National Estate Planning Awareness Week (October 17-23, 2016) was established in 2008 to call attention to an often-overlooked part of financial wellbeing. While most Americans appreciate the importance of carefully managing their property and finances during their lifetimes, over half do not have up-to-date estate plans. In reality, our financial responsibilities do not end at our deaths – they just change. Estate planning is simply preparing for that change.
Many dangers accompany inadequate estate planning. When a person passes without a will, he or she is considered to have died “intestate,” and the estate is distributed according to the state’s intestacy laws. Intestacy laws are in essence a “one size fits all” will, drafted without consideration for personal and familial needs, desires, or tax situation. A lack of planning can create family conflicts and leave crucial decisions regarding the care for minor children to the discretion of the judicial system.
In general, most people want to enjoy their property during life and then pass the unused portion to whomever they choose with the least possible reduction in value. A proper estate plan can satisfy personal and familial needs, ensure that property is left to intended beneficiaries (and determine when beneficiaries should have full control over such property), designate trusted individuals to care for minor children, reduce family contentions, lessen the expenses of transferring property upon death, and minimize income, gift, and estate taxes.
Even if an estate plan already exists, it will reflect the needs, desires, and circumstances that existed when it was created. As the saying goes, change is the only constant in life. Significant life changes such as marriage and divorce are important reasons to review an estate plan. Even without major life events, an estate plan should be reviewed every few years to make sure that it still accomplishes the intended goals.
Proper estate planning also includes the appointment of a personal representative (also referred to as an executor) to administer the will. The personal representative manages the estate, pays outstanding debts, expenses, and taxes, and then distributes the remaining property according to the instructions in the will. In short, the personal representative is trusted with the task of making sure that the estate plan is carried out. If a personal representative is not appointed, a party will have to apply to be the administrator of the estate; if the heirs cannot all agree on one person or persons to serve jointly, the party to serve will be at the court’s discretion, and court oversight, with its accompanying fees, will be required.
Additionally, an estate plan will address personal medical care, financial decision-making, and guardianship for minor children. For example, an advance directive for health care will put in place a plan for possible mental or physical incapacity. It will document decisions regarding life support and end of life treatment options and designate a person to carry out those instructions. Another step is to execute a durable general power of attorney to identify someone to manage financial affairs in the event of incapacity. Finally, a will can identify a guardian for surviving minor children – someone who is prepared to care for them until adulthood. Without a will, the decision of who will raise minor children will be left to the discretion of the court.
The effects of an estate plan are far-reaching, with family members and heirs being most impacted. Providing an estate plan will alleviate stress and spare loved ones the expense and difficulty of managing an intestate estate. National Estate Planning Awareness Week is the perfect time to get started.