By Maura Keller
The standard advice you’ve read about financial planning is true: It’s great to start saving early, max out your retirement account and diversify your portfolio. But for many, establishing a financial legacy through estate planning also is imperative. By planning in advance, you can develop a fail-safe plan to ensure that you spend your golden years in comfort and better implement your wishes in the future.
PLANNING AHEAD
Proper estate planning is very important in order to build, maintain and preserve assets for your family and to provide for the security and support of family members in the event of your incapacity or death.
According to Stephanie Thompson, attorney at Krueger Hernandez & Thompson SC, generally speaking, an estate plan consists of documents where you name who will control your assets if you are unable due to incapacity or death, and who will inherit your estate upon your death. It also can include documents that allow you to decide who will make health care decisions for you if you are unable.
“We always encourage clients and prospective clients to consider and plan for all of the ‘what-ifs’ life can throw at you,” Thompson says.
Estate planning is a niche area of law. There are federal and state rules and regulations to be aware of, and a plethora of IRS rules and tax consequences to understand, so it’s important that the attorney you work with specializes in this area.
Thompson also recommends determining what happens when your estate plan is finalized. Is the attorney building a relationship with you so that your plan is always current and reflects your wishes? Or do they disappear until you reach out to them in the future?
“Finding an attorney who will stay in touch with you is a key component to your estate plan,” Thompson says. “Life tends to change over the years — it is important to make sure your estate plan reflects those changes, if needed.”
ESTATE PLANNING IS FOR EVERYONE
Unfortunately, there is a common misconception that estate planning is only pertinent to those who have a lot of assets. In fact, the value of your assets should not dictate what, if any, estate plan you have.
“It can be a factor, but should not be the only factor,” Thompson says. “The value of your assets has no relevance if you are in a car accident and are now incapacitated. Who will pay your bills? Manage your investments? Make your health care decisions? There are many situations besides death that can throw a wrench in your life. All can easily be avoided by having a robust estate plan.”
Dera L. Johnsen-Tracy, attorney and co-founder at Horn & Johnsen SC, says that, “in the value of your estate, we’re including the value of your retirement accounts, whether or not you’re taking distributions yet. The death value of your life insurance policies, jewelry, vehicles, household goods and furnishings, electronics and your investments are also included.”
In general, if you don’t have an estate plan, you’re leaving not only your loved ones, but yourself at the mercy of the court. As Thompson explains, without an estate plan, if you are incapacitated, there will be a guardianship proceeding to decide who will handle your assets and health care decisions. Upon your death, the state in which you reside will dictate what happens to your estate under their intestate succession laws.
“The court will have to decide who your personal representative should be — the person that will handle the administration aspects of your estate — and will decide who in your family tree will be your beneficiaries,” Thompson says.
And for people who have no children, it can be even more important for them to have a good estate plan in place. “Under the laws of intestacy (dying without a will), when the first spouse dies, the estate will most likely pass to the surviving spouse. Then, upon the survivor’s death, the entire estate would pass to the surviving spouse’s parents, if they are living; otherwise, to his or her siblings, then nieces, nephews, et cetera, thereby disinheriting the first spouse’s family,” Johnsen- Tracy says. “Further, many people without children have young family members they may wish to provide for, and/or to make distributions to their favorite charities.”
Estate plans in Wisconsin can also have an Authorization for Final Disposition document which is legally binding, and details who would take care of planning a funeral or memorial service and who would handle your remains upon your death. “In many families, there could be some argument about who is supposed to be handling your funeral,” Johnsen-Tracy says. “It’s nice to know that you’ll have the very succession that you want.”
ESTATE PLAN BASICS
In Wisconsin, there are some essential estate planning documents everyone needs to have in place.
- Will: Names a personal representative (also known as an executor) to administer your estate when you’re gone. It also designates guardians for minor children. A will is active only upon your death and tells the probate court what your wishes are.
- Trust: An alternative to a will, a trust plan (revocable or irrevocable) provides a way to bypass probate. In a trust plan, your assets are retitled under the trust rather than you individually. You are the controlling party (the “trustee”), but because the assets belong to the trust, rather than you, they don’t pass to your estate after death. Revocable living trusts, also called “living trusts,” are created during the person’s lifetime, and the grantor serves as its initial trustee and can make changes during their lifetime. When the grantor dies, the revocable living trust becomes an irrevocable trust, which can’t be changed once they have been established.
A trust can also protect against loss of benefits if a beneficiary has special needs or is differently-abled, or ensure that beneficiaries with financial or substance abuse issues are provided for.
