Estate Planning as Your New Year’s Resolution
By David Greenberg*
What was your resolution last year? Did you resolve to join the gym, be nicer to your mother-in-law, or finally clean out the basement? Maybe you resolved to start using the gym membership you’ve been paying for since last January. Typical New Year’s resolutions are departures from our normal routines. But we like our normal routines. That’s why we have them. This year, instead of joining that gym, resolve to finally make an appointment to put an estate plan in place or to update an old plan. Unlike going to the gym or being nicer to your mother-in-law, setting up an estate plan is far simpler than it sounds.
In Washington, the basic estate plan consists of three components. Every estate plan should have a will or revocable trust, medical and financial powers of attorney, and updated beneficiary designations on retirement plans and life insurance policies. With these three components, you can rest assured that you and your family are prepared for the future.
The first component of any estate plan is a will or revocable trust. A will has fewer upfront costs, but involves slightly more administrative costs when it is put to use. A revocable trust involves more upfront costs and initial administrative tasks, but is somewhat easier to administer when someone passes away. A revocable trust also largely avoids probate, which involves the filing of a will with the court. In Washington, most people choose to use wills unless there are issues with out of state property or privacy issues. The cost of probate in Washington is not high enough that the cost alone justifies the use of a revocable trust over a will.
When meeting with an attorney to set up a will, the attorney will want to know (1) what are your assets and liabilities; (2) who is receiving what assets from your estate; (3) should any of the recipients (kids, disabled relatives, etc.) receive their funds with restrictions attached; (4) if you have minor children, who will take care of them; and (5) who is to be the executor of the estate? The executor is the person that ensures that the beneficiaries of your estate receive what they are entitled to. With this information an attorney can begin drafting your will or at least know what additional information he or she needs from you.
Depending on the size of your estate, the attorney may suggest some tax planning. In Washington, estates over $2,193,000 are subject to estate taxes. If the total value of the estate is approaching this number or if it exceeds this number, then tax planning should be considered to reduce or eliminate estate taxes. If your estate greatly exceeds this amount, then you may also be subject to federal estate taxes depending on what Congress does with the federal estate tax in the future. In that case, substantial tax planning may be necessary.
The second component of any estate plan involves financial and medical powers of attorney. These documents allow you to designate who can make financial and medical decisions for you if you are unable or unavailable to make decisions for yourself. They can be broadly worded to give far reaching powers, or they can be narrowly drafted to only give the most basic powers. The powers can be effective immediately, or they can become effective upon your incapacity. These documents are extremely important, because they allow your affairs to be managed even if you are unable to do so yourself. They also help avoid the costly guardianship process if you become incapacitated.
The final component of the basic estate plan is to ensure that beneficiary designations are up to date on all retirement plans and life insurance policies. If tax planning is needed, these beneficiary designations may need to be coordinated with your will or a trust, but most often these beneficiary designations can be set up to go directly to an individual. When you meet with an attorney to discuss your plan, he or she will want to review these beneficiary designations with you.
With these three components—a will, powers of attorney, and beneficiary designations—most people can quickly and easily set up an estate plan. This year, make a new year’s resolution to finally call an attorney and take care of your estate planning. Unlike prior years’ resolutions, follow through on this one. Your family will thank you.
*David Greenberg is an estate planning attorney at Betts Patterson & Mines in Seattle, Washington. He works with families and individuals on all aspects of their estate planning needs.
