Why is Estate Planning Important?
Planning your estate is a very important, albeit often neglected, task. Often people do not wish to think about their own mortality and to do so can cause stress, as such individuals procrastinate. Creating an estate plan should focus on many aspects of your life, probate avoidance or estate taxes are often a key reason that individuals come to my office. However, an estate plan should begin prior to your death. An estate plan needs to operate in your incapacity or diminished capacity. With a well crafted estate plan, your fiduciaries (power of attorney) should be able to act in your stead to continue managing your assets and providing for you. Without a power of attorney, or other fiduciary such as a trustee, your family may have to proceed to Court to apply for a guardian or conservator to be appointed for you. This can be necessary even with a well crafted estate plan but those circumstances are rare and will be addressed in a future post.
So what is a well crafted estate plan?
A well crafted estate plan is a plan that focus not only on tax planning but also on what happens if you are incapacitated. For example: who makes medical decisions for you? Can the person enroll you into a long-term care facility? Who manages your finances? Who takes over your business? The estate plan should address the most important financial, medical, and other life planning issues for you and your family. These should include:
- Selecting the persons who will manage your assets, administer the estate, and make medical decisions in the event of your incapacity.
- Designating a guardian for minor children.
- Protecting assets for your benefit of the benefit of your dependents or beneficiaries if they are unable to manage finances themselves.
- Minimizing taxes.
- Deflecting will contests or claims by disgruntled heirs.
- Addressing unusual assets or assets that may be difficult to distribute (time-shares);
- Business succession planning.
- Addressing any special issues or requests for your family.
If someone dies without an estate plan, the administration is not only more costly but it can often lead to unintended results. Some examples include:
- Distributions to unintended heirs (estranged spouses, siblings, nieces or nephews, grown children that you may no longer have a relationship with, individuals that you may have divorced). Distributions to unintended heirs occurs when there is no estate plan and Colorado intestate law dictates the manner of distribution. Here’s a quick overview:
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- Distributions directly to minors instead of to a trust.
I often ask my clients what would you do with money if you inherited it at 18 or 21. Would you make good decisions with that money or for your future? It is very important to be thoughtful when deciding when and how your children should receive their inheritance and we always need a plan in place for those minors, so that we can continue helping our children be their best version of themselves even after we are gone. Additionally, the lack of a plan can be significantly more costly with court fees and conservators being appointed.
- Distributions to individuals who are incapacitated or on government benefits (Medicaid) which can result in their benefits being denied.
All of my estate planning documents include provisions for if a beneficiary is incapacitated, or receiving government benefits due to a disability. It is very important that a person not be denied, even temporarily benefits, as it can be difficult, costly, and a lengthy process to reestablish eligibility.
If you have additional questions, please contact us at 720-460-1476 for a free consultation to discuss your well-crafted estate plan. You can also email us at sheena@smmoranlawoffice.com or Merissa@smmoranlawoffice.com
