LIFE PLANNING SHOULD ALWAYS BE CONSIDERED ESTATE PLANNING
Most people make their earliest financial and security decisions such as the purchase of life insurance, investment in a retirement or 401k plan, and setting up joint checking accounts without any thought that they are really engaged in the early stages of estate planning. These simple acts of “life planning” are truly an initial approach, even if not actually intended or fully thought out to be part of his or her actual long-term plan or goals. Unfortunately, for many individuals this first step is just about as far as they get in following through with their estate planning.
WHAT IS AN ESTATE PLAN?
Estate planning does not simply mean having a Last Will and Testament. Although a will may be said to be the cornerstone, estate plans not only provide instructions and direct how a person's assets should be disposed of, but it can include any one or more of the following:
- Trusts to retain and distribute assets at specified times to beneficiaries or to the individual creating the trust to provide tax benefits and protect inherited funds
- Powers of attorney to allow trusted individuals to make financial and/or medical decisions on your behalf when you are unavailable or incapacitated
- Designation of beneficiary authorizations to provide direct payment of benefits from life insurance, annuity, retirement, and financial accounts
- Living Wills/Healthcare Surrogate Designation authorization to provide medical directives for treatment under certain circumstances and appointment of a person to make medical decisions when you are incapable of doing so
WHAT ARE THE BENEFITS OF ESTATE PLANNING?
At the very least, estate planning saves time and money. When a person dies in Kentucky without a will a Probate Court Judge must appoint the personal representative for the estate from those who apply (that is, those who file a written petition) for the position. Although there is a priority list of those related to the deceased person who are allowed preference, when there is disapproval among the heirs as to who is appointed, the proceedings can get very adversarial. The result is that a lot of money will be spent, and time will be wasted, both of which can be avoided by naming an Executor in a will.
The other major benefit to making a will involves issues concerning the care, custody, and control of children. If an individual without a surviving partner or spouse dies with custody of a minor child, there will be no instructions for any court to follow regarding that child's future guardian or caretaker of the parent's estate until they are old enough to receive it. Again, the time and money wasted in reaching the point where a Guardian and Trustee are appointed for the child can be avoided by naming those individuals in a will.
In addition to having decisions made to take care of things after your death, a comprehensive estate plan should also include signing a few other documents that benefit you while you are alive. For example, a durable power of attorney will authorize another individual, without depriving you of any rights or the subsequent ability to change your mind, to act on your behalf on various sorts of personal, legal, financial, and medical matters.
Of course, no discussion of estate planning is complete without mentioning the potential estate tax-saving benefit that may be realized. Although federal estate taxes typically affect only the very wealthy, there is always the potential that the tax laws may change. In such event, it will become even more important to explore ways that effective estate planning can help you.