What is estate planning?
Estate planning is a comprehensive plan to protect yourself, your loved ones and your assets. It involves making plans for what will happen to your assets when you are no longer able to handle them. This could happen during your lifetime, in the event of mental incapacity, and will happen at your death. An estate plan states who will take care of your assets, who will benefit from your estate, and when your intended beneficiaries will receive these assets.
An estate plan consists of some or all of the following documents:
Last Will and Testament, Trust, Durable Powers of Attorney and Advanced Directive.
A good, comprehensive estate plan will:
Name the Fiduciary (Executor and/or Trustee) of your choice, who will be responsible for following the instructions you have set forth in writing.
Include instructions for your care if you become disabled before you die.
Name a guardian for minor children.
Provide for family members with special needs without causing the loss of any governmental benefits to which they may be entitled.
Provide for loved ones who might not be ready to handle the responsibility of an outright inheritance, if, for example, they are irresponsible with money or need future protection from potential creditors or divorce.
Provide for the transfer of your business at your retirement, disability, or death.
Minimize taxes, court costs, and unnecessary legal fees.
Include life insurance to provide for your family at your death, disability income insurance to replace your income if you cannot work due to illness or injury, and long-term care insurance to help pay for your care in case of an extended illness or injury.
Be an ongoing process, not a one-time event. You should review and update your plan as your family, financial situation, and laws change throughout your lifetime. The rule of thumb is that you should review your plan approximately every 5 years.
If you have not established an estate plan (created a Will and/or Trust), your state has one for you, but it probably does not do what you want.
If you become disabled: If your name is on the title of your assets and you can’t conduct business due to mental or physical incapacity, someone will need to petition the probate court to become your legal guardian. This is an expensive and time consuming process. It is open to the public.
At your death: If you die without establishing a will and/or trust (an intentional estate plan), your assets will be distributed according to state law. In many states, including Rhode Island, if you are married and have children, your spouse and children will each divide your estate. If you want your spouse to receive everything, you need a will. Your spouse could be left with insufficient assets to support himself or herself. If you have minor children, the court will control their inheritance, and they will get their money at age 18. Without a Will or Trust, you cannot defer your child's inheritance beyond age 18. If both parents die (i.e., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.
The best benefit is peace of mind.
Knowing you have a properly prepared plan in place - one that contains your instructions and will protect your family - will give you and your family peace of mind. This is one of the most thoughtful and considerate things you can do for yourself and for those you love.