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While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones of the expense, delay and frustration associated with managing your affairs when you pass away or become disabled.
Providing for Incapacity
If you become incapacitated, you won’t be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated. The truth is that in order for others to be able to manage your finances, they must petition a court to declare you legally incompetent. This process can be lengthy, costly and stressful. Even if the court appoints the person you would have chosen, they may have to come back to the court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and refinance your home. A will does not take effect until you die and a power of attorney may be insufficient.
In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care. The law allows you to appoint someone you trust - for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself. You can do this by using a durable power of attorney for health care where you designate the person to make such decisions. In addition to a power of attorney for heath care, you should also have a living will which informs others of your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.
Avoiding Probate
If leave your estate to your loved ones using a will, everything you own will pass through probate. The process is expensive, time-consuming and open to the public. The probate court is in control of the process until the estate has been settled and distributed. If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow your surviving spouse devote more attention to your children, without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children. The person, or trustee in charge of the finances need not be the same person as the guardian. In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accounting.
Planning for Death Taxes
Whether there will be any federal estate tax to pay depends on the size of your estate and how your estate plan works. Many states have their own separate estate and inheritance taxes that you need to be aware of. There are many well-established strategies that can be implemented to reduce or eliminate death taxes, but you must start planning process early in order to implement many of these plans.
Charitable Bequests – Planned Giving
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. You should consult a qualified estate planning attorney to review your family and financial situation, your goals and explain the various options available to you. Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and your family in case the worst happens.
Pet Trusts Have you seriously considered what will become of your faithful companion – your beloved pet – upon your death or disability? If not, now is the time. If you don’t have a plan that quickly and easily provides for your pet’s food, shelter, and care, please keep reading.
One of the main goals of estate planning is to provide for your loved ones, and for many of us, “loved ones” includes our pets. While you can always ask a friend or relative to look out for your pet, they aren’t legally obligated to unless you set up an estate plan for this.
The specific estate planning method you use will depend on your state laws, your pet’s needs, your goals and financial resources. Working together, you and your attorney can plan for the best method to ensure that your pet will continue to have a quality life.
Consider these frequently asked questions and be sure to ask your attorney for more details. Don’t wait until it’s too late …
Can I provide for my pet in my estate plan?
Yes. However, even though you consider your pet as a companion and devoted friend, legally, your pet is ‘personal property’ – and is not given the status of a person. That makes it critical to choose the right planning method. You could provide for your pet in your last will and testament or by creating a trust.
Isn’t my will the easiest place to plan for the care of my pet?
Even though it may seem ‘easy’ to include a bequest for your pet within your will, it may not be the best approach. Why? Because your will must go through probate before it takes effect. This can be time consuming and uncertain, and your pet will need immediate attention. Your pet is not like your spouse, adult children or your siblings – they can take care of themselves until the probate process is complete.
But since your pet needs food, water, shelter, and love every day, this may not be the best way to provide for your pet.. During probate, your pet’s care, or even ownership, can be in jeopardy. So, while you may want to include provisions in your will your pet, first consider other methods. Many people are now using a ‘trust’ to provide funds and direction for the care of their pet.
How does setting up a trust help me provide for my pet?
Unlike a will that is subject to the probate process, a trust becomes effective immediately upon the terms outlined in your trust – usually death or disability. Your trust specifies the details concerning the care and control of your pet, as well as making funds available. Your trust can also give specific directions about the daily care, medical attention, physical control, and even burial of your pet.
What is a trust and how does it work to provide for the care of my pet?
A trust is a legal entity set up to accomplish a particular purpose. You and your attorney will outline the specifics that detail when and under what circumstances the trust will take effect. This includes how the trust will be funded, who will be the trustee, successor trustee, beneficiary, and caretaker, and how the trustee or caretaker will manage your pet and the funds for your pet.
You want your loving pet to be fed, cared for, and to receive medical attention. You may also want to designate funds for pet insurance, or even to enforce the trust. In your trust, you can also leave real property for housing your beloved companion.
What types of trusts are available to provide care for my pet?
A ‘pet trusts’ is really a generic term and is applied to a trust that provides for your pet. A pet cannot be a beneficiary of a traditional legal trust because one of the legal requirements for a trust is that there must be a beneficiary, and that beneficiary must be able to enforce the terms of the trust. Obviously, a pet cannot enforce a trust. So, the choice and structure of a trust must take this into account and be properly worded to accomplish your goals.
Most trusts for the care of pets include the following:
- Statutory Pet Trust – Some states are enacting statutes that allow for enforceable pet trusts. This generally means that the trust can designate a third party who will have the power to enforce the terms of the trust – to compel the caretaker or trustee to use the trust funds for your pet. Some issues that arise with these trusts include whether the amount of funds in the trust is ‘reasonable’ according to court standards, and who the designated third party to enforce the trust would be.
- Honorary Trust – This is a type of trust set up for a specific purpose (such as to provide for a pet) but without a definite beneficiary. The problem with an honorary trust is that without a statute specifically authorizing it as a pet trust, it is essentially unenforceable.
- Traditional Legal Trust – One of the best methods to ensure the care of your beloved pet is to set up a traditional legal trust. Your attorney can carefully add language to avoid problems. One method used is to actually place the pet and sufficient funds into the trust. The pet and the funds are the body of the trust. Your attorney then names the caretaker of your pet as the ‘beneficiary’ of the trust. You name a trustee – the party responsible for managing the funds and the caretaker.
How much should I leave for the care of my pet?
You and your attorney will work together to evaluate the factors that influence this decision. You need to consider your finances, your pet, and the amount of care that will likely be involved for the pet’s anticipated lifespan. Obviously, providing for the care of some pets will be more expensive than for others. If your pet is an elderly dog, you will not need to designate as much as you would for a young horse.
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