Why should you care about estate planning? Should you bother with a will or trust? Do you need to think about this subject at all, or can you continue to safely ignore it? One thing for sure: it’s tough to fix estate planning mistake after the fact.
1. Death Probate
Death probate is where the court and attorneys will supervise the distribution of your estate. Would your home sell for more than $150,000? If you have more than $150,000 gross value in assets, you are at risk of death probate. Death probate only takes six months or more, will typically cost more than $7,000 and exposes the details of your assets and your beneficiary’s personal contact information to the public. Other than that, you shouldn’t worry about it. But please know this: a will does not avoid probate.
2. Living Probate
Living probate is where the court and attorneys will manage your life if you’re incapacitated. If you can’t make your own medical and financial decisions, someone will have to step in. If you haven’t acted to empower the people you trust to step in and make those important decisions on your behalf, your family could be stuck in court struggling with the court system on your behalf.
3. Family Conflict
This is where the attorneys win. Families fighting in court can drain an estate faster than you can say “$300 an hour.” Litigation between family members is a combination of the stress of an emotional loss, uncertainty about the future, and more often, uncertainty about what mom and dad would have wanted. The good news is that while you can’t change prickly personalities or personal conflicts between siblings, you can plan ahead and provide the clarity your family needs.
4. Loss of Inheritance
Beneficiaries can lose their inheritance through their actions, or through creditors, lawsuits, and divorce. Disabled beneficiaries can also have a problem, facing a choice of either accepting the inheritance and losing access to the government resources they are depending upon, or declining the inheritance. This is why families of special needs children should set up a trust designed for their child. Beyond that, parents can change their children’s inheritance from available assets to protected assets.
5. Estate Taxes
When 40% or more can go to the government in taxes, people pay attention. While the estate tax only applies if your individual estate is over $5 million (adjusted for inflation by the IRS each year), keep in mind your life insurance and retirement plans also count toward that amount. Beyond estate taxes, other tax traps can catch you off guard. Older trusts for married couples designed when the estate tax rate applied to more people can create an income tax burden.
Now that you understand the risks, see how easy it is to get started on an estate plan with our Estate Plan Roadmap