“Lack of Estate Planning Puts Black Wealth at Risk.”– Earl Graves, Sr.
When Aretha Franklin died last August, her family operated with a simple understanding about her estate: because she was believed to have had no will, Franklin’s assets and income would be divided equally among her four sons, in accordance with Michigan law.
That structure, and the peace it preserved within the family, has been upset by the discovery of a series of handwritten wills that could significantly alter the estate, replace the executor and change each son’s inheritance. The scrawled documents — found in a locked cabinet and under the sofa cushions of Franklin’s home in suburban Detroit — were submitted to a probate judge to determine whether they qualify as valid wills.
Estate planning has many components and devices. Most commonly it is defined as the preparation of disposing of one’s assets. Bottom line, we all need it and as gloomy as it seems, it’s necessary. Hopefully the following six items will better prepare you to face life’s eventualities.
An Estate Plan Has Several Elements
They include: a will, power of appointment, and living will or health care proxy.
A will is a legal document that coordinates the distribution of your assets after death and it can appoint guardians for minor children. A power of appointment is a term most frequently used in the law of wills to describe the ability of the testator (the person writing the will) to select a person who will be given the authority to dispose of certain property under the will. Although any person can exercise this power at any time during their life, its use is rare outside of a will. Both a living will, and a health care proxy are forms of Advance Directives. The living will details what you would like to have done for you if you are unable to tell someone yourself. A health care proxy (also referred to as a durable power of attorney for health care) is a document that appoints someone to make medical decisions for you, if you are in a situation where you can’t make them yourself. You must choose your proxy thoughtfully since he/she will be acting on your behalf.
For some people, a trust may also make sense. When putting together a plan, you must be mindful of both federal and state laws governing estates.
Whether You Own a Little or a Lot; Most Everyone Needs A Will
Having a plan ensures that your family and financial goals are met after you die. A will tells the world exactly where you want your assets distributed when you die. It’s also the best place to name guardians for your children. Dying without a will – also known as dying intestate, can be costly to your heirs to the tune of about 45 percent of your estate. That option leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.
Catalog Your Assets
Your assets include your cash on hand, savings and checking accounts, investments, retirement savings, insurance policies (with cash value), and real estate or business interests. Make a list (both a hard copy and a soft copy) of everything you own and then ask yourself three questions:
- Who do I want to inherit my assets?
- Who do I want managing my financial affairs if I ever become incapacitated?
- Who do I want making medical decisions for me if I am unable to do so?
Trusts Are Not Just for the Well-Off
Trusts are legal vehicles that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer a greater safeguard of your assets from creditors and lawsuits.
Leaving an Unlimited Amount of Money (Tax-Free) o Your Spouse
If you leave all your assets to your spouse, you don’t use your estate tax exemption and instead increase your surviving spouse’s taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it puts off the tough decisions about the distribution of your assets until your spouse’s death. Inheritance can be a loaded issue. By being clear about your intentions, you help chase away potential conflicts after you’re gone.
There Are Ways to Give Charitable Gifts With Tax-Free Growth
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die. These types of bequests can be made in your will.
-Carla Madison, EA
Carla is an Enrolled Agent, a designation conferred by the IRS that deems her one of America’s tax experts! She also has a graduate certificate in Financial Planning from DePaul University and has spent more than 20 years assisting clients with Taxation, Accounting, Asset Protection, and Financial Planning. She is a member of the Association of Financial Educators and since 1998 has served as an instructor of financial education for various institutions.
Additionally, Carla is the owner of “Madison Financial Solutions,” (www.mfs4u.com) where she assists her clients with tax and financial planning advice.
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