You may have listened to well-meaning friends and family members tell you how important it is to have an estate plan in place; however, unless you truly understand what an estate plan can do for you, it’s hard to find the motivation to get started on your plan. The good news is that a well thought out estate plan can accomplish a wide range of inter-related goals. A better understanding of how an estate plan can protect you, your assets, and your loved ones during your lifetime and beyond may help you find the initiative needed to get started on your own plan.
Common Components of a Comprehensive Estate Plan
The estate plan that you create will be as unique as you are. There are, however, some common components found in the average estate plan that goes beyond simply planning for the distribution of estate assets. The following are just some of the numerous and varied goals your estate plan can help you achieve:
- Avoiding probate. Probate is the legal process that is required after the death of an individual. The primary purpose of probate is to identify, value, and eventually transfer the decedent’s assets to the intended beneficiaries and/or heirs of the estate. If the estate is required to go through formal probate, it can take months, even years, to get through the process. In addition, a lengthy probate can be costly, often diminishing the value of the estate that is ultimately passed down to loved ones. Probate avoidance tools and strategies can help your estate avoid the need for formal probate.
- Planning for the possibility of incapacity. What would happen to you and your assets if you were to become incapacitated tomorrow? Before you shrug off the possibility, consider the fact that you stand a one in five chance of suffering a period of disability or incapacity that lasts five months or longer before you reach retirement age. Incapacity can be the result of a wide range of causes, including a catastrophic motor vehicle collision, a debilitating illness, or a tragic workplace accident. The only way to know with certainty who will be in charge of making decisions for you and/or controlling your assets in the event of your incapacity is to incorporate incapacity planning into your overall estate plan now.
- Protecting the inheritance of a minor child. Your minor child cannot inherit directly from your estate. As such, simply leaving assets for your child in your Will doesn’t ensure that your child will be well cared for in your absence. Instead, most parents establish a trust to protect their child’s inheritance until the child reaches the age of majority. As the Settlor of the trust, you appoint someone as the Trustee to manage and invest the trust assets while your child is a minor and include trust terms that arrange for the distribution of the remaining trust assets when your child is old enough to handle the inheritance.
- Protecting assets. As your estate grows, both in complexity and in value, the threats to your estate assets may also increase. Some of those threats are fairly obvious, such as creditors or divorce, while others are less obvious, such as the cost of long-term care or in-laws. Your estate planning lawyer will work with you to identify the specific threats to your assets and incorporate tools and strategies into your estate plan to prevent those threats from causing the loss of your hard-earned assets.
- Long-term/Medicaid care planning. Long before you reach retirement age, you should start thinking about the possibility that you, or a spouse, will need long-term care (LTC). Specifically, you need to plan for the high cost of that care. With a nationwide average of over $80,000 per year for 2018, most people cannot afford to pay for LTC out of pocket – and Medicare will not cover LTC expenses. Medicaid can help with those expenses but you must first qualify for Medicaid benefits. Medicaid uses both an income and an asset test that could be problematic if you failed to include Medicaid planning in your estate plan well ahead of the time you need to qualify.
Contact an Indianapolis Estate Planning Attorney
For more information, please download our FREE estate planning worksheet. If you have questions or concerns regarding your own estate plan, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.