Delving Into the Benefits of a Strong Estate Plan
Estate planning is an important element of financial soundness, yet some people equate to a dental visit: something to be avoided for as long as possible. Just as avoiding the dentist often leads to an extraction or worse, ignoring estate planning may create negative financial and non-financial consequences for you and/or your loved ones.
Said differently, estate planning confers a wide range of important benefits on you, your family, and possibly others. One group of benefits accrues during your lifetime, while the other set addresses post-death considerations. Let’s explore both, beginning with lifetime benefits.
Lifetime Benefits
Contrary to popular belief, estate planning involves more than death and taxes. A well-designed plan can help ensure the following benefits during your lifetime:
- Availability of replacement income. Since most people work to maintain their desired standard of living, it makes sense to ensure its continuance in the event of retirement or disability. These life events are different in that disability is typically unforeseen, whereas retirement is anticipated; however, failing to plan for either may disrupt normal family living patterns and frustrate future plans.
- Continued financial support of family members. A well-designed estate plan helps ensure ongoing financial support for all family members and possibly others. This may be accomplished through the use of a financial durable power of attorney and/or revocable living trust. These documents articulate your wishes for supporting various family members. In the absence of one or both, those wishes may not be carried out as hoped.
- Fulfillment of healthcare directions and needs. This planning benefit is particularly important because of your personal preferences about treatments, their continuance or withdrawal, end-of-life decisions, who should be involved in making decisions on your behalf, and who should have access to health-related information. These decisions are typically governed by a healthcare power of attorney and related documents. In their absence, your wishes may not be carried out as desired.
- An improved investment package. Another important planning aspect is simply listing all assets and liabilities, perhaps the first comprehensive review of your investment portfolio in years. Possible benefits include greater tax efficiencies, the elimination of inconsistent and unfavorable asset ownership patterns, and identification of assets that are no longer appropriate for retention.
- Peace of mind. This is the ultimate lifetime benefit: knowing that you have thoroughly planned to care for yourself and others during your lifetime.
Post-Death Benefits
Careful planning also provides a wide range of post-death benefits, as broadly defined by the National Network of Estate Planning Attorneys:
“I want to be able to give what I have to whom I want, the way I want, when I want, and, if I can, I want to save every last tax dollar, attorney fee, and court cost possible.”
Let’s take a closer look at several important post-death planning benefits. They include the following:
- Elimination or reduction of death taxes. This has long been a primary motivation for and benefit of estate planning and remains so today for higher net worth individuals and families. With the current Estate Tax Exemption at just over $12 million, it does not affect most individuals and families, but that may dramatically change if the exemption amount expires by law in 2026. Several planning tools are available to help ensure the estate exemption amount is not wasted.
- Ensuring that beneficiaries receive their intended share of the estate. It is important that beneficiaries receive their intended share, that is, the share that you intend for them to receive. Our belongings are an expression of who we are as human beings, as family members. In reality, we do care who receives our golf club collection or grandmother’s wedding ring. A failure to properly plan guarantees that some property, financial assets or other assets, will pass contrary to our wishes.
- Avoiding family disputes. This may be the most important benefit of all. Many families exist peacefully during the lifetime of a wealthy or dominant family member only to have that harmony transform into “open warfare” upon his or her death. Thoughtful planning combined with appropriate, proactive communication of the plan’s broad structure can help minimize the potential for family conflict.
- Support for survivors in time of stress. A loved one’s death, particularly when sudden or unexpected, is not the optimal time to make important decisions about taxes, investments, business operation and retention, and the disposition of personal assets. Proper planning ensures that these decisions are made in advance.
- Increasing the size of your estate for survivors. An estate’s size can be decreased in two ways: 1) by the expense associated with the property transfer process or the loss to the estate resulting from delay or poor planning with respect to the transfer process, and 2) by the federal estate tax and state-imposed death taxes. Once again, careful planning will minimize the effects of these forces, thereby increasing the size of your estate passing to loved ones and others.
Whether you are creating an estate plan for the first time or updating an existing one, investing just a few hours will deliver many benefits…now and in the future. Estate planning is more than a matter of dollars and cents.
As Suze Orman says, “Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think.” Please feel free to contact me or any of our trust professionals if you would like to learn more.