t collect money should someone owe you or sell property on your behalf or enter into contracts on your behalf. A power of attorney is a broad legal document that will allow someone you trust to assist you with the business of life, which encompasses much more than simply paying bills from an account.
Q: What's the most overlooked area of estate planning?
A: Business succession planning is one of the most overlooked considerations when it comes to estate planning. Most owners of family businesses act as if they’re going to be running their business forever and have done no planning to address who will take over their business upon retirement, death or disability. There is no “One-Size-Fits-All” solution to business succession planning. It is a complex process and every business is unique. We believe that the four most important goals of business succession are establishing:
- a new management structure
- an ownership transition plan
- a strategy for dealing with the taxation ramifications of transitioning a business
- and financial security
We're here to answer all of your estate, business, and legacy planning questions! Contact us to schedule an initial estate planning consultation.
