The Basics of Estate and Legacy Planning

Everyone should consider the importance of estate planning. Preparing for the distribution of your assets ensures that your financial and personal affairs are managed according to your wishes in case of incapacity. Taking these steps ahead of a crisis can provide both emotional and financial benefits.

It's important to consult with an attorney who specializes in estates, especially if your situation is complex, such as having a blended marriage or caring for a special needs individual.

Disclosure: I am only providing an overview of estate planning. Please consult with an attorney to address specific concerns you may have.

What Is an Estate?

An estate, simply, is everything that you own that is in your name. Your estate is responsible for any debt owed at your death.

It is important to prepare well in advance. This planning will help you feel more secure about your future and confident that your loved ones will be taken care of after you pass. 

Many people don’t understand that estate planning can assist you in tax mitigation before death.

Many of the issues that can be addressed in an estate plan are:

• Providing for a spouse or children
• Preserving assets for future generations
• Supporting your favorite charity
• Ensuring all of your assets that pass through a beneficiary designation will be distributed per your wishes
• Minimize taxes and expenses
• Ensuring the persons you name to handle your estate or make decisions on your behalf are put on record
• Make sure your heirs can manage their wealth or have a resource to assist them in place
• Ensure that anyone you are responsible for financially, such as those with special needs, is taken care of
• Assure that anyone you want to leave assets to is assigned, including entities such as charities
• Allow you to provide protection of assets from ex-spouse/s or creditors

An estate plan can help you understand and mitigate tax ramifications to your assets before and after your death. This specifically refers to Federal Gift taxes and Generation-skipping transfer taxes.

Common Documents and Descriptions for the Estate Plan

Here are the most common documents and descriptions of the documents used to help you carry out an Estate Plan:

• Will: This is a legal document used to outline how you want your assets and property to be distributed after you die. It can also help you name guardians for your children, dependents, or pets, as well as the person (executor) who will handle these affairs after your death.
• Durable Power of Attorney: Allows you to name someone (agent) to handle your financial affairs if you’re unable to do so.
• Power of Attorney for Healthcare: It allows you to appoint a trusted family member or friend to make decisions about your medical care if you are unable to make them yourself.
• Privacy Releases: These are documents that are offered to you when seeking medical attention. It gives permission for someone on your behalf to access information and documents necessary to represent you in healthcare matters. Many healthcare POAs have this included. Check with your healthcare providers, as they may have their own privacy waivers.
• Living Will (Advanced Medical Directive): This document requires careful thought when naming someone to make decisions on your behalf with your healthcare providers as to how you are to be medically treated when you are unable to make the decisions yourself.
• Trust: There are many types of trust to help you manage your assets. They are often used as part of an estate plan to help minimize or eliminate transfer taxes, as well as other opportunities unrelated to taxes to help solidify an estate plan.

If you don’t have a will when you die, it is considered intestate. In this situation, the intestate laws of your resident state will determine how your estate will be distributed. This could be a concern if you have an ex-spouse or blended marriage with children.

Estate planning can also include Legacy Planning/Planned Gifts. You can include your desire to donate to your favorite charity in your estate plan. If you want to include gifting in your plan, careful consideration as to what, whom, and when you should give is very important.

Some gifts provide life-long income to the donor, while other gifts use estate and tax planning to provide for charity and heirs in ways that can maximize the gift and/or minimize its impact on the donor’s estate. Other planned gifts can be simple charitable gifts through a will or a trust.

There are three types of planned gifts:

1. Outright gifts that are given of appreciated assets, such as stocks as a substitute for cash
2. There are gifts that return income or other financial benefits to the donor in return for the contribution
3. Gifts that are donated after the death of the donor

Charitable gift annuities make fixed payments to the donor starting at either the time of the gift (immediate-payment gift annuity) or payments at a later date(deferred gift annuity). Depending on the organization to which these are donated, the funds can be pooled (comingling of donations) together with other donated funds and pay beneficiaries through the variable spending on the earnings of the fund. They generally operate very much like a charitable mutual fund.

Charitable remainder unitrust and annuity trust are individually managed trusts that pay beneficiaries either a fixed percentage of trust income or a fixed dollar amount.

A huge benefit of gifting is the tax benefits to the donor depending on the type of gift:

• A donor can realize a charitable deduction for the real market value of the asset where the donor will not pay capital gains tax on the transfer of the appreciated asset, such as securities or property.
• A tax benefit to the donor can be realized for donated life-income gifts. The donors will receive an income tax deduction for the full, fair market value of the assets contributed minus the present value of the income interest retained. If the gift is appreciated property, they pay no upfront capital gains tax on the transfer.
• Bequests are gifts donated at the donor's death, such as a life insurance policy or a retirement account. They don’t generate a lifetime income tax deduction for the donor; however, they are exempt from estate tax.

You don’t have to be rich to give, but many people will donate vehicles, art, or other property as it enables them to give to the charity they have an emotional tie to more than they can otherwise give.

When considering estate planning and/or legacy planning, it is recommended that you work with your financial and tax professionals, as well as your estate attorney, to make sure you have all of the required documents needed to manage your affairs in the event you cannot while living and to manage the distribution of your estate the way you want it distributed after your death. 

They will also help you manage the gifting and maximize the tax benefits while minimizing tax consequences.

Triage Cancer is a good place to start educating yourself and finding the resources you may need to start the process. 

HealthTree has information to help you understand Estate and Legacy planning and provide you with opportunities to include the HealthTree Foundation in your planning. Learn more here: Legacy Giving