Why Everyone Needs an Estate Plan

Whether you are young or old, married or single, a parent or childless, you should make a plan for when you are no longer here. You are the only person that can ensure that your wishes are carried out. As such, here is some basic information to help you get started.

The most important tool in estate planning is a will. A will allows you to specify which assets should be distributed to which individuals and in what manner. If you die without a will in place, the law will distribute your assets on your behalf, and the result might be quite different than you had intended. Further, the court must make a judicial determination of where your assets will go, and this can waste a lot of time and money. If you die without a will and you are a single parent, the court will need to determine who will be the guardian of your children. These are very important decisions and you are undoubtedly the best person to make them. 

Some people might think that they do not need a will. They might think wills are for rich people with lots of assets or that their families will make sure their wishes are carried out. However, estate planning experts see mistakes all of the time that could be easily prevented with some careful planning.

One of the first things you must know is the value of your estate. For example, you must know how much your house is worth or how much life insurance you have. If you do not know the current value of your assets, you will not be able to conduct your estate planning in a way that will minimize taxes.  

Also, remember to update your estate planning documents in order to accurately reflect the current tax law. As we discussed last week, there is no estate tax for 2010. If Congress does not take action, the tax will come back in 2011 with the exemption falling to $1 million from $3.5 million. However, just because Congress has not acted yet does not mean that you should hold off on your estate planning. The bottom line is that you need an instrument that allocates your assets to where you want them to be. Uncertainty about taxes should not prevent you from creating these instruments, as people still need to plan in uncertain times. You can always update your documents in the future.

Many people plan to allow everything pass to their spouse. While this may seem like the natural thing to do, this may not be in the surviving spouse's best interests in the long run. This is because the surviving spouse's estate will be lumped together with the deceased spouse's estate. When the surviving spouse dies, his or her estate will be hit hard with the estate tax. 

To resolve this issue, many estate planning experts create special trusts, such as a joint tenancy. A joint tenancy is an agreement where two or more people own property together, usually with rights of survivorship. However, there is one important note to remember: a joint tenancy will override a will. No matter what you say in your will, if you hold any assets in joint tenancy, the assets will go where the joint tenancy designates. Therefore, sometimes people invest a lot of time planning their will with tax concerns in mind, only to have the joint tenancy override all of their careful planning.

Finally, even if you do all of the right preparation, you still have to choose the right people to carry out your wishes. If you choose the wrong person to be executor of your will, this person may not carry out your instructions and wishes. Likewise, if you name a trustee of your trust, you must choose someone that will adhere to the terms of your trust and manage its assets for your beneficiaries' benefit.  

The executor and trustee are considered fiduciaries, which means that the law holds them to the highest standard of fairness and impartiality. Choose people that you trust and that have a business background or experience in investments. Also, it might be a good idea to pick someone strong-willed, as they will need to deal with your beneficiaries.

With just a little planning, you can rest assured that your estate planning wishes will come true.

Resource:The Dallas Morning News "Estate planning lets your will rule after you're gone " 8/6/10