What happens after the hearse pulls away
By Gene Walden
From the Minneapolis StarTribune
You have a will, a portfolio of investments and even a hefty life insurance policy that would keep your family afloat should anything happen to you.
But there’s one more step you may wish to take to put your affairs in order. A comprehensive estate plan, if properly prepared, could help make your life easier now and your family’s life much easier later.
What is an estate plan? In short, it’s a collection of legal documents designed to dictate the administration and disposition of an estate when the owner dies. It can protect your assets while you’re alive and minimize the taxes and legal hassles your beneficiaries face after you’re gone. In fact, a good estate plan could help you rule over your financial affairs from the grave for years—and possibly generations—to come.
An estate plan generally includes several components, such as a will, some trusts, a power of attorney, and other legal documents designed to protect and disburse your assets and manage your affairs should you become unable to do so.
Although an estate plan can be time-consuming and expensive to set up, it can save your family some huge hassles and a considerable amount of money later. For instance, without an estate plan, your beneficiaries might be forced to go to court to battle over your estate. That court fight could drag on for years and require thousands of dollars in legal fees to settle.
An estate plan lays out the specific details of the disbursement of your assets, eliminating the need to go to court. And by keeping your estate out of probate, you would be able to keep your private affairs private.
An estate plan can also minimize the taxes your beneficiaries would pay on their inheritance. And it can even help you cut the taxes on your investment gains and protect your assets from creditors while you’re still alive.
Finally, an estate plan gives you the opportunity to select the people who you want to manage your money and make crucial decisions regarding your medical treatment should you become incapacitated and unable to handle those matters on your own.
Here are some of the key components of an estate plan:
· A will. This is a contract that designates who your money and possessions are to be given to after your death. But a will alone will not keep your estate out of probate court. To avoid the legal system and ensure that your estate is settled with a minimum of legal wrangling, you also need to set up a trust.
· Trust. A trust is a legal document that gives you the ability to set aside assets to be given to your beneficiaries in a manner and a timetable you dictate. Trusts are also used to shelter assets from taxes. But the biggest benefit of a trust may be that it can help your heirs avoid probate court and allows your assets to flow directly to your beneficiaries.
· Power of attorney. This is an agreement that grants authority to another person to make legal decisions on your behalf in the event that you are not able to do so.
· Living will. This is a set of instructions that stipulate the extent of medical measures that should be taken to keep you alive if you become unable to make those decisions on your own.
· Health care proxy. Also known as a health care power of attorney, this document appoints someone to make all health care decisions for you in case you are incapable of making those decisions.
There are also a number of other more specialized types of trusts that might be included in an estate plan. Among the most common are:
· Standby trust. This legal document gives you the ability to assign someone else to manage your financial affairs in case you become incapable of doing it yourself.
· Credit shelter trust. This allows assets from one spouse to be used for the benefit of the surviving spouse, and then passed onto a beneficiary, such as a child or charity group.
· Charitable remainder trust. This gives you the opportunity to donate assets such as stocks or real estate to a charity and receive an immediate charitable deduction on your taxes, avoid capital gains taxes on the gains from those assets, and still continue receiving an income stream from those assets based on the market value.
Estate planning is not particularly simple and it’s certainly not cheap, but in the long run, that investment of time and money would pale in comparison to the endless hours of litigation, legal bills, and taxes your beneficiaries might face if you don’t leave them with a well-conceived, comprehensive estate plan.