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What is an Estate Plan?

| May 25, 2019
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The will of Supreme Court Chief Justice, Warren Burger, was only four sentences long but managed to net his heirs 75% of his estate after transfer taxes. In contrast, Elvis Presley’s will was much longer, having 15 separate articles, but only successfully passing 27% of his estate to his legatees. What was the difference between these two wills? Why was one much more effective than the other? It had a lot to do with differing state laws and Judges that determined the rulings. How should you make your will so it will be as effective and efficient as possible? The most effective way is to form an estate plan with your team of advisors, including an estate planning attorney, financial advisor, and CPA.  Together they will have all the knowledge and expertise to help you create your estate plan.

What is an Estate Plan?

When a person passes away, or becomes decedent, what happens to everything they own? It depends.  If they pass away intestate (without a will), they will need to go through the probate process. This means a judge will determine what assets go where based off of state laws. This isn’t necessarily a bad thing though, oftentimes going through probate gets all the assets where they need to go. Having an effective estate plan in place means you have certain legal documents to ensure your wishes are met after you pass away. An estate plan may include the following documents:

Wills

Side Letters of Instruction

Powers of Attorney for Health Care

Durable Powers of Attorney for Health Care

Living Wills or Advanced Medical Directives

Do Not Resuscitate Orders (DNRs)

Revocable or Irrevocable Trusts

What are the Goals of an Estate Plan?

What are we trying to accomplish with the previously mentioned documents? We want to ensure effective transfers based upon the persons wishes.  This means minimizing costs, maximizing net assets to heirs, providing liquidity at death which is needed to pay for last medical, taxes, and burial costs, and fulfilling the person’s health care wishes.

Who can benefit from Estate Planning?

For example, I have an uncle who is almost eighty years old. My uncle had a pretty successful career, earning a master’s degree from Brigham Young University, and working in the education sector his whole career. My uncle tends to be introverted and never married or had children. Nobody really knows what my uncle is worth or what he wants to do with his accumulated life savings. After learning about Estate Planning, I’ve been able to talk to him and start the process on establishing these legal documents and figuring out what he wants to happen after he passes away.

Anybody who owns anything will benefit from having an estate plan. Certainly, as the assets increase and the complexity of the estate grows, a detailed plan will be more beneficial, compared to someone whose estate could pass through intestacy and still reach the desired outcome. If somebody has enough foresight to seek a financial plan and plan for retirement, they certainly should seek estate planning as well. You probably don’t want the cumulative remnants of all your life’s work and savings to disappear in the wind as you die.

In financial planning everybody has different financial goals. Some people want to retire by age 50, some want to fund their grandchildren’s education, some may want to leave a large estate, and others try as hard as possible to spend everything they worked so hard to save. I think it’s interesting that estate planning is not about maximizing an estate but minimizing it. Minimizing costs and saving the family from as many expenses and taxes as possible. A solid financial plan helps you meet each of your unique goals and so should your estate plan.  A will, power of attorney, medical directives and living wills each have their own power to legally declare the owners wishes.

Why do only approximately 2 out of 10 individuals have an estate plan in place?

Legal documents and jargon are hard to understand. It’s not common knowledge to know what is required to make a will and other estate planning documents legally binding. Society doesn’t talk enough about this topic because it’s scary. What is stopping all of us from googling how to execute our own will and doing it right now? There is no catalyst to ignite the desire to start. Often when people have to face the risk of their own mortality only then they will initiate planning their estate. Having a will in place will provide comfort in knowing your last wishes will be respected. This brings us back to the question, why do the majority of people not have an estate plan? It’s expensive, most people would rather finance things and borrow from their future selves than pay a lump sum of capital up front. However, initial costs are minimal compared to possible gift and estate transfer taxes that may need to be paid because of poor planning. Knowing that any given day could be your last with your family isn’t a fun thing to think about or plan for. If you truly care for your dependents and descendants the best way to guarantee they will be taken care of, is to have a proper estate plan in place.

Summary

Estate planning is an essential part of financial planning. If you spend your whole life saving and planning for retirement, you should spend some time considering what you want to happen after you pass away. Whether your surviving spouse needs to be supported for the rest of their life, or you want to benefit your favorite charity, making these wishes known and legally binding will create the greatest likelihood of your decisions being honored.

The financial advisors at Medicus Wealth Planning can help “quarterback” the creation (or update) of your estate plan by helping you get in touch with a competent and trustworthy estate planning attorney.  By ensuring all of your financial professionals are on the same page and working together you can create an estate plan that will minimize costs, maximize assets passed to your heirs, and fulfill your last wishes.

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