Estate planning avoids costs, delays, confusion

by Rick Imhoff

for the Business Journal

The biggest myth about estate planning is that you don't need it unless you have lots of money and other assets. By not doing anything, you add to the confusion, costs and delays associated with the settlement of an estate. Your assets may end up with people whom you did not wish to receive anything from your estate.

Here are a few reasons why everyone, regardless of wealth, needs to develop an estate plan.

1. Minor children. If you and your spouse die leaving minor children, they will need to have a guardian appointed and someone to manage their money until they reach the age of majority. Without specific directions from you, the probate court will appoint someone to be the guardian for your children and appoint someone to manage the children's money, subject to court supervision, until they reach the age of majority.

In your will you have the opportunity to name a guardian for your children. You also have the opportunity to establish a trust to provide for the management of the funds for your children in a manner you choose. In addition, the trust could provide for distribution of the funds in the trust beyond the children reaching the age of majority, either in a series of payments or in one lump sum, when the children may be more financially mature.

2. Disposition of personal property. When settling an estate, one of the areas that sometimes creates problems is how to dispose of the tangible personal property. Without instructions, typically the beneficiaries of your estate will have to bid on each item at a public auction.

You can include a provision in your will that refers to a disposition list that is separate from your will. In the disposition list, you clearly identify the item and the beneficiary who is to receive it. If your total estate is below the requirements to file an estate tax return, the value of the item is not important. If not, the item will need to be appraised before it can be passed on to the beneficiary.

3. Avoiding probate. Some individuals want to avoid probate at their death and at incapacity. To avoid probate at death, an individual may consider a living trust. For smaller estates, an individual may consider using will substitutes, such as paid-on-death or transfer-on-death to name one or more beneficiaries to receive the asset upon death.

To avoid probate at incapacity, an individual may again consider a living trust. A durable power of attorney would also be helpful in conjunction with a living trust, or as a standalone document, so the named attorney-in-fact in the power of attorney can manage your financial affairs if you are unable to do so.

4. Save estate taxes. If you have an estate valued at more than $650,000, you may be faced with an estate-tax liability unless you develop an estate plan to include provisions to reduce or eliminate estate taxes. If you are married, provisions can be made to shelter at least the first $1.3 million from estate taxes. These provisions can be included in either a will or a living trust.

5. Provide for beneficiaries. You may be faced with a situation that one or more of your beneficiaries may not be able to properly manage an outright inheritance, due to marital difficulties, credit problems, or they lack the maturity to handle money.

You may need to consider the establishment of a trust, either in your will or your living trust that takes effect upon your death, to provide for the management of the inheritance. This would allow the beneficiaries to receive income from the invested inheritance and receive principal payments at various times in the future or for special needs.

Proper planning is important, regardless of the size of your estate. To develop a workable estate plan for your situation, you should consult with an estate-planning professional who can assist you in looking at all of your options.

(Rick Imhoff, CFP, is a trust officer for Empire Bank in Springfield.)

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