Carissa Giebel column: Everyone needs estate planning
11:00 PM, Dec. 27, 2011 |
When you hear "estate planning," do you think of just the wealthy or elderly?
I'll admit that in my earlier years, I thought of the wealthy, those with an estate. If someone had an estate, that meant they were wealthy.
From what I know now, this is a common misconception.
As a new college student, little did I know that because I owned a car and had a bank account, I had an estate.
At age 18 with hardly no assets, I still should have done some planning.
Estate planning for young singles with few assets can cost as little as nothing or very little, but should still be done. As a college student, I assumed that if something happened to me and I wasn't able to make my own financial or medical decisions, my parents could step in for me. I didn't realize they would have to go through expensive court proceedings to get that authority first.
The same applies for married couples. Without a valid power of attorney, a spouse cannot legally make decisions for you. A court proceeding is the only other way for anyone, including a spouse, to get that authority. This includes the authority to make health care decisions and the authority to manage finances.
The Eighth Edition of Black's Law Dictionary defines estate planning as "the preparation for the distribution and management of a person's estate at death through the use of wills, trusts, insurance policies, and other arrangements to reduce administration costs and transfer-tax liability."
A will is a great tool to name guardians for minor children and to name desired beneficiaries.
Probate is the court process that fulfills your wishes in the will and pays off creditors, taxes, administration fees, etc. Many try to avoid probate through trusts.
Another misconception about estate planning is that trusts are for the wealthy.
Although wills cost less upfront, thousands of dollars of the estate can be spent in probate. Whereas a properly set up trust can completely avoid probate and save those costs.
Although a trust costs more upfront, it saves at death because there is likely no court involvement nor court fees, and less attorney fees associated with the distribution.
Trusts can also be used to protect assets left to loved ones.
Perhaps you have minor children and don't want them to receive their inheritance at age 18 because that will be more harmful than helpful. Or you want your children to receive their inheritance so it's protected from their creditors, a divorce, lawsuits, bankruptcy, etc.
What if you have a beneficiary with a spending problem, an addiction or on government aid for a disability? A trust is necessary solution.
Some trusts are used to protect assets from nursing home costs. With a family cottage, hunting land, or any other asset you want to make sure is not lost to long-term care costs, a trust might be a solution.
Some trusts are just for the wealthy, including those set up to protect assets from estate taxes or to accomplish charitable gift planning.
But now you know that neither estate planning nor trusts are only for the wealthy.
Although not everyone needs a trust, everyone age 18 and older does need estate planning.
If you haven't done any planning yet, or your planning hasn't been reviewed in at least five years, make it your New Year's resolution to meet with an estate planning attorney.