The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
There is a widespread misconception that estate planning is simply a method of directing one’s assets to designated beneficiaries in the event of death. That’s simply too narrow of a view. Estate planning is necessary — crucial, in fact — in the event that you become incapacitated or otherwise need a loved one to manage your finances. This can happen, for example, if you are about to undergo surgery with a prolonged recovery period.
In addition, proper estate planning may be necessary in order to reduce an estate tax burden. Protecting your property is complex. The amount of money and other assets you have will determine the type of planning best suited to your needs, so the first step of creating any estate plan is taking a thorough inventory. Depending on your needs, the management of your wealth can involve the creation of wills, lifetime gifts and possibly some form of trust.
The assets that need to be identified and evaluated when creating your estate planning strategy include investments, real property, insurance policies and personal effects. The bottom line is that you want to do whatever is necessary to make sure that your assets are properly managed, that your wealth is distributed to your beneficiaries in accordance with your wishes, and that your tax burden (if any) is minimized.
Beyond taking an inventory, there are four basic components to estate planning:
It is important to understand that in the absence of estate planning, property is passed according to a succession plan mandated by Texas law. The process of estate planning allows individuals to trump the law of succession and make sure their own wishes are fulfilled. Estate planning also relieves loved ones from the responsibility, the often painful and embarrassing process, of going before a judge and publicly discussing family matters in the event of an incapacitation.
All assets are subject to property law in one way or another, including cash, stocks, bonds, life insurance policies, retirement accounts and of course, real estate.
The two most common documents in an estate plan are wills and trusts. These documents contain your instructions for the distribution or management of your assets. These documents name an executor who will be responsible for the execution of your instructions in the event of your death or incapacitation.
Understanding your tax burden will help you develop a plan to minimize taxes. The amount of taxes due upon your death will depend on the value of your assets, and the laws in this area are constantly in flux. Currently, there are federal estate taxes and you may have an additional state tax burden, depending on where you claim permanent residency.
Financial goals and plan development
There are many ways to protect your assets, pass wealth and minimize taxes. The type of property you have acquired and your financial goals will determine the methods you need to implement to protect your property. Your financial goals should include asset protection before and after death, which may involve “gifting” some of your assets during your life, either to individuals or to trusts set up so that you make sure gifts are used according to your wishes. However, you must be careful when gifting property because there can be unfavorable tax consequences.
In order to develop and implement a plan that meets your specific needs, you should consult a knowledgeable professional. You want to choose an attorney who specializes in estate planning and has implemented systems to ensure that a comprehensive plan is created for every specific situation, not an attorney who dabbles in estate planning.
Let a professional guide you
You’ve worked hard to acquire the assets that you have, and you shouldn’t ever have to worry about how those assets will be passed on in the event that something happens to you. You should know that it will benefit the people for whom you care most, because with that in place, there is really nothing to worry about.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.