Estate Planning

Your estate is everything you own.  If you do not plan for how you want your estate to be distributed when you pass away, your state of residence has a plan for you in the form of laws that dictate who gets your property, who oversees your children, and who manages your affairs in the event you are incapacitated.  The person or people that end up with your assets and children or that end up overseeing your healthcare decisions and finances under state law may not be the people you would prefer.  Planning can be relatively simple and straightforward and identifies who you want to receive your assets, what you want them to receive, and when you want them to receive them.  Before you die you have an opportunity to say who you want to have custody of your children and who you want to oversee the assets you have left for your children.  The planning process also involves you providing instructions for who is to act on your behalf should you be incapacitated.  Planning can also be used to effectively reduce the size of your taxable estate while you are still alive or to pursue other gifting or income planning goals that you may have during your lifetime.

Typically estate planning begins with a document called a will, but more often than not also involves the use of a trust.  A will provides instructions to your estate’s representative or executor as to what you want to happen, but goes through a court process called probate that can take a long period of time, is usually open to the public, and can be quite expensive after your executor, attorneys and the court system receive their statutorily mandated fees.  Some assets you own avoid probate including those held in joint tenancy with rights of survivorship and accounts or policies that identify a beneficiary, such as a 401(k), IRA, annuity or life insurance policy.  Some bank or investment company accounts also may avoid probate through what is called a “pay on death” or “transfer on death” arrangement.  Identifying a child on a beneficiary designation may require the document go through probate so that a court appoints a person to oversee the asset left to the minor.  It may be a good idea in that beneficiary designation to nominate an adult as custodian for the benefit of your child so that your wishes are expressed.

A trust comes in handy for a number of reasons.  It avoids probate and all of the delay and cost associated with that process.  It allows your trustee to hold your assets for the benefit of your beneficiaries for a length of time you desire.  This is useful if you have children that you would want to gain control only after they attain a specified age, a special needs child or relative that cannot manage their own affairs, or an heir that you believe is otherwise incapable themselves of managing the assets you leave them.  Your heir may have a problem with substance abuse, gambling, creditors or simply cannot control their spending, for example, and you may want a trustee to oversee the assets you have left for the benefit of that heir.  Your trustee may be a trusted friend or family member, a bank or trust company, an attorney or a professional “private” fiduciary.  The trust document also is your opportunity to state who you want to have custody of your children; it may or may not be the same person that is the trustee of the assets you leave in trust for your child’s benefit. 

Powers of attorney for healthcare and for finances are also documents you should prepare while you are planning your estate.  A healthcare power of attorney identifies who you want to make decisions regarding your body while you are alive and incapacitated, and provides them with specific instructions regarding what you do or do not want to happen to you under various medical circumstances.  A power of attorney for finances identifies who is responsible for overseeing your assets in the event you are alive and incapacitated.  If you have the assets in a trust, it is your successor trustee that oversees those assets, but there may be financial transactions someone has to make on your behalf that involve certain matters or assets not held in your trust.  Your power of attorney for finances may or may not also be your successor trustee if you have a trust.   Keep in mind that your estate plan is not something set in stone; you can make changes as your life changes so long as you are able to make sound decisions.  Getting a plan in place is better than not having any plan at all.

Having a plan to give away some portion of your estate while you are alive may be prudent for your goals and circumstances.  If you have a sizeable estate and are looking at ways to reduce its’ size for estate tax or other planning purposes, there are more advanced techniques (such as Family Limited Partnerships or Crummey trusts) available through the use of an estate planning attorney.  If you are philanthropic, there are trusts to which you can shift some portion of your estate to provide you or the charity with income while you are alive, and provide your family or the charity with a bequest of assets when you pass away.  Families may find it worthwhile to use 529 college savings plans to shift assets from grandparents or parents to grandchildren or children because of the high dollar amounts that the 529 plan allows for deposit, sometimes hundreds of thousands of dollars per child.  Annual gifting, including the use of outright gifts or gifting to a trust such as a Crummey trust where a family member is a trust beneficiary, are other relatively simple ways to reduce the size of an estate.  Placer Summit Financial’s professionals can discuss your estate planning needs further with you, your attorneys and accountants.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.  Placer Summit Financial Group, LLC and LPL Financial do not provide legal advice or services.  Please consult your legal advisor regarding your specific situation.

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