By Tracy Courage
EstateEstate planning helps protect our financial assets after we die, but it’s also a tool for protecting ourselves while we’re alive.
A basic will can take care of getting your assets to the right beneficiaries after you die. But what if you become incapacitated? Someone is going to make decisions about your health and your money. Having the right legal documents keeps you in control of both.
Many people simply don’t take the time or spend the money to put a plan in place.
“No one likes to talk about it, or they don’t understand how some of the laws work,” says Cal McCastlain, an attorney with Dover Dixon Horne of Little Rock. “Every situation is different, but a thorough estate plan should take into account family situations and the amount and nature of assets.”
Estate planning can include legal documents to address the big what-if scenarios. A living will, for example, lets you define the parameters of which life-prolonging measures you want to receive or don’t wish to receive. Having a health-care power of attorney enables you to designate who will make health decisions for you if you cannot do it yourself.
Designating a durable power of attorney lets you decide who will make financial decisions for you if you are unable to do so.
“That could be a different person than someone making health decisions,” says Matt Jones, president of Legacy Capital Group.
For many people, a basic will is enough. The downside of a will is that it goes through probate, which adds legal expenses and takes time. Also, the proceedings are public record.
Many estate planners recommend a revocable trust as a tool for managing assets.
“As asset levels rise and you want to have privacy, and you don’t want your adult children to go to court, setting up a revocable trust really is the better method,” Jones says. “That’s something I advise every client we work with to do.”
With a revocable trust, assets — such as real estate, cars, investment accounts, pensions, bank accounts and personal belongings — are transferred into a trust, and a trustee is designated to manage those assets.
Jones’ firm specializes in financial management for wealthier clients with assets in the millions. However, there is no magic number for a revocable trust.
“That’s unique to the individual,” Jones says. “It’s whatever amount you think is meaningful. For some, it could be $100,000. For others, it could be a million.”
A revocable trust lets a person decide not only who gets their assets but how and when those assets are transferred. This is especially helpful for people with children.
“If you and your spouse both died while your children are young, do you want your children to have unfettered access to all of your assets when they are 18?” Jones asks. “Or would you prefer a trustworthy adult hold the assets until your children are more mature?”
When a person dies without a will — what’s called ‘dying intestate’ — the state decides what happens to those assets.
For most people, estate planning doesn’t have a tax savings. The 2017 Tax Act raised the estate tax exemption to $11.2 million per person.
“That means most people will not be exposed to estate taxes,” says McCastlain. “Instead, people should think of estate planning as an asset-management tool for their individual family situations with the primary goal being to provide a plan and order.”
A piece of advice both Jones and McCastlain give their clients: Update your beneficiary designations on life insurance and retirement plans, including individual retirement accounts (IRAs) and employee-sponsored retirement plans such as 401(k)s. This is especially important to do after significant life changes such as marriage, divorce and the birth of children.
Jones also recommends that people make sure their key advisors — their accountant, financial advisor and lawyer — are on the same page and know about any changes.
“My general belief is that anybody who has an amount of assets they would want to go somewhere should consult with a lawyer and their financial advisor and take the basic steps to get those documents in place,” Jones says.