Estate planning protects your family and your property after your death. It also protects them during your lifetime with incapacitation planning. However, knowing where to begin developing a comprehensive estate plan can be difficult. Keep reading to learn the basics of estate planning from an experienced Massachusetts estate planning attorney.
Understanding the Basics of Estate Planning
Estate planning is different for each person. Essentially, the basic goal of estate planning in Massachusetts is to direct how your property is distributed after your death. However, there is much more to estate planning than leaving your property to specific heirs or beneficiaries.
An estate plan can accomplish many objectives. Benefits of a comprehensive estate plan include, but are not limited to:
- Name a guardian for minor children and create a trust of their inheritances
- Reduce or eliminate estate and inheritance taxes
- Protect property from creditors and other interests outside of the beneficiaries
- Provide for a child or adult with special needs to avoid interfering with eligibility for government aid and benefits
- Plan for the care and upkeep of pets
- Select heirs and beneficiaries for your property
- Allow for charitable giving
- Minimize or avoid confusion or conflict after your death
- Name someone to handle your affairs and make medical decisions for you should you become incapacitated before your death
- Provide for your loved ones by ensuring there is sufficient liquidity to meet cash needs while your estate is probated
- Protect a family business
Once you have an estate plan, it is wise to review it periodically. Life events that should trigger an estate review include but are not limited to marriages, divorces, births, adoptions, wealth changes, and an heir’s death.
Importance of Estate Planning in Preserving Wealth
Many people worry about preserving their legacy for future generations. Estate planning helps you preserve your wealth to pass to your loved ones in several ways, including:
- Business Succession – Developing a business succession plan allows you to prepare family members to take over the company without negatively impacting operations.
- Life Insurance – Creating an irrevocable life insurance trust (ILIT) reduces the estate’s taxable value for estate taxes. An ILIT can keep money in the estate for your heirs.
- Asset Protection – You can use trusts and other estate planning tools to protect your assets from creditors, in-laws, bankruptcy, and other interests. The trusts protect your property for beneficiaries of the trusts.
- Reduce Taxes – Tax-reduction strategies during estate planning can help you reduce or eliminate estate, income, gift, and generation-skipping taxes.
You may employ other wealth preservation strategies in your estate plan. Your lawyer thoroughly analyzes your circumstances, goals, and finances to develop a strategic wealth preservation plan that is best for you and your loved ones.
Components of a Comprehensive Estate Plan
Your estate plan is customized to meet your goals and needs. However, specific components of a comprehensive estate plan generally include:
- Last Will and Testament – Your Will accomplishes several important elements of an estate plan, including naming heirs, naming a personal representative, explaining how to distribute your assets, and appointing a guardian for minor children. Even if you have one or more trusts, you need a pour-over Will to distribute assets not included in the trusts.
- Trusts – Many types of trusts can be used for estate planning. A trust is a legal entity that holds and manages property for the benefit of named beneficiaries. Trusts included living trusts (revocable trusts) and irrevocable trusts. Trusts can provide privacy, avoid taxes, provide asset protection, and protect inheritance for a person with special needs.
- Power of Attorney – A general power of attorney allows you to designate an agent to make financial decisions for you. Executing a durable power of attorney means your agent can manage your finances even if you become incapacitated, which can avoid the need for a court-appointed conservator. The power of attorney terminates upon your death.
- Health Care Proxy – A health care proxy gives an agent the power to make medical decisions for you if you cannot make them. You have someone you trust making decisions for you when you can speak for yourself.
- HIPAA Authorization – This document gives someone you trust access to your medical records. It also gives them the right to discuss your health care with your physicians.
- Living Will – A Living Will is also known as an Advance Health Care Directive. It allows you to set forth your desires for end-of-life care, including receiving or withholding life-prolonging treatments.
Your estate plan may include other documents. It depends on your situation and what you want to accomplish with your estate plan.
Common Mistakes to Avoid During Estate Planning
Estate planning mistakes and errors could significantly impact how effective your estate plan is for your heirs and beneficiaries. Common mistakes to avoid during estate planning in Massachusetts include:
- Not having an estate plan
- Failing to execute a Last Will and Testament
- Not planning for disability or incapacitation
- Failing to name contingent beneficiaries
- Putting a minor’s name on real estate or other assets
- Not planning for nursing home or long-term care
- Failing to make lifetime gifts to reduce your estate value
- Not transferring life insurance policies to a Life Insurance Trust
- Choosing the wrong person to administer your estate or serve as a trustee
- Failing to review and update your estate plan and documents regularly
One of the most common estate planning errors is using a do-it-yourself estate plan. Downloading and using DIY trusts, Wills, and other estate documents can create serious problems. Don’t make the mistake of preparing your own estate documents. Call a Massachusetts bankruptcy attorney for help with your estate plan.
Role of a Bankruptcy Attorney in Estate Planning: An Overview
A bankruptcy attorney may have several roles in estate planning. First, our Massachusetts bankruptcy attorney can help you develop an effective estate plan. Our law firm practices estate planning and bankruptcy law. Depending on your current situation, we can also help you file a bankruptcy to improve your financial situation as you move forward looking toward retirement and leaving an inheritance for your heirs.
How Bankruptcy Affects Your Estate Plan
A Chapter 7 or Chapter 13 bankruptcy case may help you preserve your wealth for your loved ones. A bankruptcy case can discharge most, if not all, of your unsecured debts. Unsecured debts include credit cards, some old tax debt, medical bills, and old utility bills. You can get rid of debts that could be paid from your estate to protect your assets.
Furthermore, bankruptcy exemptions protect specific amounts of equity in certain assets from your creditors. Therefore, your creditors cannot attach the equity on those assets to pay your debts. Without the bankruptcy case, creditors might pursue personal judgments to collect debts from your property.
Talk with an experienced estate and bankruptcy attorney to determine if filing bankruptcy can help you preserve your assets.
Contact a Massachusetts Bankruptcy Attorney to Secure Your Estate Plan
Don’t leave your family to deal with problems that arise when you die without an estate plan. Protect your property and your family by working with a Massachusetts bankruptcy attorney to develop an estate plan that carries out your wishes after your death or incapacitation. Contact Logan A. Weinkauf, P.C. today for a free initial consultation.