Why is Estate Planning Important?
By: John Farrell
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Why is Estate Planning Important?
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Why is estate planning important?
This question became very important recently as I had a young couple in the office to discuss setting up an estate plan. Ultimately, they decided not to set up an estate plan because they believed that all of their assets would simply go to the other spouse if one were to pass away (not true in their case) and that their children would be raised by who they wanted to raise their children (it would be the Probate Judge’s decision who raised their children in their case). In this article, we will cover why estate planning is so important.
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Essentials of an Estate Plan
Before we discuss why estate planning is so important, let’s discuss the essentials of every estate plan. Estate planning begins with the a Last Will and Testament and/or a Trust. These are the pillars of a good estate plan. While you might be okay with just a Will, you may want something more sophisticated like a Trust. But, know now that you at least need a Last Will and Testament.
In addition to one or both of these basic estate planning pillars, you should also have a Financial Power of Attorney and an Advance Directive for Health Care. These items cover you in the event you become disabled or incapacitated.
In short, the essentials of an estate plan are:
- Last Will and Testament and/or a Trust
- Financial Power of Attorney
- Advance Directive for Health Care
The Importance of Having an Estate Plan
Estate Planning is often misunderstood as something only the wealthy should have. In reality, everyone in Georgia can benefit from having an estate plan in place. And no two estate plans should be alike. You and your family are unique and your estate plan should be also. Here are some reasons why estate planning is important:
An Estate Plan can Protect Young Children
Unfortunately for the young couple who came to see me recently, they are leaving their young children vulnerable. It is very difficult for this young couple to consider the unthinkable, that they will both pass away while their children are young. But, they don’t understand that they cannot schedule an unexpected death.
If something were to happen to both of them, they have left no instructions behind on how and who should raise their children. I imagine that they have a babysitter and that they go out to dinner by themselves from time to time. I also imagine that they leave a list of things or important phone numbers for the babysitter.
Imagine that. They leave more instructions for the babysitter when they are going to be gone for a couple of hours than they do in case they pass away too soon and can’t call home to check on their children. Because they haven’t created a Last Will and Testament, it will be up to the local Probate Judge to make some of their most important decisions for them, like who will raise their children.
Their hope is the Judge will award custody to who they want to raise their children. But, if more than one couple steps forward, which could be very likely, then a court hearing could be required and this just causes more instability for their children. This reason why an estate plan is important should be enough for parents with young children to create an estate plan.
An Estate Plan can Eliminate or Minimize Family Arguments
As you may know, in addition to estate planning, I also help families navigate the probate process. For an article on how to navigate the probate process, click here.
If you don’t have an estate plan in place, your family may end up in Court arguing about why one or your children deserves more than the rest or why one of your children should be in control of distributing your assets even though they may not be the best fit for that role. Another reason why estate planning is important is it allows you to stop family arguments before they begin.
Do you know who the real winners are when families fight in Probate Court? It’s the lawyers. Creating an estate plan will allow you to pass on your assets and priorities to the people you want, rather than having the Probate Court decide it for you. It can also allow you prevent confusion and disputes amongst your beneficiaries or provide for loved ones with special needs without interfering with their government benefits.
An estate plan can not only preserve your life’s work, it can also help ease the burden off of your family and minimize potential conflicts between your loved ones. This reason why an estate plan is important is because attaining peace of mind and reassurance for life’s uncertainties is invaluable.
An Estate Plan can Help you Avoid a Costly and Lengthy Probate Process
I’ve never had a client come for a consultation and explain how they are excited that their family will have to go to Court after they pass away. But, that is what will happen if they only have a Last Will and Testament. If you only have a Will, your family will go to the Probate Court when you pass away and file your Will. This will start the process of confirming your Executor and distributing your assets, all under the supervision of the Probate Judge. This is why the probate process can be costly and lengthy.
While having a Last Will and Testament is an important pillar to an estate plan, perhaps you want your family to avoid the Probate Court altogether when you pass away. If this is important to you, you may want to consider going with something more sophisticated like a Revocable Living Trust.
Avoiding the probate process is probably the number one reason many people come to my office. Perhaps they know someone who has had to go through that process and they want to avoid that for their family or perhaps they know someone who has avoided it and they want it to be that easy for their family. Either way, an important reason to have an estate plan is to help avoid going through the probate process.
The idea behind the Revocable Living Trust is that it is a legal document that gives a trustee instructions on how to handle certain assets upon your passing instead of the Courts determining the distribution of your assets. Any assets involved in the trust will not go through the probate process when you pass away. A Revocable Living Trust is a wonderful alternative to a Last Will and Testament that can help your family avoid difficulty and delay after you’ve passed away. This is another reason why estate planning is important. Without a plan, your family may be in for a long and costly process.
An Estate Plan can help you and your family avoid or reduce estate taxes
Preventing or reducing the large loss of one’s assets to estate taxes is an important reason to establish an estate plan. Many people who are concerned with “death” taxes will lump estate taxes and inheritance taxes together. But, they are distinct and it’s easy to distinguish them by who pays the tax.
With an estate tax, it is paid by the estate of the person who passed away. The inheritance tax, however, is paid by the person who receives the inheritance.
For many years, Georgia residents were subject to an estate tax, but it was based upon the federal estate tax. In 2005, Congress phased out the portion related to state estate taxes, so Georgia stopped collecting estate taxes. It was always possible that those taxes based upon the federal tax could come back, so Georgia, in 2014, decided to eliminate the state estate tax altogether.
Since Georgia doesn’t have an inheritance tax and eliminated the estate tax, most Georgia residents don’t have to worry about “death” taxes. But, there is a federal estate tax some people have to worry about. For those people, estate planning is important because an effective estate plan can help you eliminate or reduce estate taxes.
The main reason why estate planning is important
Let’s face it. The main reason why estate planning is important is because you cannot schedule an unexpected death. The reality is that the day is coming for all of us. There are those in our life we would like to make things easier for when that day comes. Having an effective estate plan in place is an important factor in making life easier for your family.
Your best bet for deciding how you can maximize your estate plan is to sit down with an experienced Marietta estate planning attorney, discuss your goals, and design a plan customized to fit your life.
Our Farrell Law Firm estate planning attorney and staff can assist with creating a wide range of estate plans designed uniquely to serve your needs. The Farrell Law Firm represents clients in Marietta, East Cobb, Kennesaw, Smyrna, Atlanta, Roswell, Rome, Athens, Columbus, Macon, and across the state of Georgia, Tennessee, and Texas.
John P. Farrell, Esq.
Mr. Farrell is the author of Estate Planning for the Modern Family: A Georgian’s Guide to Wills, Trusts, and Powers of Attorney. You can learn about his book here and learn more about John here. Join the more than 1,000 people who subscribe to his Newsletter here. Feel free to send John a message here.