Estate Planning Basics

The knowledge that we will eventually die distinguishes humans from other living beings.  Yet death is something most of us try to avoid thinking about.  However, if you fail to plan, you will miss a valuable opportunity to organize your affairs according to your wishes.

So, what is estate planning?  Your estate consists of everything you own: bank accounts, cars, cash, furniture, houses, business interests, life insurance, and retirement.  Your estate plan is your design for how you want to transfer the items in your estate to your beneficiaries, who may be your family, friends, your church, your favorite charity, educational institutions, or even your pets.

You may think that you don't need this type of planning because your assets don't add up to millions of dollars.  But estate planning is not really about money.  Money is an aspect that is addressed by your plan, but the underlying purpose of having a plan is to take care of your loved ones after you are gone, and to make things easier on them in the event of your death or disability.  Failure to plan can leave your surviving family members confused, broke or, in some unfortunate cases, at each other's throats in deciding how to divvy up your assets and wind up your affairs.  A solid, comprehensive estate plan can help avoid all of that by creating an orderly plan for carrying out your wishes and protect your estate from excessive taxes.

A good estate plan will contain five basic elements: (1) your Will; (2) your Durable Power of Attorney, which appoints an agent to manage your affairs if you become disabled as a result of accident or illness ; (3) a Living Will, to express your wishes in case you become terminally ill; (4) a HIPPA Authorization, which grants your designated agent permission to review your confidential medical records; and (5) a Health Care Power of Attorney, which allows you to appoint someone to make medical decisions for you should you become unable to do so.

How do these five elements help you and your family?  Let's first take the will, which is the basic document most people think of when they think of estate planning.  In your will, you can set out how you want your property distributed.  If you have minor children, you can protect them from creditors (or their own inexperience with money) by placing any inheritance they receive in trust until they attain a pre-determined age. 

Also, remember that if you die without a will, your state has written a will for you.  For instance, in my home state of Louisiana, in the case of the typical married couple with children, upon the death of one spouse, the children typically inherit half the house, and the surviving spouse gets the right to live in it, but only until he or she remarries.  This fractional ownership causes headaches for the surviving spouse, who then has to get the children to sign off on any sale or refinance of that house.  In the case of a married couple without children, the result is that the brothers and sisters of the deceased spouse inherit half of the house.  If, like most of my clients, you don't like these results, the great news is that is very easy to opt out of these rules by executing a will.

The remaining four elements of the estate plan protect you in the event you become incapacitated during your life, either due to an accident or illness, and are unable to make medical or financial decisions.  The powers of attorney, living will, and HIPPA authorizations allow you to appoint a trusted person to act as your agent and make these decisions on your behalf.  If you don't have these documents in place, and become incapacitated, your family members must file an interdiction proceeding to obtain permission from a court to make those decisions for you.  This is expensive, stressful, and time consuming, but can easily be avoided through proper planning.

You are probably wondering what all of this is going to cost.  Of course, fees will vary among attorneys, but if you compare prices, makes sure the plan you are being quoted covers the five elements discussed in this article.  Also, be wary of attorneys who quote you a standard fee over the phone without knowing anything about your family's situation.  Your estate plan and documents should be carefully customized to meet your needs.  It will typically be necessary to spend some time on the phone or in person with your attorney before he or she can give you an accurate assessment of the type of planning you need and the potential fees involved.  For that reason, many attorneys offer a free initial estate planning consultation during which they will review your family's situation and quote you a fee for your particular planning needs.  The typical family with a small estate can get a basic estate plan completed for under $1,000.  Of course, if you have a complex situation involving blended families, disabled children, or complex tax issues, fees will probably be higher. 

The biggest obstacle to estate planning is often procrastination.  But getting these documents in place will reward you with peace of mind of knowing that your family is taken care of should something unexpected occur.