Estate Planning 101 | Financial Planning Chapel Hill l Old Peak Financial Advisors

Estate Planning 101

January 3, 2018


Estate Planning 101

January 3, 2018

It is easy to put off planning for your estate and end-of-life affairs. But every adult can benefit from having documents in place to help manage your property, health, and finances in the event of illness, incapacity, or death.

For most people, the primary purpose of estate planning is not to reduce estate tax, although that is important for some individuals and families. Rather, the goal of estate planning for most people is to express your wishes now, making it easier for your family and friends to meet your expectations when you are incapacitated and when you pass away. The key documents / instructions are below.

1) Asset titling and beneficiary designation forms
Name beneficiaries for any retirement accounts (such as IRAs and 401k plans), life insurance contracts and annuities. At your death, named beneficiaries will receive the assets directly. Your last will and testament does not control the distribution of any of these assets as long as each has a named beneficiary. Revisit the beneficiary designations as you experience life changes, such as birth of children, marriage, divorce or death of a beneficiary.

2) Last will and testament
This is the main document that spells out how you want your assets and personal belongings distributed at the time of death. If all your financial assets are in trusts or retirement accounts with beneficiaries, your last will and testament only controls non-financial property. The will names an “executor” or “representative” to manage the process. If you have minor children, the will names a guardian in the unlikely event both parents are deceased before a child reaches the age of majority (18 in most states). The court process of settling an estate is called probate. Because it can take time, is unpredictable, public, and can be expensive, many people seek to avoid probate by placing their financial assets in trusts. Retirement accounts and life insurance products like annuities also avoid probate and can provide benefits similar to a trust.

3) Trusts
People with significant assets outside their retirement plans often establish a trust to hold their assets such as bank accounts, brokerage accounts, real estate and other investments. The most common trust is a revocable or living trust. For legal and tax purposes, it is almost invisible while you are living. The assets can be bought, sold, spent, etc., as if you owned them in your name. But at your death, anything in the trust avoids probate and instead passes to those named in the trust. Assets could go directly to heirs or could stay in the trust and be distributed, over time, on a schedule the trust sets out. At your death, the revocable trust becomes irrevocable.

If your situation is complex and you have a large net worth, you may also set up irrevocable trusts during your lifetime. Benefits may include saving estate tax (the tax payable upon a person’s death) or protection from legal actions.

If almost all your financial assets are owned in retirement accounts or insurance products, a trust probably does not make sense.

If you decide to establish a trust, make sure to re-title your brokerage and bank accounts and other investments in the trust’s name.

See here for more information about trusts:

4) Power of attorneys
A power of attorney (POA) gives someone the legal power to act on your behalf when you cannot. You should establish two separate POAs: financial and health care. Both POAs lose their power at your death.

A financial POA allows someone to manage your financial affairs – paying bills, buying and selling investments, etc. Typically, you will set up a “durable” POA, which remains in force when you are incapacitated.

A health care POA gives your agent the right to make health care decisions for you if a doctor determines you cannot act for yourself.

You should name a primary and secondary agent for each of your POAs.

5) Living will/advance healthcare directive
A living will or advanced directive sets out how you wish to be treated near end of life. For example, if you fall into a coma, do you want to be kept on life support, and if so, for how long? Spelling out these intentions now can help lessen questions your family may have during a very stressful time.

Please talk with your financial advisor and an estate planning attorney to ensure you have a robust estate plan in place. By doing so, you are laying out a clear roadmap for those who care about you and want to make sure your intentions are followed.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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