Here's Why You Should Create an Estate Plan

How can one reduce strain on family relations when it comes to deciding who keeps sentimental family heirlooms, investments, cars, homes, and other valued assets? Having worked hard your whole life to accumulate assets and wealth, how do you provide direction to your loved ones for the transfer of your assets? Do these assets have to go through the costly court process of probate?

Completing an estate plan can solve these dilemmas. Regardless of the amount of wealth involved, almost anyone can benefit from having planned properly for the future. Not only could taking these steps save your family hundreds of thousands in federal estate taxes, but also protect the relationships you cherish the most by clearly detailing how these assets should be passed on according to your wishes. (For related reading, see: IRS Rule on 401(k) After-Tax Dollars.)

How to Start the Plan

The rationale for creating an estate plan is often motivated by a desire to provide financial assistance to dependents and heirs. Money can be a blessing or a curse. Just as lottery winners often end up arguably worse off down the road, an inheritance can cause more problems than it solves. Every situation is unique, but sometimes it makes sense to structure a trust for an inheritance in such a way that a child or grandchild inherits one-third at ages 30, 35, and 40 rather than all at once. However, if a trust is set up to accomplish this, I would always recommend consulting with an estate attorney, because once you force distribution from a protected entity such as a trust, you will lose the protection from lawsuits and divorce that the trust provides for the assets it holds. (For related reading, see: How to Set Up a Trust if You're Not Rich.)

There are nuances to asset distribution, and an estate plan should be customized for you and your family. Generally speaking, estate planning is particularly valuable for those with blended families and second marriages. It is also instrumental in enacting the wishes of those with philanthropic inclinations and business owners interested in succession strategies.

The basic documents of estate planning are the will, durable power of attorney, and the advance healthcare directive.

  • The will provides direction as to paying final debts and expenses as well as the distribution of assets upon death. Language can also be added to the will to create trust accounts for assets upon death. Always make sure someone in your family knows where to find your will if something were to ever happen to you. Your will is of no good locked in a safety deposit box that only you know about.
  • Durable power of attorney authorizes an individual to act on your behalf in terms of accessing financial accounts for your benefit if you are unable to do so yourself (incapacitated).
  • The advance healthcare directive indicates your wishes with regard to end of life decisions such as beginning or ending life support.

Beyond the Basics

Consulting an estate planning attorney to review your situation is highly recommended. Many advanced tools are available. The most common of these is the revocable living trust. It functions much like a will, but provides more control over asset distribution. It will also allow you to amend and make changes to the trust in the future if need be. Also, a successor trustee can be designated to take over the role of safeguarding assets after you die or should you become incapacitated. Interestingly, a trust functions as a legal entity, with its own tax ID number. When assets are moved into a trust, they bypass probate, saving money on court and attorney fees while also protecting your privacy and assets from lawsuits and divorce, possibly saving you hundreds of thousands or millions of dollars in estate taxes. (For related reading, see: Finding Your Perfect Place to Retire.)

David Chazin is a registered representative of Lincoln Financial Advisors. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor.  Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. Lincoln Financial Advisors does not provide legal or tax advice.