What are the Key Considerations for Your Estate Plan?

Sarah S. Shepard-Considerations for Estate Planning.jpg

Most people are under the impression that estate planning is simply writing out a will and the necessary trusts, should they have assets to pass down. 

Others believe that estate planning is only for the exceedingly wealthy.

However, there’s a lot more to estate planning than just making arrangements for your assets. It’s also not something that only wealthy people have the luxury of doing. 

Essentially, if you own a home or another property, run a business, or hold shares in a company, have possessions from family heirlooms to vehicles, and have a family to answer for. Then, you have several reasons to plan your estate.

In this article, we’re going to discuss the importance of estate planning in Alabama and some of the key elements that every estate plan should include.

Read on to learn more.  

Why Is Estate Planning So Important?

Estate planning is a necessary strategy for making arrangements for your financial affairs and to protect your family or other named beneficiaries. 

Your estate is essentially defined by everything you own. That includes not only your physical possessions and home but also your bank accounts, life insurance policy, and investments. By making plans for your estate, you get to decide how all of your assets and possessions will be distributed once you pass away—and to who.

More importantly, your estate plan will designate what will happen should you become mentally incapacitated or ill. For example, who would make your financial and business decisions? What type of care will you receive?

There are several other reasons why estate planning is so important. Here are those reasons in a nutshell:

  • It allows you to protect your children. For example, you can appoint a trusted guardian for any minor children in your will rather than letting the state appoint a guardian or enter them into the foster care system. 

  • It saves you and your loved ones time and money in probate court and the associated fees.

  • It will may you and your loved ones avoid paying some significant taxes. Federal taxes are more often associated with the ultra-wealthy as there’s an exemption threshold. Still, they’re typically based on the total value of all your assets. They can either be paid out on behalf of your estate or by the beneficiary who receives them.

  • It can protect your assets from creditors, liens, and any other individual entity—human or otherwise—from legally attacking them.   

Suppose you don’t create a concise plan for your estate. In that case, you might forfeit any protection or control you have over your assets once you pass away. You might also lose control if you suffer a health event that no longer allows you to make decisions for yourself.

Additionally, suppose you don’t at least have a will when you pass. In that case, you will be recognized as intestate (without a last will and testament), and your entire estate will have to go through probate court. This will be determined accordingly with Alabama’s intestate succession laws when it comes to distributing your assets. 

Generally speaking, not planning your estate can cause problems among family members, estranged relatives, and even business partners. But, on the other hand, having a solid estate plan with an Alabama lawyer can protect your assets and the beneficiaries who receive them from greedy hands and legal bouts.

The Key Elements of a Proper Estate Plan

Estate planning is a rather detailed process. The more you own and the more people you have depending on you, the more tedious it is to complete. That’s why the first thing you want to do is consult with an experienced Alabama wills and estate lawyer. A Huntsville attorney can ensure that you’ve covered every legal angle within your estate plan.

When starting on your estate plan, there’s also a list of must-have elements you absolutely need to include. So, before meeting with your Alabama business lawyer, you should have an idea of the who, what, and where of the following documents and designations: 

Your Last Will and Testament

Your last will and testament is essentially a giant framework in which each item on this list will fit within. 

A will is a legal document that puts your final wishes for how you want your assets to be distributed and your family to be taken care of in words. This legal document will ensure that those wishes are carried out by law, leaving very little for confusion or later fighting.

Of course, your will can be contested under particular circumstances. However, those circumstances usually involve someone coming forward with actionable proof that there was a big problem during the time of the will’s signing. Examples would include if the testator were under duress (being coerced to write in a beneficiary or make changes), not of sound mind, or could not understand the current situation at the time of signing. These are very rare circumstances and are hard to prove.

Lastly, your will is to include your wishes for how you would want your family to proceed with your funeral. 

It’s important to note certain assets typically get excluded from wills. Excluded assets include certain life insurance proceeds, retirement account funds, bank and stock accounts, transfer on death (TOD) accounts, jointly owned property, and anything that has been transferred into a living trust. 

Your Living Trusts

Suppose you have specific assets or inheritances that you want to pass on to particular beneficiaries. In that case, you need to add a living trust or two to your estate plan. 

While it may seem like a will can take care of these things, one of the most significant differences between the two is that trusts don’t go through probate court, and they are very difficult to contest. Additionally, a will is something that becomes “active” once it’s been established and signed. In other words, once the will is created and the assets are funneled into it, they no longer belong to you

A trust is defined as a fiduciary agreement in which your trustee manages the trust assets until a time and date specified by the grantor. 

Trusts are typically used in the following situations:

  • You own one or more homes or properties

  • You have assets that you wish to keep private

  • You want to avoid certain estate taxes

  • You want to set up inheritances to be released upon certain milestones, such as college graduation, marriage, etc.

Several different types of trusts can benefit you and your named beneficiaries in different situations.

An Advanced Health Care Directive

An advanced health care directive is a legal document you’ll need to include to elaborate on how you would want medical decisions carried out if you can no longer make them for yourself.

This document also lets your doctors and health team know who can and can’t make any medical decisions on your behalf.

You’ll also want to include a health care proxy in your advanced health care directive, which is another legal document that allows you to appoint a trusted individual to manage your health care if you can’t. 

A Durable Power of Attorney

A durable power of attorney (POA) is an individual who you assign to act on your behalf when you are unable to make decisions due to mental incapacitation or should you pass away earlier than expected.

However, it’s important to note that your POA and health proxy are not the same entities. Your POA cannot make health decisions on your behalf unless you have specifically appointed them to do so. 

POAs function more so for decisions involving business, finances, real estate, and other legal decisions.

Without a POA, you run the risk of a court making all of your legal decisions, which may or may not be conducive to your current situation or wishes.

Your Beneficiaries

It goes without saying that the primary purpose of doing all this estate planning is to ensure that your loved ones are taken care of once you’ve passed away or have become mentally incapacitated.

Therefore, you must name those beneficiaries as well as who gets what. Keep in mind that you cannot put in your will what you’ve put in a trust—and visa versa. So, you’ll need to take the time to think about how you want your assets distributed among your family.

For example, do you want to leave each of your children’s inheritances of unequal amounts? If so, this might be best accomplished through setting up separate living trusts. 

Your Beneficiary Designations

As mentioned earlier in this article, there are certain assets such as your retirement funds and life insurance policy that you can’t necessarily put into your will without them passing through probate court. 

You also can’t put them into a living trust.

Beneficiary designations work a lot like trusts. They don’t go into effect until after the accounts’ owner has passed away. The whole point of this document is to ensure that any money you have in these accounts is transferred directly to the named beneficiaries without having to go through the probate process and so they cannot be contested in court.

Beneficiary designations can technically override what’s in your will. This is because the accounts involved are managed by a separate company, usually a financial institution or insurance company.   

Of course, these documents can end up conflicting with your will, which is why it’s important to coordinate them properly with the terms of your will. 

A Letter of Intent

A letter of intent is a simple document that defines the role of your chosen executor and, in some cases, your chosen beneficiaries.

You can write a letter of intent to more than one person if there are specific things you want to be done with the assets you’re passing down. However, this letter is most critical for laying out the instructions for your executor to follow. 

Alone, a letter of intent may not be considered legally valid, as it’s not a signed, notarized, and witnessed document. However, it will help inform a your personal representative of your intentions and wishes, which will benefit you when it comes to distributing your assets should someone try to contest the probate process.

Keeping Your Estate Plans Up to Date

Arguably the most crucial aspect of estate planning is ensuring that your plans stay up to date. Estate planning can begin as early as 18. 

The longer you’re alive and well, the more changes you may need to make. For example, you may choose to legally adopt a child later in life. It’s also possible that one of your beneficiaries, personal representatives, or executor may pass on before you.

Whatever changes happen in your life should also be reflected in your estate plans, which is why it’s necessary to review your goals every few years.

As you can see, there’s a lot to consider when it comes to estate planning—which makes it easy to forget critical elements. The last thing you want is to pass away with a disorganized estate plan and no clear path forward for your family and loved ones.

That’s where we come in. Contact us today to consult with Sarah S. Shepard or another experienced Huntsville estate attorney to ensure that your assets and family are all set. 

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What Is the Difference Between Beneficiary Designations and Trusts?