Essential Estate-Planning and Life-Planning Tasks Everyone Should Do
What is Estate Planning?
Check and Update Your Beneficiaries
If you signed up for the company 401(k) or started a brokerage account decades ago, your beneficiary designations may be dangerously out of date. That is particularly worrisome if you have gotten married or divorced along the way, or if you have had or adopted a child.
Be sure to check the beneficiary designations on all of your accounts, from the money you keep at the local bank to the funds in your retirement portfolio. Making sure the beneficiaries are in place will give you peace of mind and help you take charge of your financial life.
Set Up a Health Care Proxy
If you are unconscious or find yourself incapacitated, who would you trust with your important medical decisions? You may have some ideas, but have you made your wishes known?
Without a health care proxy in place, your loved ones could be left scrambling, wondering which decisions are appropriate and what your exact wishes are. It may not be a pleasant task, but naming a health care proxy is an essential life-planning task, and it's one you should not delay.
Establish a Living Will
Even if you already have a traditional will in place, you need to establish a living will. Making your wishes known and designating trusted individuals to carry them out are critical, and the sooner you do this, the sooner you can relax.
Even if you are young and healthy, you need to have a living will in place. It will give you peace of mind and help you rest easier at night.
Evaluate the Need for Life Insurance
If you need it, life insurance is a vital purchase, one you should not live without. If you do not need it, buying life insurance is a waste of money. If you have not already done so, it is essential to evaluate your need for life insurance, from how much coverage you need to what you can afford.
Even if you have life insurance protection in place, it is a good idea to revisit your needs on an annual basis. Life insurance needs change over time, and it is important to make sure you still have the protection you need.
Planning your estate and dealing with your finances may not be fun, but these tasks are vital. Once you complete the tasks listed above, you will feel better, and you can get on with the more pleasant aspects of your life.
Estate Planning for Young Families
Those with young families and children are usually in the beginning stages of their careers and won't have enough to be worried by estate tax. An estate needs to be larger than $5 million to incur any federal state tax. There are many non tax reasons to consider estate planning when you have a young family. If you have children need a plan for who will provide and care for the children in case of an event.
An estate plan generally refers to a will, a power of attorney, and an advance medical directive.
Parents with young children should consider drafting an estate plan to ensure that their estates are administered according to their wishes, and that their children will be cared for financially and be placed with an appropriate guardian.
Estate Planning for Families With Teens
Those families with teens need a plan for who will provide and care for the children in case of an event.
Families With Adult Children
Once the children have moved away from the home you will need a new plan. It's time to start planning your legacy.
Legacy and Succession Planning
Once the children have moved away from the home you will need a new plan. It's time to start planning your legacy.
What is a will?
A will is a written document executed by an individual that lists their wishes regarding the disposition of their property after their death. This includes real estate and personal property. An executor or executrix of the will is named. This person “executes” the will.
Wills can also cover the custody and care of minor children. Many times parents can use a will to establish a trust for their minor children and appoint a Trustee who will administer the trust on behalf of the children until they reach a certain age.
A will must be probated, which means it goes through the court system. There are costs associated with this.
It is important that your will is drafted and witnessed properly so that it can withstand any challenges that may be made to its validity.
Who needs a will?
Almost everyone should have a will.
A will is a set of written instructions on how you would like your property distributed.
If you do not have a will, then the law will decide how your property is distributed.
By writing a will you are able to control more of the process and ensure that your property is distributed according to your desires.
What is a trust?
Trusts can be structured in numerous ways depending on their purpose. One similarity is that all trusts are a legal entity created for a trustee to hold property for the benefit of an individual/s.
Even if you have a trust, you still need a will. Individuals with trusts should have a Pour-Over Will. This means that if there are any assets not owned by the Trust, they will ‘pour over’ or go into the Trust.
What type of gift can I make?
As part of your will or trust, you have the opportunity to leave a bequest to your beneficiaries. Gifts to individuals fall into four general categories:
- Specific Bequest: A gift of a specific item to a specific individual
- General Bequest: Typically a gift of a set sum of money
- Contingent Bequest: A gift contingent on a condition being satisfied prior to the distribution being made
- Residuary Bequest: A gift of everything left after debts and the other bequests have been made
Gifts to charities also fall into four general categories:
- Unrestricted Bequest: Just like it sounds, for the organizations general purpose at the complete discretion of its governing board
- Restricted Bequest: Requires that the funds be used in a specific fashion
- Honorary or Memorial Bequest: A gift made in honor or memory of another
- Endowed Bequest: Restricts the principle of the gift, and allows for distribution of only the income or a small percentage of the total each year.
As with each step of your estate plan, there are advantages and disadvantages to each type of these gifts and how they work with each other.
Are there ways to avoid probate?
There are several ways to transfer property to heirs or beneficiaries after your death without a formal probate process. While there are many advantages to avoiding probate it is not the answer for every situation, there may be reasons that an individual desires their estate to be probated by the Court.
The most common way is by owning property as ‘Joint Tenants with Right of Survivorship.’ Many married individuals own real estate and joint bank accounts in this fashion. Another method is Transfer on Death deeds and beneficiary designations. Not all property can be transferred in this manner, to properly transfer your personal property your heirs or beneficiaries would need to utilize the small estates process if the estate qualifies.
Another common way to avoid probate is through the use of a trust or trusts. When assets are properly transferred a trust can successfully avoid all probate procedures.
To learn more, please look at our Probate section. It is important that you talk with a professional about the limitations of these tools though.
What is a living will?
This lets people know your wishes when you are no longer able to. It provides that if two medical doctors agree that you will not recover from a terminal illness, your life will not be artificially prolonged. It provides that you will die naturally. This is a very personal decision and one that requires a lot of thought. A Living Will can be revoked by you at any time.
A Power of Attorney for either medical or financial decisions is different. Read below to learn more about Powers of Attorney.
This is also different from a Do Not Resituate (DNR) order. A DNR provides that you will not be resuscitated at any time. A living will only applies if you have a terminal illness.
Is a living will the same as a do not resuscitate (DNR) order?
What’s the difference between a living will and advanced directives?
"Living Will," is simply the common name for an Advanced Directive. An Advanced Directive is a document giving instruction to doctors and other caregivers on the type of medical treatment and services you wish to have either administered or withheld.
Many consider Living Wills, Do-Not-Resuscitate, and Durable Power of Attorney for Healthcare to all be Advanced Directives.
Kansas first passed a Natural Death Act in 1979, much of it is now found today under KSA 65-28,101 et seq.
What is a Power of Attorney?
There are two common types of Power of Attorney, financial and medical.
A Financial Power of Attorney will be authorized to handle your financial matters for you when you are no longer able to.
A Medical Power of Attorney will make medical decisions for you when you are no longer able to.
Think long and hard regarding who you want to assume this role. This is a job with a great deal of responsibility. It is important to choose someone you trust and whom you are confident will honor your desires and wishes.
Be sure to talk to your Power of Attorney about your desires and wishes so they have a better idea of what you want.
My husband and I are getting up in years and would like to add our child’s name to the title on our house. A friend says that may not be wise. Why?
There are many potential problems with this arrangement, and frequently it does not achieve the desired result. There may be gift tax implications. Depending on the value of the property and unless the child can prove his or her actual contribution to the property, the property may still remain subject to estate and inheritance tax. If the property is sold, it will require the signatures of the child and his or her spouse to transfer title.
If the child becomes involved in litigation or a divorce action, or has tax problems, the property may be subject to a lien, attachment or transfers.
My husband and I just want to leave everything to our two children.
Do we really need a will? Won’t the state just divide up our estate like that anyway?
The result under Kansas law will depend upon many factors including how the property is titled, who your heirs are, what names are on the property and the status of Kansas law at the time of your deaths.
Estate planning may benefit your estate by protecting some of your heirs or by providing savings in estate or inheritance taxes.
If your children are minors, you may want to nominate whomever you would prefer to be guardian and conservator of the children and their inheritance.
If there are stepchildren or this is a second marriage, special provisions may have to be made in your will. With a will, you can ensure that your property will be distributed according to your wishes and be assured that you have provided for the foreseeable contingencies.
There are several different options for transferring property with an estate plan. There are two basic categories of transfers:
(1) transfers that occur upon and after death and
(2) lifetime transfers.
For lifetime transfers, there are several tax events that can be triggered depending on the type of transfer. However, lifetime transfers can be a beneficial tool to bring the next generation into the operation of the farm and can provide income for retirement or unforeseen expenses.
One sub-category within the two main types of transfers is another transfer that can be used with a farm succession plan involving grandchildren. This is called a generation-skipping transfer. There are several ways this transfer can be utilized depending on the goals and needs of the parties involved.
One example is where a grandchild is involved in the farming operation and would like to continue its operation. In this example, the grandparents could sell or gift some ownership interest in the operation to the grandchild during their lifetime, or, instead of conveying the interest to their children, the grandparents could devise the interest to the grandchild in a will or trust.
A mechanism similar to a generation-skipping transfer that is used sometimes in accordance with a generation-skipping transfer is a Life Estate and Remainder. This transfer mechanism is best explained in the following example:
Husband and Wife own 160 acres, Husband creates a will that gives Wife a life estate and gives their children the remainder. Husband later dies leaving Wife and children as his heirs. The Wife receives a Life Estate (she has possession, ownership, control, and income from the land until she dies) and the Children receive the remainder (when Wife dies, the children receive possession, ownership, control, and income from the land).
Inventory of property, title on property, beneficiary designations, preserving records/doc.’s
Updating beneficiary designations as needed is another overlooked area in estate planning. Non-probate property such as a transfer-on-death deed, life insurance policy, or certain bank or investment accounts require a beneficiary designation.
However, over time, things may change; the person designated may become deceased or your wishes as to the originally designated person simply change.
In these situations, the most important thing to do is to review and update your beneficiary designations.
Preserving records and documents is also essential to a sound estate plan.
Records and documents evidencing the estate plan, business plan, any life insurance policies, retirement plans, deeds, wills, trusts, letters of instruction, powers of attorney, written family agreements, bank or investment accounts, etc. need to be preserved and updated as needed.
A secure location such as a safe or safety deposit box for these documents with access for a designated person or persons is a good example of how to satisfy this item. In addition, informing someone of where these documents are kept is essential in case of your incapacity or death.
One potential area of friction between on-farm heirs and off-farm heirs can be the balance of control of the operation versus the ability to continue running the day-to-day activities. For example, the off-farm heirs may receive ownership of the land, but this may subject the on-farm heirs to their control when making operating decisions or seeking loans from lending institutions.
Another area of potential friction is in regard to decision making and the overall direction of the operation. On-farm heirs and the parents involved may have differing opinions on decision making and the direction of the operation.
Family dynamics can also make succession a difficult process. The key to a successful succession plan is to consider family dynamics that may change your wishes now or in the future.
If family situations do change, it is important to update succession and estate plans to reflect these. It is also important to identify any potential risks or rifts within the family that may threaten a farming or ranching operation’s future. Examples of these include competing interests of children, parents, grandchildren, and their potential spouses.
Identifying and specifying goals of a succession plan can help alleviate many potential conflicts and further communicating these goals to the rest of the family can help prepare other family members for what may happen.
Farm program eligibility
Another overlooked issue with farm program payments is the fiscal year in which a farm program payment is paid. Depending on the program, the payment may be paid out the year after the event triggering the payment. Because the USDA operates in this manner, a trust or estate may need to be kept open even after death to receive and properly disburse those payments.
Two similar farm program issues that are easier to work around are farm loan eligibility through the Farm Service Agency and other lenders and crop insurance eligibility and structuring. Maintaining access to credit and crop insurance (as well as other types of insurance) for your operation is a very important part of an estate and business plan, especially for the success of the next generation.
Depending on the structure of your farming operation and/or the structure the next generation may like to set up, access to farm programs and credit can be complicated. For example, if the farming operation is set up where the off-farm heirs own substantial capital assets (like land), the on-farm heirs may not have the ability to put the land up as collateral for operating loans or loans to grow the business. Further, if the off-farm heirs are in a landlord-tenant relationship with the tenant on-farm heirs, the farm program payments may not be benefiting the on-farm heirs who need the payments more than the off-farm heirs.
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