While nobody likes to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.
Providing for Incapacity
If you become incapacitated, you won’t be able to manage your own financial affairs and may necessitate a 'living probate' court proceeding. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated. The truth is that in order for others to be able to manage your finances, they must petition a court to declare you legally incompetent and become your guardian. This process can be lengthy, costly and stressful, and in Illinois is a closely supervised probate court proceeding. Even if the court appoints the person you would have chosen, they may have to come back to the court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home. A will does not take effect until you die. A power of attorney for property/finances is helpful, although it is not always sufficient to avoid guardianship.
In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care. The law allows you to appoint someone you trust - for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself. You can do this by using a durable power of attorney for health care where you designate the person to make such decisions.
Avoiding Probate
If you leave your estate to your loved ones using a will, your assets will pass through probate. The process can be expensive and time-consuming, and may allow public access to your private financial matters. The probate court is in charge of the process until the estate has been settled and distributed. With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quicker, less expensive and more private.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. Your estate plan should provide for persons you’d like to nominate for the upbringing of your children. Otherwise, the decision as to who will raise your children and who will manage their finances will be left to the probate court. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide an annual accounting to the court.
The person or trustee in charge of the finances need not be the same person as the guardian. In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances.
Other issues to consider is whether you’d like your beneficiaries to receive your assets directly, or whether you’d prefer to have the assets placed in trust and distributed based a number of factors which you designate, such as age, need and even incentives based on behavior and education. All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary. Make sure that your plan does not create an additional financial burden for the guardian.
Planning for Death Taxes
The IRS will want to review your estate at death to ensure you don’t owe them that one final tax: the federal estate tax. Whether there will be any tax to pay depends on the size of your estate and how your estate plan works. Many states, including Illlinois, have their own separate estate and inheritance taxes. There are many effective strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to implement many of these plans.
Charitable Bequests – Planned Giving
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. You should consult a qualified estate planning attorney to review your family and financial situation, your goals and explain the various options available to you. Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens. |