Estate planning is a very sensitive and complex endeavor. Basic life planning, including a Will and a Living Will at a minimum, is important for everyone – no matter how much or how little you own.
By preparing a Basic Will, an individual gets to control how his/her property is distributed. Without a Will, the government will determine how your property is distributed.
While the Will is considered the foundation of any good Estate Plan, it may not be the only legal document necessary to carry out your wishes. Sophisticated Estate Plans based on each person and each family’s unique circumstances and the specific situation might be necessary to keep your estate protected.
Here are eight important things to know about estate planning:
Wills and Trusts are Not Just for the Rich
Wills are documentations of your decisions that will affect you and your family. They are intended to represent your plans and wishes when you are not able to directly communicate them yourself. That is not a right exclusive to a certain income level, but a necessity in an environment where the courts are empowered to protect and interpret your wishes for you (in the absence of a Will). One might even argue that it is more expensive to gamble on the future of your family by not documenting your wishes and creating costly future legal proceedings for your heirs.
Living Wills are More than Simple Health Care Decisions
When many people think of estate planning, they think only of the distribution of their assets when they are gone. However, it’s also important to maintain a Living Will. In a Living Will (also known as an Advance Medical Directive), you designate someone to make medical decisions for you if you are unable to make them yourself. This individual should be able to specify the type of medical treatment you wish to receive (or not receive) should you become seriously ill or incapacitated. It removes the requirement of a lengthy and expensive court hearing determining Guardianship and also relieves some of the doubt from your family about the course of action you would want to be followed in case of serious injury or disease.
Trusts Help Manage Tax Burden
A Trust can be critical to a thorough estate plan, especially when you are trying to protect particular assets such as a business or a high-value home. With the property values in New Jersey, it isn’t uncommon to have a “high-value” home in the eyes of the government. Often used to avoid preventable tax burdens, a Trust can be established either during your life or after your passing via your Will. There are numerous options beyond tax management when it comes to Trusts to safeguard certain assets from lawsuits or future claims from creditors.
Assets upon death may be subject to estate taxation by the State of New Jersey and the U.S. Internal Revenue Service. In addition, beneficiaries inheriting from your estate may be subject to a New Jersey inheritance tax. The amount of the tax varies of course on the size of your estate and can drastically reduce the amount of the assets actually received by your beneficiaries. Read more about the New Jersey Estate and Inheritance Tax.
Life Insurance and Your Taxable Estate
All of the proceeds from life insurance policies that are owned at death will be included in an estate for estate tax purposes. An Irrevocable Life Insurance Trusts (ILIT) is one way to remove life insurance proceeds from your taxable estate and avoid the taxing of life insurance proceeds at death. Read more about the details of ILIT
Estate Plans Need to Be Updated
Estate Planning is an on-going process and should never be considered a one-time event. As our families and needs evolve and change, the focus of the planning will shift over time. Despite all the thought and hard work that goes into creating your estate plan, things change, and sometimes those changes will require an update to your estate plan. The beneficiary designations on certain assets such as retirement accounts and life insurance policies override the terms of a Will. Inheritance is not automatic even for your closest relations. View our checklist on reasons to update your Estate Plan.
Power of Attorney is an Essential Element
Power of Attorney allows a specific person you trust known as an “agent” or “attorney in fact” to manage your financial affairs if you are unable to do so. Your agent is empowered to sign your name and is obligated to be your fiduciary – meaning they must act in your best financial interest at all times and in accordance with your wishes. There are different kinds of powers of attorney, but in estate planning, there are two essential types: springing power of attorney which goes into effect upon pre-determined circumstances and durable power of attorney which is effective immediately upon incapacity. Read more about these two essential types here.
If You Don’t Have a Will, a Court Decides Who Gets Your Assets
If you die without a Will in place, the state will decide who gets what, without regard to your wishes or your heirs’ needs. All fifty states have intestacy laws in place vary considerably from state to state. In general, if you die and leave a spouse and kids, your assets will be split between your surviving mate and children. If you’re single with no children then the state is likely to decide who among your blood relatives will inherit your estate. Making a Will is especially important for people with young children because Wills are the best way to plan for guardianship of minors.
For more detailed information regarding Estates and Trusts visit our Estate Planning page.