What is an estate plan?
Estate planning is a lifetime process, and an estate plan helps individuals in:
The process of developing an estate plan can usually be broken down into three distinct phases:
Phase One – Meet with a professional and develop your goals. These may include asset protection, tax reduction, illness planning, guardian selection, etc.
Phase Two – Have the professional describe the various ways to meet your goals, discussing the pros and cons of each method.
Phase Three – Choose a method and enact the plan.
There is no “one plan” for every individual. Some individuals will require the use of multiple instruments to meet their estate planning goals while others may require one simple device. Regardless of the method, it is important that each step of the process is followed so that you are creating a plan instead of just creating a document.
Why should you estate plan?
Upon your death everything that you own will pass from you to your heirs. The plan which you develop can seriously affect the ease with which your heirs will inherit. Furthermore, good estate planning can reduce the expenses of passing your assets to your heirs, reduce the amount of taxes and attorney fees owed at your death, and provide direction for heirs to insure the best possible use of their inheritance. Sometimes a failure to plan can be catastrophic.
What happens if you have a reckless child? Read the below example to see how estate planning can help ensure your child will not carelessly throw away their inheritance:
Jim was only 15 years old when his parents died leaving behind close to $300,000.00 as an inheritance. Because his parents had failed to plan, Jim inherited all of the money left by his parents on his 18th birthday. Three days after receiving the $300,000, Jim called the Probate Court from Las Vegas requesting more money. Unfortunately, all of the money had already been distributed. Jim had spent his whole inheritance in less than 36 hours.
So what should Jim’s parents have done? Jim’s parents could have set up a trust which would have arisen after their death. This trust could have held Jim’s money until he turned 25 and still paid for his education, health, welfare and support. By making Jim wait until he was 25, the creators of the trust could have insured that their son would inherit when he was more mature and better able to plan for his future. Best of all this type of trust would only spring into being when the creators passed away and would not have to be maintained by Jim’s parents during their lifetime. (Tip: in many cases it is a good idea to nominate the person who controls the trust after your death as the guardian for the child.)
In my next post, I will discuss what might happen if you don’t estate plan.
This article is part of the eFuneral Resource Center and was written by Timothy J. Forrestal, an accomplished Cleveland, Ohio-based attorney with an impressive track record in the fields of elder law and estate planning. He is a member of the National Academy of Elder Law Attorneys, the Estate Planning, Trust and Probate Section of the Ohio State Bar Association, the AARP Legal Services Network and the Better Business Bureau. For more information, please visit www.forrestallaw.com. The Forrestal Law Office Medicaid Planning Team offers help in the following areas: Division of Assets, Medicaid Planning, Living Trusts, Powers of Attorney, Estate Planning, Living Wills, Nursing Home Planning, Guardianships. Those thinking about end-of-life should visit eFuneral.com for help researching, planning, and arranging a wide variety of funeral-related services.
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