Divorce and Co-parenting//

10 Reasons Why You Should Care About Estate Planning, According to an Expert

A trust and estates attorney explains why creating your estate plan is key to a less stressful split.

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Many people often erroneously assume that they do not have an “estate” worth planning or that their families will handle everything when the need inevitably arises.  On the contrary, everyone, regardless of their age and net worth, requires comprehensive estate planning in order to ensure that their wishes are executed and that their families are adequately and appropriately provided for.  As difficult as it may be to contemplate, death is inevitable, and many become incapacitated.  We can either ignore this reality, or accept it and be proactive in protecting our loved ones and ourselves.  Without an estate plan, the government and the courts hold the decision-making power with respect to your estate, including who will inherit your assets, who will become the guardian of your minor children upon your death and who will make health care and financial decisions on your behalf in the event of your incapacity, all without regard to your personal wishes.  The statutes are designed to accomplish what the government has decided your estate plan should look like, and this vision rarely complies with your own. 

On the other hand, there are people who recognize the importance of estate planning, yet neglect to update their plans over time to reflect changes in either their dispositive wishes, family circumstances or the law.  One change in family circumstances that necessitates an immediate update of one’s estate plan is divorce.  For instance, if an individual’s existing Will or revocable trust is not updated following divorce, one’s ex-spouse may inherit his or her assets.  Furthermore, if the ex-spouse has remarried or remarries in the future, that individual’s assets could end up passing to the new spouse and his or her children; thereby, completely disinheriting the individual’s own children and family.  In addition to updating the Will to reflect a change in beneficiaries in order to avoid consequences like the one just described, it is important that an individual revisit every component of his or her estate plan following divorce, including the planning and designations discussed below.

Thus, in order to exert and maintain control over critical decisions regarding your estate, ten of which are enumerated below, it is imperative that you create and periodically update your estate plan. 

1:   Designation of Beneficiaries.  Many individuals have not even considered who will inherit their assets if they do not have a Will.  If an individual dies without a Will (or “intestate”), the courts will take control of the individual’s estate and distribute his or her assets according to the intestacy laws of the state in which the individual resides at the time of his or her death.  All too often, those who ultimately share in a decedent’s inheritance under the intestacy laws are not the same people who would have otherwise inherited the property had the individual died with a Will.

2:   Appointment of Guardians and Trustees for Minor Children.  Individuals with minor children should execute Wills in order to designate both a guardian for their children and a trustee to manage the children’s inheritance.  Without a Will, the court would appoint a Guardian for an individual’s minor children.  The court may neglect to name a person who the decedent would want to take responsibility for his or her children and, instead, may designate a person who may fail to make appropriate decisions in the best interests of the children.

3:   Designation of a Health Care Agent.  Individuals need to appoint a health care agent to make medical decisions on their behalf, in the event the individual becomes incapacitated.  Individuals should also indicate their wishes regarding whether or not to remain on life support.  Without a health care proxy, state law dictates who will have the power to make such decisions.  

4:   Designation of Agents and Trustees to Manage Assets in the Event of Incapacity.  It is important that individuals have a succession plan in the event of their incapacity.  Through the use of a durable power of attorney, a trust or a combination thereof, individuals may designate an agent to manage their personal assets.  Individuals with businesses may designate different agents for purposes of managing and running their companies.

5:   Protection of a Beneficiary Through the Use of a Trust.  A trust is an ideal tool for a beneficiary who is too young, a spendthrift or does not have the proper investment skills to manage his or her inheritance.  A trust can provide protection to a beneficiary by (i) naming an investment trustee until the beneficiary is capable of managing the trust assets; (ii) distributing funds over time to protect assets from a beneficiary’s own misjudgment or spendthrift tendencies; and (iii) providing supplemental benefits to a beneficiary with special needs, without disqualifying the beneficiary from government support.  

6:   Protection of a Beneficiary from Creditors and Divorcing Spouses.  An irrevocable trust established by a third party, either during lifetime or at death, can provide asset protection for its beneficiaries.  Individuals without estate planning documents, or whose documents distribute outright to their beneficiaries, are foregoing the creditor and divorce protection that could otherwise be afforded to their beneficiaries.  By providing in the Will or trust document that the assets are maintained in continuing trust, the trust assets can be protected from the beneficiary’s creditors or divorcing spouses.  

7:   Appointment of an Executor.  Under a Will, an individual may designate someone whom they know and trust to serve as Executor.  The Executor is responsible, upon the individual’s death, for taking inventory of property; preserving the estate; paying creditors, administrative expenses and any death taxes; and disposing of the remainder of the individual’s property among his or her beneficiaries.  

8:   Minimization of Estate and Income Taxes.  Through appropriate tax planning, individuals may prevent some or all of their assets from being diminished by estate and income taxes upon their death, thereby allowing more of their estate pass to loved ones.  Without a Will, an individual’s estate will not have the benefit of any tax planning to minimize federal and state death taxes and income taxes.

 9:   Contribution to Charity.  An individual may gift assets to charity, during life or upon death, while simultaneously obtaining substantial income and estate tax benefits.

 10:   Avoidance of Probate.  Probate can be a costly and time-consuming process in certain states.  However, an individual’s estate can be designed to avoid the time and expense of probate court through the proper use of beneficiary designations and an inter vivos revocable trust.

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