Estate planning. Most people want to avoid these two dreaded little words as much as the proverbial death and taxes they are intended to address. And yet, the certainty with which most people will have to face all three in life is largely the same. Regardless of its necessity, however, the fact that people don’t want to talk about estate planning is so common that it’s almost a cliché among estate planners.
The usual explanation is that people don’t want to think about death or what will happen after they’re gone. It’s an understandably sensitive subject that can be difficult for many people to contemplate and discuss. Sometimes, people devote more time to planning a family vacation, deciding which car to buy, or even picking a restaurant for dinner than they do to their estate planning. While estate planning may not be as enjoyable as booking a vacation or perusing restaurant reviews, the lack of a well-thought-out estate plan can have devastating consequences. And not for you, for those you leave behind.
Most discussions about estate planning focus on identifying who you want to inherit your assets after you die. That’s because most people believe that the main component of estate planning is designating heirs for your assets. The disposition of assets after your death is, of course, the foundation of estate planning.
After all, without an estate plan, the courts will generally decide who inherits your assets—a process that can take years, result in significant fees and expenses and generate disputes among your heirs. A well-executed estate plan allows you—and your heirs—to avoid those issues and ensure that you get to designate who inherits what.
While that’s one important goal of estate planning, it’s a highly myopic view of the subject that causes people to overlook other important planning opportunities available. In part, this overemphasis on the passage of assets after death causes many people to think that their estate planning can wait. After all, you’re not going to die tomorrow. But reflecting on our inability to know what will happen in the future—not just after our death, but in the next minute, hour, day, week, etc.—broadens our perspective and shifts the focus of estate planning from us to those we leave behind.
Estate planning is about protecting the people and things you care about from the consequences of your death or disability. If you have amassed any assets during your life, someone will have to deal with them when you can no longer. Most likely, someone from a family or community of friends who will be grieving your loss. Estate planning allows you to lessen the burden on them by ensuring clear instructions are in place. You wouldn’t likely leave a house sitter in charge of your home without a few words of guidance, a list of things requiring attention in your absence. Why would you do less than that regarding your estate plan?
Here are a few examples of how you can plan to protect your loved ones beyond simply providing for their inheritance.
Protection for minor children
Nobody wants to consider the possibility of dying young, but if you’re the parent of small children, an estate plan allows you to prepare for the unthinkable. An estate plan will enable you to nominate the guardians for your minor children—a choice the court must respect absent exceptional circumstances. If you don’t designate a guardian, the law will decide who will take custody of your children should you die or become incapacitated, which may not be the guardian you would choose. The lack of a guardian nomination also creates the possibility for disputes between family members and a custody battle over your children.
Beyond simply nominating a guardian for your children, an estate plan also allows you to state your desires for their care and upbringing and provide instructions on how the money you leave behind for their care will be used. Again, unless you provide instructions, the law will decide these things for you.
Incapacity preparation
A critical component of estate planning includes planning for the possibility that you may become disabled or incapacitated. Whether it results from a freak accident or the slow progression of aging, we must all face the possibility that we may lose the ability to care for ourselves or our loved ones at some during our lives.
As with young children, the need to care for you and your affairs in that event will likely fall to someone you care about and who cares about you. They will want to do what’s best for you, but what that is may only sometimes be obvious or may be subject to disagreement. You can alleviate these burdens by specifying someone in charge and leaving clear instructions about what you want them to do. Absent a clear plan, you may be forcing someone you care about to make very difficult decisions, perhaps even over the objection of someone else who cares about you.
Business succession planning
If you own a business, have you considered how best to plan for the business if you can no longer run it? If you’ve gone through the effort to own and operate a business, presumably, you care about it, the people who work for it, and what happens to it and them in the future.
Beyond the question of who will inherit or own the business are considerations for who will operate the business, which may or may not be the same as the new owner, and how they will do so. Having a clear plan in place ensures leadership continuity, avoids management and control disputes, and puts the business on the best path for future success.
If you plan to keep the business in the family, have you considered creating a structure that makes transferring the business’s assets easier to other family members, such as a family limited partnership or a family limited liability company? A well-thought-out plan can avoid significant legal hassles for those you leave behind.
Avoiding disputes
We’ve all heard the horror stories. Mom or Dad dies, and the war between family members begins. One child thinks she deserves more than another, or another child may think he should be in charge of the finances even though he has a long history of financial woes. Such squabbling can get ugly and end up in court, with family members pitted against one another.
Estate planning stops these fights before they start. For example, providing clear instructions as to who will receive any items with sentimental value can avoid disputes and hard feelings. If you have made gifts or loans to some or all of your children, providing for how those will be handled after your death can avoid significant disputes. Also, providing for who controls your finances and assets if you become mentally incapacitated or after you die will help quell any family strife and ensure that your assets are handled in the way that you intended.
Blended families
Blended families are not uncommon today and present unique estate planning issues. For example, one parent may want to leave a different inheritance to their biological children than the stepchildren or a parent may want to protect their biological family’s inheritance if a spouse remarries after their death. A solid estate plan can help prepare for these and other scenarios.
Closing
In the words of Benjamin Franklin, “By failing to prepare, you are preparing to fail.” As you travel this road of life, take some time to think about the people you have surrounded yourself with and the impact your absence will have on them someday. A well-executed estate plan allows you to plan for the unknown and protect the people and things you have spent your life caring for.
Frequently Asked Questions
What is estate planning, and why is it important?
Estate planning involves organizing your assets and making arrangements for what happens to them after you die or if you become incapacitated. It ensures your wishes are honored, minimizes taxes, and reduces the chances of family disputes. Without it, the courts decide who gets what, which can take years and cost thousands in fees.
How does estate planning protect minor children?
Estate planning lets you designate guardians for your children in case of your untimely death or incapacitation. Without this, the court could assign guardianship to someone you wouldn’t choose. This planning also outlines how funds for their care will be managed, ensuring their needs are met properly.
What happens if I don’t have an estate plan?
Without an estate plan, your assets are distributed according to state laws, which may not align with your wishes. The probate process can take years and drain your estate due to legal fees and taxes. Family members may also end up in disputes over your belongings.
How does estate planning help with incapacity?
Estate planning isn’t just about death; it also prepares for incapacity. If you’re unable to make decisions due to illness or accident, a durable power of attorney and healthcare directives ensure someone you trust handles your finances and medical care according to your wishes.
What is the role of a living trust in estate planning?
A living trust helps you manage and protect your assets during your lifetime and specifies what happens after you pass away. It avoids probate, keeps your financial matters private, and allows for faster distribution of assets to beneficiaries.
How does estate planning prevent family disputes?
By clearly stating your wishes in a will or trust, estate planning reduces ambiguity and minimizes potential conflicts among your family. Providing for each family member based on your preferences avoids misunderstandings and legal battles, which are costly and emotionally draining.
What should business owners know about estate planning?
Business owners need to incorporate succession planning into their estate plan. This outlines who will take over the business and how it will be run after you’re gone. Planning ahead ensures the business continues smoothly and avoids disruption for employees and stakeholders.
How can estate planning benefit blended families?
Blended families often require special attention in estate planning to ensure both biological children and stepchildren are fairly considered. Clear provisions can prevent disputes between family members, especially when dealing with inheritances and remarriages.
What are some common mistakes in estate planning?
One major mistake is not updating your plan after significant life events like marriage, divorce, or having children. Another is failing to plan for incapacity or leaving assets vulnerable to unnecessary taxes. Regularly reviewing your estate plan keeps it aligned with your current wishes.
How can I minimize taxes with estate planning?
Estate planning tools like irrevocable trusts, charitable donations, and gifting strategies can help minimize estate taxes. By properly structuring your plan, you can reduce the tax burden on your heirs and preserve more of your wealth for future generations.
