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Estate Planning for Everyone

Have you thought about how you'd like your family to continue after you're gone? Having an estate plan isn't just for the ultra-wealthy.

By Rocco A. Carriero, CRPC®

Family. Many say it’s the most important thing in their life. Surprisingly, however, we often fail to plan how we would like our family to continue after we’re gone. When this happens, a lifetime of work and sacrifice may be wasted.

The aim of every estate plan is to assure that your wishes are fulfilled upon death. It is your last best chance to keep assets in the family in the way in which you believe they will be best kept. An estate plan can include almost any of your wishes, within reason. It should not, however, be intimidating or something to postpone.

Estate planning is no longer “only for the wealthy” and it’s about a lot more than money. The efficient transfer of what you’ve, very often, spent a lifetime earning should be a key part of your long-term planning. And best of all, it is relatively quick and painless. If you’re not sure or haven’t given much thought to it, consider these life lessons from one of the greatest films of all time – The Godfather:

  • Family is the most important thing in life.
  • Take care of your health as well as your family and friends.
  • Be prepared. Have a plan.
  • Do not make emotion-based decisions or promises you cannot keep.
  • Listen to advice from smart, honest professionals of good reputation.
  • Help those less fortunate, by doing so you will receive help and respect.
  • Meet challenges with an offer that cannot be refused.
  • Be considerate of others but do not get overly involved in their personal lives.
  • Do not take things too personally: “It’s not personal, it’s business.”
  •  Always remember Rule Number One.

Getting Started with Estate Planning

Why do I need an estate plan?

Consider the alternative: if you don’t make decisions for your estate, the government -- federal and sometimes state - will do so, with little regard for tax liability or your considerations. And it can take years to complete. If you’re divorced/remarried, own property in several states or a foreign country, have a business, or care for a special-needs individual, things can get complicated.

The basic estate-planning question is: how would you like your wishes or vision carried out by future generations? Who would you like to help - your family, church, a charity, school or community organization? How would you like to be remembered? When it comes to planning for your financial future, a basic estate plan can spell the difference between assuring whether your wishes are carried out as you see fit or not.


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What Should I Do?

Some may prefer to think of estate planning as a form of “family continuity planning.” In its most basic form, estate planning is about aligning your goals and desires (and often those of your spouse or partner) with those of future generations. Very often a good estate plan will allow a couple or individual to set a roadmap or blueprint for future generations to follow. It can be a means of setting your family on a positive track for the future. Estate plans can include such concerns as disbursing wealth when educational milestones are achieved, how to care for a special-needs individual, or what the future use of family property should be.

The Four Components of Estate Planning:

  1. Will
  2. Living Will 
  3. Power of Attorney - healthcare and financial 
  4. Trust

When There’s a Will…

The most basic estate planning tool is the will, also known as a “final will.” The reason for making a will is to communicate how your assets should be distributed upon your death. Typically included are the naming of guardians for minor children and specific gifts (called bequests) to individuals or institutions. A will can also help avoid estate taxes and protect a spouse from debts and other obligations. Even if you do not have assets or heirs now, a will is a good idea. You can add items or make changes in the future. And no, the following is not true: if I make a will something bad will happen.

Actually, it’s more likely that without a will bad things may happen. Your assets may not be distributed in accordance with your wishes, heirs may pay more in estate taxes than necessary and unfortunately, surviving family members may suffer irreconcilable differences as a result of dividing the estate without your advance directives.

Take a room-by-room written inventory and as you do so, consider each possession and where it may do the most good or who in your family might most appreciate it. You’ll likely be surprised with what you discover.

A basic will and/or trust typically form the foundation of estate planning as they can be relied upon to set the basic terms that you wish to be followed. In addition to important items such as the distribution of valuable objects and family heirlooms, other points to consider include how you want your property and cash to be utilized. Putting your wishes in writing tends to go a long way in making sure they are honored and reduces the possibility of family-splitting disputes.

Living Will

That’s right, we said living will. Unlike a traditional will, a living will is a legal document communicating end-of-life decisions. It is also known as an Advance Healthcare Directive (AHCD). It is generally advisable to have a living will and a final will. You do not need a lawyer to make a living will but it should be signed and notarized. It usually includes such items as a Do Not Resuscitate (DNR) order if you do not want life-prolonging services or treatments such as breathing or feeding tubes, blood transfusion, organ donation, dialysis or pain medication. Copies should be given to family members as well as health care providers. The living will is only effective if those who are treating you know about it and only takes effect if you can't communicate your healthcare treatment.

While a durable power of attorney gives the power to execute financial transactions on your behalf under specified conditions to a trusted person, a Health Care Surrogate allows someone to make medical decisions for you if you are no longer able to do so.

Power of Attorney - Healthcare and Financial

As stated, a power of attorney (POA) is a legal document in which one person, the principal, designates another person (the agent or attorney-in-fact) to act on their behalf, i.e., to make decisions in specified or all matters. A power of attorney is used in the event that you may not be able to act on your own behalf temporarily due to absence or incapacity, for example, due to travel, accident or illness, or permanently.

A financial power of attorney is a legal document that lets you appoint someone to manage your financial affairs and property. This often includes paying bills, making bank deposits, collecting insurance benefits etc. A power of attorney is accepted in all states but the rules and requirements differ per state.

If you do not formally name a power of attorney and become unable to manage your affairs, it may be necessary for a court to appoint one or more people to do so. People appointed in this manner are referred to as guardians, conservators, or committees, depending upon local state law and are a matter of public record.

A healthcare power of attorney (HCPA) is a legal document that allows an individual to empower another person to make decisions about their medical care. A healthcare power of attorney refers to both a legal document and a specific person with legal authority.

A Trust – Why You May Need One

Many think they have nothing worth passing on or are intimidated or confused about the idea of a trust. People generally have more to lose than they realize. The primary goal of an estate plan is that it enables the estate owner, regardless of income or assets, to control their legacy.

A trust is one of the most common solutions to avoid probate and minimize taxes. Numerous trusts are available, one for nearly every situation. Trusts can play a crucial role in helping to shelter assets from taxes, can help avoid probate, protect privacy, provide for multiple beneficiaries, aid a charity, and care for an individual with special needs. These benefits make trusts a valuable tool for long-term, strategic financial planning.

Trusts generally fall into one of two categories: revocable and irrevocable. A revocable trust can be changed or canceled any time after it is established. The federal government considers these assets to be under the grantor’s control, income taxes must be paid on any revenue the assets generate, and there could be estate taxes on remaining assets at death.

An irrevocable trust cannot be altered or canceled once created as assets placed into one are permanently removed from an estate. As this trust is considered a separate entity, any appreciation of its assets is not considered part of an estate, thereby eliminating estate tax liability.

Trusts are formal, legal documents. The key parties involved in them are the grantor who is transferring ownership of his/her property, the trustee who independently oversees such property making sure the grantor’s wishes are followed, and the beneficiary who receives income or principal from the trust. A trustee can be a relative, friend, or financial professional as well as an institution such as brokerage firm or bank. A person can also name himself as trustee.

Trust documents are usually kept confidential among the families involved and those serving them - allowing assets to be moved without them becoming public record.

The sheer number of trusts presents great planning tools for specific situations, but they can also be complicated and expensive to create and maintain. Only by carefully studying an individual’s estate-planning issues can the proper trust strategy be devised.

Summary

By not planning for life and death decisions people often fail to address what happens when they die or become incapacitated. This affects not only what happens to them personally but also to their assets and family. To avoid unpleasant consequences:

  • Make a will so that you decide how your assets will be distributed at death or if you become incapacitated. 
  • Prepare a health-care directive/living will appointing someone to make health care decisions if you are incapacitated. 
  • Give someone you trust a power of attorney to make financial decisions for you. 
  • Hold a family meeting to clearly outline your wishes and objectives.

You should regularly review your wealth-preservation, asset-allocation, tax-minimization strategies, risk tolerance, retirement, and estate preparation. Goals are generally reviewed annually and family meetings are encouraged to be sure each member knows what is expected and how to carry out parents’ wishes.

True wealth should provide you with the freedom for what you really want. It’s important to learn to control one’s wealth and not let wealth or the pursuit of it, control you and/or your family.

About the author: Rocco A. Carriero, MBA, CRPC®, APMA®

Rocco A. Carriero is a comprehensive wealth advisor specializing in working with business owners, CEOs, and entrepreneurs. He is a Chartered Retirement Planning Counselor, Accredited Portfolio Manager Advisor, and holds an MBA in banking and finance with over 20 years of experience. Rocco has appeared on Fox and NBC; his financial insights have been featured in publications including the Wall Street Journal, Forbes, Fortune, Wealth Management Magazine as well as many other local and regional publications. Rocco is a member of the Columbus Citizens Foundation and has served on the board of directors of The American Heart Association, Southampton Business Alliance, East End Hospice, and Westhampton Beach Performing Arts Center and serves as the vice president of Integrated Medical Foundation.


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Email Jeffrey Levine, CPA/PFS, chief planning officer at Buckingham Wealth Partners, at: AskTheHammer@BuckinghamGroup.com.