Once you have a general idea of how you’d like your assets to be handled upon your death; it’s time to put it in writing. I recommend hiring an attorney who can draw up all of the legal documents for you. Yes, you could use a site like Legal Zoom, but I recommend using an actual person. A skilled attorney in the area of estate planning knows the ins and outs of estate plan design and can provide the right guidance in ensuring you’ve covered all the bases. Having an actual conversation to discuss all of your options is extremely valuable. Just find someone who knows what they’re talking about.
Answer all the “What Ifs?” After you’ve mapped out your overall goals and you know what you’d like to pass on to whom, ask some “what if “questions. My goal may be to pass everything on to my husband, Jeff, first. Then if we both die at the same time to Luke and my step-children. What happens though if I die and then Jeff dies after me? My assets pass on to him based on my will but then become part of his estate and those assets would then pass according to his will. So what does his will say? Or what if I die, Jeff remarries and then either dies or divorces? Without proper planning my assets could end up going to someone else (the new wife) and not at all to our children. The same type of questions would apply in the reverse. What happens to Jeff’s assets if they become part of my estate? We want to be sure that Jeff’s intentions to have assets pass on to his children are retained.
This part can get really mind boggling so don’t be afraid to draw out a little flow chart or something. Our attorney was great about asking us all the “what ifs”. He raised some questions I hadn’t considered. You want to be able to see your plan from all angles so you can address any potential pitfalls.
Consider A Trust Often times you’ll find some type of trust utilized in an estate plan to help direct and protect how you want specific assets handled. In our case, since Luke is a minor, we’ve included a testamentary trust. This type of trust is created upon our death with the provisions being spelled out in our will.
The trust will hold Luke’s assets until he reaches a certain age. What’s nice about this handy tool, is that I can lay out some specifics rules. For example, we’ve specified that the funds can be accessed for his education expenses, health expenses, and overall support expenses. What’s considered as a qualified expense under those terms comes down to the discretion of the designated trustee, so keep that in mind when electing the trustee. I’ve drafted a letter with instructions to my trustee as to my overall intentions. It isn’t legally binding, but if an expense were to be contested by someone, a judge may take the letter into consideration. Besides that it makes me feel better and my trustee appreciates my thoughts and guidance. I’ve even provided contact information for my own financial planner whom I trust in helping my trustee manage the trust assets.
Once Luke reaches 25, he’ll receive half of the remaining trust assets. Then at age 30 the trust will terminate and he’ll receive whatever is left. I could have chosen any age (after he becomes a legal adult) or any percentage at whatever intervals I wanted. With the provision for health, education, maintenance and support, he’ll have access to the funds for what he needs including college expenses, but he won’t be able to go blow it in Vegas. The age restrictions are simply to encourage him to be responsible with the money. If at age 25 he wants to go to Vegas, than he can. Of course my hope is that he’s much more responsible and uses the money for something meaningful. See how helpful trusts can be?
We could have also utilized a trust to provide the surviving spouse with a specific amount of money or access to funds for maintenance and support with a portion of the estate assets being protected to be passed on to the children. These types of provisions can ensure your estate intentions are maintained in cases where a surviving spouse might remarry.
Pay Attention to Named Beneficiaries Certain assets such as life insurance proceeds and retirement accounts like (IRAs and employer-sponsored plans) have named beneficiaries so you can specify who you want to receive those assets. These assets pass outside of the estate and aren’t directed by the will. Since a large portion of our assets consist of life insurance and retirement accounts we’re able to structure the named beneficiaries in a way that protects our intentions. For example, part of Jeff’s assets specifically name his children guaranteeing they receive those specific assets while other assets will be passed on to me to help with my living expenses and provide for Luke. (So if you think you can have Jeff killed off, sweet-talk me into marrying you and then steal the family fortune, you’re wrong. We’ve done our estate planning. Not to mention our family fortune isn’t exactly a fortune.)
Coordinate Titling of Assets It’s important to make sure that the way your assets are legally titled match up with your overall estate plan. Having assets that are titled with “rights of survivorship” mean that they pass on to the survivors directly without going through the estate process and aren’t directed by the will. This can be helpful in providing immediate access to assets but it may not be the most tax efficient method depending on the type of asset and the relationship between owners.
Other Considerations Not to Overlook When structuring your estate plan you’ll also want to consider taxes. There are lots of strategies that can minimize or eliminate estate taxes in the event that your estate would be subject to taxes. (Most estates don’t have to worry about that though, since only taxable estates worth more than $5.34 million this year are subject to federal estate tax.) Besides estate taxes there are also tax considerations when it comes to IRAs and stocks that will be passed on, so it’s worth having a discussion with an estate attorney or financial planner.
Finally, I would be amiss if I didn’t mention (especially, living in this area) that if you have oil, gas and mineral rights you most definitely want to address that within your estate plan. I won’t go into detail here, but it should definitely be discussed. Your estate may seem far away from exceeding the federal estate tax exclusion, but if you have large piece of property in an active production pool the value may represent the largest portion of your estate.
