Chapter 1

Ensuring That Your Last Wishes Are Honored

IN THIS CHAPTER

Understanding the estate planning process

Creating your estate plan

Getting help when you need it

Making your wishes known

Avoiding common estate planning pitfalls

You've worked hard all your life, have accumulated some assets, and have bought a copy of this book. You're ready to plan your estate.

My best guess? You're not excited about planning your estate. You have already figured out that you have a lot of work to do. You must also think about unpleasant things, including your death, the possibility of your incapacity, and how your family will cope without you.

What's the primary purpose of an estate plan? Taking care of your loved ones after you're gone. Why plan your estate now? Because the sooner you start, the more certain you can be that your plan will take care of your family's needs in the way that you want.

As you proceed with this process, you'll probably find out your estate planning needs aren't as complicated as you thought. You may discover that all you need is a will, perhaps backed up by a simple living trust. You may instead discover that your needs are more complicated than you realized and enlist the help of an estate planning professional. Yet even then, your understanding of the estate planning process and tools will help you communicate your needs and choose your best options.

Having an estate plan also provides a great deal of comfort. You'll be able to plan for your family's financial needs. And after your death or incapacity, your loved ones won't have to fret about what you would have wanted them to do. They'll know your actual wishes.

The Good, the Bad, and the Ugly: What Can Happen When You Don't Plan Your Estate

Simply put, if you don't plan your estate, the government has an estate plan in store for you. Your state's laws of intestate succession will apply, and the state will decide who inherits your assets, usually your spouse and children. But that's not all:

• In the event of your incapacity, a court may appoint people to make decisions for you regarding your personal and medical care and the management of your money. A stranger may end up deciding where you live, what medical treatment you receive, and perhaps even whether you really need $20 for a haircut.
• If you have minor children, a court will have to decide who will care for them but will not have the benefit of your input.
• The business you spent a lifetime building may end up failing or in the hands of a court-appointed receiver.

Planning your estate isn't a one-time task. Changes in your life circumstances can dramatically alter both your wishes for your estate and whether your original estate plan even remains viable.

Sometimes it seems like your life doesn't change much, so you may be wondering what sort of changes I am talking about. Consider the following:

• Your estate will probably grow substantially over the course of your life, although it may also shrink.
• You may marry, divorce, separate, have or adopt a child, or experience a death in your family.
• Your children will grow up and establish their own households.
• You may move between states, buy and sell property, or start your own business.
• Your designated trustee or personal representative may no longer be available, or your relationship with that person may change.
• Laws may change. In fact, they will. You never know when Congress will change estate tax laws, but give it time and it will happen.

In all probability, you'll update your estate plan several times during your life, and on occasion you may even start over from scratch.

If you don't update your estate, over time your estate plan may become largely ineffective. When that happens, you're not much better off than you were before you created the outdated estate plan.

Reaping the Benefits of Planning Your Estate

The biggest advantage of planning your estate is that your wishes will be respected, both while you're alive and after your death.

Your estate plan helps you in several ways:

• Incapacity planning helps ensure that you receive the type of medical care and treatment you want, that your assets are managed according to your own wishes, and that your end-of-life decisions are respected.
• Your will and trust ensure that your assets are distributed to the heirs you choose, under terms and conditions you define.
• Your business succession plan helps ensure that your business doesn't fail following your incapacity or death, and that control of your business passes to a suitable successor.

When you don't plan your estate, your incapacity plan will be defined by a court, and your estate will be carved up according to state law. The result may be far different from what you desire.

Planning for your care while you're alive

In addition to planning for the distribution of your assets after you die, a complete estate plan looks at what will happen to your estate if an accident or illness leaves you unable to properly care for yourself.

Your incapacity plan includes your durable power of attorney, healthcare proxy, and living will:

• Your durable power of attorney appoints an attorney-in-fact who can make financial decisions for you if you become incapacitated.
• Your healthcare proxy appoints a healthcare advocate who can help you make medical decisions if you're unable to make or communicate those decisions yourself.
• Your living will describes what care you want to receive and don't want to receive during the final days of your life.

If you don't appoint people to help with your medical and financial needs, your family may have to go to court to have somebody appointed to make decisions for you. Your loved ones will face unnecessary burdens and confusion:

• Your family will have to go to court to have somebody appointed to manage your personal and financial needs, at a time when they're already under stress due to your incapacity.
• The court won't know who you'd prefer to assist with your medical and financial decisions, and may appoint somebody who you would find unacceptable.
• Your helpers won't know your wishes or the limits you'd impose on their choices if you were able to communicate them. They'll have to try to guess what you would have wanted.

The impact of these choices may be profound. Whatever your plans, with a court-appointed guardian supervising your medical care, you're more likely to undergo more intrusive medical care than you might choose for yourself and to spend your last days in a hospital or nursing home. (Chapter 14 discusses incapacity planning in more detail.)

Ensuring that your assets go where you want

When you plan your estate, you pick your heirs and decide how much you want to leave to them. Although state laws do restrict your ability to disinherit certain heirs, especially your spouse, for the most part you can leave your money to family, friends, schools and charities, or anybody else you choose.

In defining your bequests, you may choose to simply distribute your assets to your heirs upon your death. But you may also choose to be very creative in how you distribute your assets.

• You can defer your bequests to a later date (for example, "When my son turns 25").
• You can mete out your gifts in installments (for example, "$20,000 to my daughter upon her 18th birthday, $20,000 on her 23rd birthday, and $60,000 upon her 30th birthday").
• You can impose conditions on your bequests, requiring your heirs to satisfy those conditions before they receive the inheritance (for example, "$50,000 to my son upon his graduation from college").

If you don't plan your estate, the state will make all those choices for you. Your estate will go to your heirs according to your state's laws of intestate succession, described later in this chapter in the section "Realizing What Happens If You Don't Have an Estate Plan." If you have minor children, the probate court may appoint a conservator to look after their assets until they turn 18. But any adult heir will immediately receive their legally defined inheritance. Your wish to support your alma mater or to give to charity? Forget it.

The only way to be sure that your assets are distributed the way you want is to plan your estate. (Chapters 3 and 4 detail the process of collecting information about your assets and planning your bequests.)

Making things easier for your family

Most families want to carry out the wishes of an incapacitated or deceased relative, but to do that they must know what those wishes are. If you become unable to make your own medical decisions, your family may choose a treatment plan that you would not like. After your passing, your family will want to celebrate your life in the way you prefer, but they can only do that if you tell them what you want. They will want a good home for your minor children, but they need to know what home you think would be best. They will find a way to divide cherished items of property and heirlooms, but they may...