Craig Cooper is a leading financial and wealth advisor with The Cambridge Financial Center. He specializes in business planning, estate plans, retirement planning, and wealth accumulation. Here is the first of a series of articles Craig has written for us at Salt Lake Bookkeeping that relates to individual and small business owners.
Planning. It’s an important part of nearly everything we do in life. And if we’re smart, it will be a part of what we do before we die.
Planning for your eventual death means finding answers to such questions as:
Who should make financial and medical decisions in the event you become incapacitated?
How can you reduce your estate tax liability and avoid the costs, delays and publicity of probate?
Answering these kinds of questions beforehand is more than just being considerate – it’s important to the people who depend on you: your family, your employees and your customers.
By making plans before you die, you can help ensure that your business, your assets, and the people who are important to you, are protected. And isn’t that how it should be?
Wills and trusts are two of the most popular estate planning tools. Both allow you to spell out how and to whom you want your property distributed, but both can also go well beyond that.
A properly drawn will can allow you to determine how your property will be distributed, and can give you the opportunity to select an individual who will oversee that your wishes are carried out - your executor. Through your will you can also name a guardian for your minor children – a decision you, and only you, should make.
If you die without a valid will, or if you fail to make such designations through your will, the decision will probably be left to the courts. Bear in mind that property distributed through your will is subject to probate, which can be costly and time-consuming. What’s more, probate is a public process. That means anyone, even if they aren’t related to you, can see how and to whom you left your estate.
Trusts differ from wills in that they are actual, legal entities. Like wills, trusts spell out how you want your property distributed. But trusts go a bit farther, letting you decide not just how, but when and in what form, your estate is distributed. Trusts also give you the added advantages of professional property management and avoidance of probate.
Wills and trusts are not mutually exclusive. While not everyone with a will needs a trust, individuals with a trust should almost always have a will.
Incapacity brought on by sickness or age can pose as big a threat to your financial well being as death. Fortunately, there are tools that can help you deal with this threat.
A durable power of attorney is a legal agreement that enables you to designate who will make any legal and/or financial decisions affecting your finances should you become incapacitated. Unlike a standard power of attorney, a durable power of attorney remains valid even if you become incapacitated.
Similar to a durable power of attorney, a health care proxy is a document that can allow you to designate someone who is authorized to make health care decisions on your behalf, again, should you become incapacitated. The person you designate can generally make decisions regarding medical facilities, medical treatments, surgery, and a variety of other health care issues. Much like a durable power of attorney, a health care proxy involves some important decision making. Take the utmost care when choosing someone to give this kind of authorization.
A related document, a living will, spells out the kinds of life-sustaining treatment you will (or as important, will not) permit in the event of your incapacity. The decision for or against life support is one that only you can make. That decision alone makes the living will a valuable estate planning tool. And you may use a living will in conjunction with a durable health care power of attorney.
Without proper planning, estate taxes and medical expenses could consume a substantial portion of everything you own. If you’ve been putting off this important planning until “time permits”, consider making the time now. You, and everyone who depends upon you, will be glad you did.
Keep all of your important financial and legal information in a central file for your executor. Be sure to include:
• Letters of last instructions
• Medical records
• Bank/brokerage statements
• Income and gift tax returns
• Insurance policies
• Titles and deeds
• Wills and trust documents
Laws will vary from state to state. Please consult your tax advisor or financial advisor regarding your particular situation.
This information is for educational purposes and should not be considered specific financial, tax or legal advice. Always consult with a qualified advisor regarding your individual circumstances.
© 2011 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172 www.pennmutual.com.
Content prepared by Penn Mutual.
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