Estate Planning: The Basics

As business professionals, creating plans and putting them into action is a part of everyday life. We plan everything from our meals, to our weekly meetings, to our life goals. One critical aspect of our lives that most professionals often neglect to plan is their estate. In fact, a survey conducted by Caring.com revealed that only 42 percent of American adults have had estate planning documents prepared. Furthermore, in January 2017, Princeton Survey Research Associates International questioned 1,003 adults and asked whether they currently have estate-planning documents in place in the event of their death. A total of 47 percent of survey respondents without estate documents stated, “I just haven’t gotten around to it.”

While most people do not like to think about what will happen to their loved ones and belongings when they pass away, for working professionals, there is a lot to lose. On the most basic level, estate planning addresses the questions of what happens to your or a loved one’s properties and belongings when you die. For professionals with young children, estate planning also implicates the issues of guardianships for minors and provides financial support in the event of an unexpected passing of a parent or breadwinner. While no one can predict fate, with proper planning, one can control what happens to your estate, who becomes a beneficiary, who serves in a fiduciary role, and by what distribution pattern assets are dispersed to ultimate beneficiaries.

In order to begin thinking about estate planning, a basic understanding of the essential terms is necessary. Below is a quick glossary of such basic terms that you may run into when planning your estate:

  • Beneficiary – The individual named in a Will or Trust that will benefit from the estate of an individual that has died.
  • Equity – The current market value of an asset or assets after liabilities and liens are subtracted.
  • Estate – All of the property, assets, and debts left by an individual at the time of death.
  • Probate – The legal process of settling the estate of an individual after death. This could include, for example, paying debts, distributing assets, and validating a will.
  • Trust – A fiduciary relationship, created by an agreement or declaration of trust, between the trustors, trustee(s) and beneficiary or beneficiaries concerning the assets committed to the trust.
  • Assets – Anything and everything you own. This includes, but is not limited to, your home, real estate, insurance, investments, jewelry, art, clothing, digital assets, etc.
  • Liquid Assets – Cash or assets that can easily be converted into cash.
  • Will – A legal document that defines how an individual wishes their assets be distributed at the time of their death, names a Personal Representative, and if there are minor children, also names Guardians. A will can only be enforced by a probate court.
  • Power of Attorney (POA) – An individual that you appoint and empower to act as your agent when dealing with property and affairs. POA authority ends when the individual appointing revokes authority, becomes incapacitated, or dies.

Understanding these essential terms and concepts can give you a working “tool set,” which can be used to start thinking about managing your family’s affairs and wealth.  In our next blog post, we will discuss the basics of Gifting and Tax Implications.

Resources:

https://www.prnewswire.com/news-releases/nearly-6-in-10-us-adults-dont-have-a-will-300402272.html

https://www.caring.com/articles/wills-survey-2017