The disciplined friend, whom we have already met before, tells us: “At the age of 50 we have managed to accumulate sufficient wealth, with financial assets and real estate. We’re going to name our kids as beneficiaries, and we’re going to talk to family and friends. Everyone will be clear about what to do in the event that something happens to my wife and me.”
Our friends have taken a first step by thinking about naming beneficiaries and talking to the people in charge of implementing their wishes. However, their estate plan needs to be formalized. In the absence of a formalized plan, the probate court will be forced to assign responsibilities and rights according to state rules for such cases, which may not reflect the wishes of the deceased.
Wills, made in accordance with the requirements of the state of residence, are necessary to appoint not only their executors, but also the persons who will act as guardians of the minor children, and as administrators of the assets assigned to them. The court will listen to the wishes of the deceased and will tend to agree if they are reasonable and unchallenged. The assignment of guardianship of children requires a formal process administered by the competent courts.
Wills are also useful to assign assets whose title or registration do not allow to name beneficiaries (as most accounts in financial institutions do). A probate court must approve any assignment of property to beneficiaries by way of wills.
An option allowing estates to avoid going through probate court for the distribution to the beneficiaries would require setting up a revocable (living) trust that would become the owner of the assets and whose trustee would oversee making the distributions. This type of trust can also coordinate the distribution and future administration of property left to minor children.
There may be more complex situations that require the use of sophisticated instruments such as trusts for families with children from different marriages, trusts for beneficiaries with special needs, trusts for education, spendthrift trusts, etc. As solutions become more sophisticated, more specialized estate planning lawyers will be required.
Another issue to point out to our friends is the possibility that the estate will have to pay taxes if its value exceeds the then current minimums. In this case, it will be necessary to plan the necessary liquidity for the payment of taxes and explore the possibility of using more complex structures.
And while our friends are on this, we are also going to suggest that they obtain the basic set of documents related to situations of incapacity, that is: granting durable powers of attorney, one naming an agent to act on financial issues and the other to act on health issues and prepare a document indicating the wishes in case of situations of life extension through extraordinary measures, among others. The term ‘durable’ indicates that these powers of attorney will remain valid even if the grantor is incapacitated. This type of power of attorney can be activated immediately or when the grantor has lost his/her capacities.
Having an estate plan ready is a must, the sooner the better, and it does not need to be a complicated endeavor.
Disclaimer: The information provided herein is for educational purposes only. Portfolio Resources Group does not guarantee the accuracy of any tax advice, as we do not provide tax or legal advice. Consult a tax professional to make sure the recommendations are appropriate for your situation.