The Basics of Estate Planning 2024
As the year comes to a close, it's an ideal moment to reflect on your financial and personal goals, especially when it comes to planning for the future. Estate planning offers a way to ensure that, if anything happens, your loved ones are provided for, your assets are protected, and your wishes are honored. This season, as we reflect on the past year, it is also a great time to look ahead and consider the steps needed to preserve your legacy.
In this article, we will discuss the basics of estate planning. Click here to download our Estate Planning Guide, which include this article “The Basics of Estate Planning,” an “Estate Planning Checklist,” and an “Inventory of Assets and Liabilities for Estate Planning” worksheet.
01. The Importance of Estate Planning
Studies show that only about one-third of Americans have an estate plan. Reasons why many people do not have an estate plan include:
They have been procrastinating;
They do not know where to start;
They feel that estate planning is for rich people; and
They are still young.
As opposed to common misconceptions, everyone can benefit from having an estate plan regardless of their age, health, and wealth. Estate planning is not just about having a will or planning for who gets your assets after your death. It is also about making plans in the event of your incapacity.
Having a complete estate plan will ensure that when you need help with managing your financial and health care matters, the person who you wish to make these important decisions on your behalf will have the legal authority to do so, your preferences for medical care are honored and carried out, your loved ones are being taken care of after your passing, and your assets are distributed according to your final wishes.
Estate planning gives you the power to make your own decisions and prepare instructions for your family, friends, and physicians. If you do not have a plan in place, your family may be burdened to figure out what your wishes are and may have to go through court proceedings that could have been avoided. Also, the state’s inheritance law, not you, will determine who will receive your assets after your death.
A complete estate plan will cover your wishes and instructions regarding your finance and medical care during your lifetime and arrangements for your loved ones and assets after your death. It will give you and your loved ones the peace of mind they deserve.
02. Basic Estate Planning Documents
A basic, complete estate plan usually includes (1) a will; (2) a financial power of attorney; (3) a health care power of attorney; (4) a health care directive (also known as a living will); and (5) beneficiary designations. Other documents that may be included are trusts, a community property agreement, etc.
❖ Will
A will gives you the freedom to determine how your estate will be managed and distributed after your death. If you die without a valid will, the intestate succession laws of the state where you live will typically determine how your estate is distributed. The state’s intestacy statute sets some default rules to distribute a deceased person’s estate based upon familial relationships - spouse, child or grandchildren, parents or siblings, etc. The default rules for persons without a will can be difficult to understand, and most importantly, they often do not reflect the deceased person’s wishes.
Having a valid will in place will allow you to make a plan that is the best for you and your family and to create a legacy to make a positive and lasting impact for your loved ones and the community.
❖ Power of Attorney
A power of attorney lets you name a trusted person to help you make health care and/or financial decisions and manage your health care and/or financial matters on your behalf. The person you named, your “agent,” can be a family member or friend.
There are different types of power of attorney. For estate planning purposes, a durable power of attorney – meaning your agent’s authority to make decisions on your behalf continues even when you become incapacitated – is more commonly used. With a power of attorney, you may authorize your agent to:
Act on your behalf on all matters, including financial, health care, and business, as allowed by law (general power of attorney);
Handle only your financial matters or only certain types of financial matters (financial power of attorney); and/or
Handle only your health care matters or certain types of health care matters (health care power of attorney).
Further, you have the choice to make the power of attorney effective immediately so that your agent can start exercising the authorities you granted them right away, or you can decide that it only becomes effective when a specified condition is met, such as when you have become incapacitated.
The loss of ability to manage your personal matters can be temporary or permanent and can happen suddenly or gradually. Having a plan for potential incapacity can help minimize its impact on you and your loved ones. It will give you more control over your later years and help guide your loved ones in helping you to manage your financial and health care matters.
❖ Health Care Directive
A health care directive (also known as a living will) allows you to decide what type of medical treatments you do or do not want when you are terminally ill or permanently unconscious and unable to make the decisions yourself. To consider in advance your health care decisions and have your decisions written down will let your health care provider and loved ones be aware of your decisions and ensure that your wishes are honored when you are unable to express them yourself.
You may also include your health care values in your health care directive. This may include your goals, values, and beliefs that can guide your health care provider and loved ones in making health care decisions for you. Talk to your loved ones and health care provider about the health care directive and provide them with a copy. You can change or cancel your health care directive at any time. When you change or cancel your health care directive, remember to notify the people who have copies.
❖ Trusts
Trusts can be flexible and effective estate planning tools for meeting your estate planning needs. Common reasons to establish a trust may include:
Tax planning;
Avoid probate;
Privacy;
Provide for minor children or family member with special needs;
Asset protection; and
Assistance with asset management.
While a trust can be a useful tool for estate planning, it is important to consider whether it is a suitable tool for accomplishing your goals and how it fits into your overall estate plan. Generally, disadvantages of establishing and maintaining a trust may include:
Costs, including the legal fees to draft the trust, trust maintenance fees, filing and title transfer fees;
Ongoing management;
Recordkeeping complexity; and
Loss of control over your assets.
In deciding whether to use a trust or what type of trust to use, you should begin by considering your estate planning goals. There are different types of trust and you have a lot of flexibility in deciding on the terms of the trust, which makes it a great tool for addressing a specific need, such as providing for a minor child or an individual with special needs, or to protect assets from certain parties. Examples of common types of trusts include:
Revocable living trusts;
Special needs trusts;
Marital trusts;
Irrevocable trusts; and
Irrevocable life insurance trusts.
Many people consider establishing a trust because they want to avoid probate. The probate process varies from state to state. In the State of Washington, the probate process, compared to some other states, is relatively straightforward and inexpensive.
Hence, weighing all the factors together, it may or may not be worthwhile to establish and maintain a trust strictly to avoid probate.
03. Review Your Estate Planning Documents
Once you have your estate planning documents prepared, it is important to review your documents every 3-5 years or after a major life event to ensure that the documents still accurately reflect your wishes. Major life events may include:
Change in marital status such as getting married, divorced, or widowed;
Having a new family member;
Losing a family member;
Change in a family member’s need/status, for example, your minor child or grandchild has become an adult or you have a family member with special needs;
Buying or selling a major asset such as your home or a business;
Moving to a different state; and
Major change in your financial situation such as a significant increase in income, or receiving a large inheritance or gift.
04. Frequently Asked Questions
(1) Do I need a will?
Generally, everyone should have a will regardless of their age and wealth. Your estate consists of everything you own, including your personal belongings, vehicles, savings, retirements, investments, real properties, etc. Regardless of what you own and how much you own, you will want to make a plan for it. Otherwise, your loved ones will have to figure it out themselves after you pass. A will does not have to be complicated. As long as your goals are met, a simple will may be all that you need to leave your legacy.
(2) Do I need a trust?
Not every person needs to set up a trust. It depends on your individual circumstances. An estate planning attorney can help you to determine whether a trust will help you achieve your estate planning goals. Circumstances that you may consider having a trust may include you have a family member with special needs, you want to avoid probate, and you are a high-net-worth individual.
(3) Do I need a health care directive and a health care power of attorney?
A health care directive is instructions to your health care provider and loved ones. It is often used for end-of-life care and outlines the medical treatments you do or do not want when you are terminally ill or permanently unconscious. It does not appoint someone to make health care decisions for you. In contrast, a health care power of attorney lets you appoint a trusted person to make health care decisions on your behalf.
Further, a health care directive goes into effect when you are terminally ill or permanently unconscious and unable to make decisions yourself. You can continue to make your own health care decisions when you are capable of doing it. In contrast, a health care power of attorney, depending on how it is drafted, may become effective immediately or when a specified condition, such as incapacity, is met. It may have an expiration date or may continue if you become incapacitated.
(4) Where should I keep my estate planning documents?
Generally, it is recommended that you keep your estate planning documents in a safe but accessible place and let your agent, personal representative, or a trusted person know how to access them when they need to. It is also a good idea to give a copy of the documents to your agent, personal representative, or your trusted person and go over the documents with them so that they know your wishes and also understand their responsibilities and authorities.
(5) Do I need to hire a lawyer?
It is a personal choice. Hiring a lawyer to help you with your estate planning can incur fees but it may be money well spent. It may give you a peace of mind to know that the documents are professionally prepared to meet your individual needs. This may also help to avoid unnecessary court proceedings and make the probate process easier for your loved ones. Online or store-bought forms are usually too general to meet your specific goals. Without qualified legal assistance, you may not fully understand or misunderstand some of the terms and provisions in the generic forms, which can cause problems later.
(6) How much will estate planning cost?
Many lawyers provide estate planning services at a flat fee for simple wills and estate plans and generally can give you an estimate after learning more about your situation. The fee varies depending on the complexity of your estate, your goals, and the lawyer’s experience and expertise. There are organizations that provide free or low-cost legal help for estate planning. However, there might be an income requirement and/or the services provided may be limited.
Estate planning is a vital step in preserving your legacy and ensuring your loved ones are cared for according to your wishes. Creating a comprehensive estate plan provides peace of mind for you and your family. We recommend that you seek competent legal services for your estate planning. If you need assistance with your estate plan, please contact us.
This article is also available in Traditional Chinese.
Disclaimer: The information on this website is provided for general informational purposes only and is subject to change without notice. It does not, and is not intended to, constitute legal advice. Accessing or using information on this website does not create an attorney-client relationship between you and the Firm, and it is not intended to do so.
