Plan It Out
Estate Planning Key to Financial Responsibility
By Lisa K. Mariano and Vicky Steinbrech
August 10, 2009
It seems like the people who need to address their personal estate planning the most are usually the ones who are least likely to do it. Estate planning seems to take a back seat to the daily issues busy executives and business owners face. But the price for delaying estate planning is losing control of your financial and guardianship issues. Here’s a look at what your estate plan should consist of.
Last Will and Testament
A will is often considered the cornerstone of an estate plan and is used to direct the final distribution of property and appoint a guardian for any minor children. Without a will, at death, the state will dictate the distribution of property and appoint a guardian for minor children.
The living will is a document that details one’s wishes for medical treatment in the event these wishes cannot be communicated. Decisions regarding life support options and medical treatment are very personal and should be clearly communicated before tragedy strikes.
Medical Power of Attorney
This appoints an individual to authorize a third party to make medical decisions in the event they are not capable of doing so. Make sure you appoint someone who knows your medical treatment desires.
The Utah Advance Health Care Directive Act went into effect in January 2008, which created the Advance Directive. The Advance Directive refers to the document that combines both the living will and the medical power of attorney.
Durable Power of Attorney
This is similar to the medical power of attorney in that it authorizes a third party to make decisions for an incapacitated individual. It differs in that the decisions with the general power are financial decisions. The term “durable” means that the power lasts beyond incapacity or incompetence.
A living trust is a separate legal entity created to own assets such as real estate and investment accounts. The terms of a living trust can be changed at any time while the grantor is living and then become irrevocable at death. It is important to title assets in the name of a trust: 1) to avoid the time and expenses associated with probate, 2) to avoid personal information becoming part of the public record, 3) to control taxes and 4) to control ultimate distribution to beneficiaries.
Know Your Plan
The scope and purpose of most of these documents is pretty straightforward and limited, however, special circumstances should be considered. Consider the following examples:
• Second marriages with children from a prior marriage. Language can be drafted into a trust that allows a decedent to provide for both a second spouse and children from a prior marriage.
• Loved ones with special needs. Individuals who have loved ones with special needs require very specific planning that allows the special needs individual to potentially qualify for public assistance.
• Loved ones with substance abuse problems. Substance abuse problems can be magnified if a loved one has access to an inheritance. Special language drafted into a trust can potentially minimize such difficulties.
• Creditor protection. Certain types of trusts allow an enhanced level of creditor protection compared to owning assets outright.
• Estate tax minimization. Properly drafted and funded trust documents can help manage the estate tax burden and provide more funds for loved ones and charitable giving.
• Choice of trustee. Sometimes it makes sense to have separate parties responsible for guardianship and conservatorship issues for minor children. Is it reasonable to have the same individual responsible for raising minor children and managing their finances? Perhaps an independent third party and/or professional trust and investment company would be a better choice.
In addition to these key estate planning documents, it is crucial to review beneficiary designations on retirement plans and life insurance policies and make sure they are up to date and complement your overall estate plan. Business owners should review business succession, and create appropriate and funded agreements if none exist.
Finally, estate planning is a process. As family dynamics, economic circumstances and tax laws change, estate planning should be reviewed to ensure that your plan accomplishes your goals. Often this is best done through a team of advisors. Experts in financial planning, investments, taxation and estate planning can work as a team to guide you through the myriad of financial products and tax issues that exist. They will also help you build an overall plan that corresponds with your goals and wishes.
Vicky Steinbrech, CFP, Senior Financial Planning Consultant for Key Private Bank. She can be reached at email@example.com
Lisa K. Mariano, CTFA, Vice President & Sr. Trust Administrator for Key Private Bank. She can be reached at firstname.lastname@example.org
or at 801-297-5777.