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Planning Your Estate
Why Does Estate Planning Matter?
By Henry V. Kaelber
President, Chief Investment Officer, Hoffman, White & Kaelber Financial Services, LLC
For many clients and their planners, the central goal of estate planning has long been to pass as much wealth, net of taxes, to the next generation as possible. This thinking suggests that protecting assets is the solitary goal of an estate plan. Unfortunately, it is this misplaced emphasis that focuses attention on assets rather than family, on structure over perspective and on tax savings over family need.
Estate planning should not be viewed as being about the dead and their assets. Rather, it is about the legacy left for the living where the primary consideration should involve protecting and preserving the family – a focus that begins with the living, not the dead.
It’s not that tax planning and asset preservation are unimportant; it just pales in significance to protecting family. Also, there seems to be a central truism in the passage of wealth: “Every inheritance (or lack of inheritance) will effect the recipient” – Warren Buffet. Often this effect will have a longer lasting impact on the family than ever imagined.
It might not be a surprise to you that most Americans haven’t made a simple will or given consideration to a comprehensive plan to avoid probate or to save on estate taxes. So, why is it that most people don’t consider estate planning as a critical aspect of their family and financial plans? This author believes that having to face hard questions and the potential of having to face emotional complexities far outweigh a family’s economic reasons. Maybe, also, many just don’t understand the basic reasons why they should!
The good news is that depending on your age, household status, health, wealth and level of caution, you may not need to do much in the way of estate planning at all.
What Makes Sense For My Household?
If you’re single and under 30, I’m very surprised you’ve read this far. Unless you’re uncommonly wealthy, you’re better off concentrating on more enjoyable social happenings. But, if you are financially secure, you might want to write a will so you can leave your possessions to whomever you choose.
If you've got a life partner but no marriage certificate, a will is almost a must-have document. Without a will, the law in most states will dictate where your property goes after your death, and unmarried partners often get nothing.
Having children complicates life -- but then, you already know that. Estate planning is no exception. At a minimum, write a will that leaves your property to whomever you choose and names a guardian for your children. The guardian will take over if both you and the other parent are unavailable. This may be unlikely, but it's worth addressing just in case. If you fail to name a guardian, a court will appoint someone, possibly one of your parents. Also, make sure you have adequate life insurance coverage.
If you've made it to a comfortable time in life, you will probably want to take some time to reflect on what you will eventually leave behind. But given that you may well live another 30 or 40 years, there is no need to obsess about it. Chances are your conclusions will be different in ten or twenty years, and your estate plan will change accordingly. At a minimum, consider saving your family the cost (and hassles) of probate and prepare a will. If you have enough property to worry about estate taxes, think about tax avoidance as well.
If you are elderly or ill, now is the time to take concrete steps to establish an estate plan. First, consider a probate-avoidance living trust and, if you're concerned about estate taxes, a tax-saving trust. Also, write a will, or update an old one. Then, although no one wants to do it, take a minute to think about the possibility that at some time, you might become unable to handle day-to-day financial matters or make healthcare decisions. If you don't do anything to prepare for this unpleasant possibility, a judge may have to appoint someone to make these decisions for you. No one wants a court's intervention in such personal matters, but someone must have legal authority to act on your behalf.
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