In this article, we will answer some frequently asked questions about estate planning.
Estate planning is crucial for managing and protecting your assets, avoiding probate, reducing taxes, and ensuring your healthcare wishes are honored. Our survey revealed that while only 41.7% of respondents have created an estate plan, over 50% cited "protecting my family" as the primary reason for doing so. The most common documents included are a will (40.3%) and power of attorney (37.3%). However, only 27.8% have discussed their plans with family. This highlights the importance of estate planning in safeguarding your loved ones' future. Learn more here.
What is the Purpose of Estate Planning?
There are many different goals that can be accomplished with an estate plan depending on your situation. The overriding theme is that a good estate plan will ensure that your loved ones are in the best position possible from both a financial and personal perspective if you pass away or become mentally incompetent.
Common goals of a good estate plan include:
- Ensuring that probate is avoided when you pass away,
- Ensuring that the correct people are in charge of your assets if you pass away or become mentally incompetent,
- Ensuring that your assets are distributed according to your wishes when you pass,
- Naming a guardian for minor children,
- Making end of life decisions in advance, and
- Ensuring that a guardianship proceeding is not necessary if you become mentally incompetent.
Additional goals that are more focused include:
- Minimizing estate tax,
- Protecting assets from creditors,
- Special needs planning, and
- Planning for long-term care and Medicaid eligibility.
For more on each of these goals, check out our article, What Can I Accomplish With an Estate Plan?
Why is Estate Planning Important?
Most people understand the importance of estate planning benefits such as naming a guardian for minor children and making sure that your assets are distributed according to your wishes. Many people do not understand the importance of avoiding probate when you pass away and avoiding a guardianship case if you become mentally incompetent.
Probate is a year-long court case that is necessary in order for your executor or estate administrator to gather and distribute your assets if you die owning:
- Any real estate outside of a trust or a right of survivorship deed; or
- More than $100,000.00 outside of a trust or a payable on death account.
For more on this, check out our article, When is Probate Required in Illinois?
We want to avoid probate because:
- Probate can cost your loved ones 5% to 10% of the value of your estate in attorney fees and court costs,
- Your loved ones will not have access to your assets during the pendency of the probate case, which will take at least a year, and
- An ongoing court case can be a stressful, time consuming, and difficult experience for your loved ones.
A proper estate plan will allow you to transfer your real estate and savings account to your trust so that when you pass away probate will not be necessary. This means that the person you appoint as trustee can distribute your assets to your loved ones immediately and without the cost of an attorney via a Small Estate Affidavit.
For more on this, check out: How to Avoid Probate in Illinois With Revocable Living Trusts.
We want to make sure that a guardianship proceeding is not necessary if you become mentally incompetent for the same reasons. A guardianship case is necessary to appoint a guardian to make decisions regarding your finances, health care, and residence if you become mentally incompetent and do not have a healthcare and financial power of attorney.
Like probate, a guardianship case can be expensive, time, consuming and stressful for your loved ones. Unlike the powers granted by powers of attorney, the powers granted to a guardian require the guardian to submit reports to the court on an annual basis in perpetuity. Powers of attorney are a cost effective option to prevent this scenario.
For more, check out our article, Powers of Attorney Explained.
Do I need Estate Planning?
As you may be able to tell from the wide variety of goals that can be accomplished from an estate plan, there are many situations in which estate planning can be beneficial. Most commonly clients come to us for an estate plan at four points in their lives:
- When they buy their first home or get married;
- When they have their first child;
- When they have had to deal with a probate case for their parent’s estate;
- When they are in their golden years.
These are common trigger points that cause people to think about estate planning, but the fact is that some form of an estate planning will be beneficial to almost everyone. The particular documents that are beneficial to you depend on your situation.
For example, if you have grown children, don’t own any real estate, own less than $100,000.00 in assets, and want all of your assets to go to your children, you probably do not need a will or a trust. However, powers of attorney will still be beneficial in order to prevent the necessity of a guardianship proceeding in the event that you become mentally incompetent due to accident, old age, or disease.
What Documents are Needed for Estate Planning?
The documents that are in your particular estate plan will vary based on your circumstances and goals. However, a full estate plan for most people contains the following documents:
- Revocable Living Trust: Avoids probate and allows you to direct how your assets will be distributed;
- Pour-Over Will: Names a guardian for minor children and allows your trust to control your probate estate should probate become necessary;
- Healthcare Power of Attorney: Appoints someone to make healthcare decisions if you become mentally incompetent, helping to avoid guardianship proceedings.
- Property Power of Attorney: Appoints someone to make financial decisions if you become mentally incompetent, helping to avoid guardianship proceedings.
- Living Will: States whether you would like life support terminated if you are in an irreversible coma, taking this difficult decision out of the hands of your loved ones.
For more, check out our article: What Documents Should Be in My Estate Plan?
What is the estate planning process?
The estate planning process is quick and painless. At our office, the first step is to conduct an initial consultation with the client in person or over the phone. At the initial consultation, we will find out about the client’s situation and goals. We will then educate them on their options to achieve those goals and explain what each of the different documents can accomplish for them, along with how much each document costs. The client will then make a decision on which documents make sense for them.
Next, we give our clients a simple questionnaire to fill out where they will tell us information such as who they would like to inherit their assets, who they would like to name as executor of their estate, and who they would like to name as guardian for their minor children. Many clients fill this out on the spot at the initial consultation, others will take the questionnaire home and e-mail it back to us when complete.
About a week after the time we receive the completed questionnaire, we will hold a “signing party,” where we walk the clients through their completed documents, ensure that everything we have prepared aligns with their wishes, and have them execute the documents before our staff who can witness and notarize them. We then provide the clients with the original documents and keep electronic copies at our office.
If the clients have a trust we provide them letters of instruction to any financial institutions that must be contacted in order to transfer accounts to the trust. We will also prepare and file a deed to any real estate that needs to be transferred into the trust.
Finally, we will follow up every five years to inform the clients of any changes in the law and check in regarding changed circumstances. Estate Planning documents usually will not need to be modified unless there are drastic changes, such as estrangement from a beneficiary of the estate plan, because we provide in advance for future children or grandchildren.
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