The root causes for putting off estate planning decisions are obvious: it’s icky, and fraught with unknowns. Nonetheless, making proactive arrangements for our own care during aging, and for the gifting of assets we are unlikely to need, is the surest path to the best possible future for ourselves and those we care about.
Waiting Creates More Challenges
In some ways, estate planning decisions are similar to insurance decisions: you can’t wait for a flood, hurricane or fire, and then decide you need better coverage. When it comes to estate planning, waiting for declines to set in (while perhaps hoping they never do), is risky. Simply put, estate plans made when capacity is already in question, can really backfire, as concerns about cognition, undue influence, and legal complications arise.
Fidelity’s David Peterson explains, proactive arrangements for assets, including clear and detailed assignment of responsibilities to individuals trusted with carrying out the arrangements (aka fiduciaries) are essential: “it’s critical that your powers of attorney and revocable trusts empower your fiduciary to carry on your intentions through an established gifting program or update outdated beneficiary designations. Otherwise, when the agent exercises their powers, it might raise suspicion among heirs. In addition, it’s important to ensure your fiduciaries are aware of your gifting strategy and understand the intent for future gifts that should be made.” To underscore the importance of officially designating representatives to manage health and financial matters in the event of incapacity, as well as to carry out the distribution of assets intended as gifts, Peterson points out:
Once incapacitated, the authority of their agent or successor trustee, if any, will determine whether gifts can continue during incapacity. Typically, the agent’s authority is broad and includes the ability to undertake any act that the principal could take. However, in some states, the broad authority is restrained unless the document specifically authorizes certain actions. For example, the power to create, revoke, or amend a revocable trust, make expanded gifts, and change beneficiary designations may need to be specifically referenced in the document (these are sometimes known as “hot powers”). In the case of a revocable trust, if it isn’t funded before incapacity, then assets may pass through a lengthy and expensive probate process.
In tandem with obtaining an attorney’s guidance to create a sold and holistic estate plan that addresses familial goals and circumstances, it’s wise to have transparent conversations with loved ones, as attorney Robert J Varak urges: “Open and candid conversations with family members about the estate plan may head off any surprises that could lead to contesting wills.The death of a loved one results in an emotional grief that, when combined with large sums of money on the line, can cause the beneficiaries of the will or trust or the heirs of the deceased to challenge the validity, interpretation, or administration of the will or trust.” Another aspect of estate planning that helps ensure arrangements ultimately proceed smoothly, is the careful selection of the fiduciary.
When a will anchors an estate plan, this designee is usually referred to as the executor; when a trust is involved, the fiduciary is referred to as a trustee. In both cases, the chosen fiduciary has a legal responsibility to the estate and its beneficiaries. Given these significant responsibilities, a type of bond, referred to as a fiduciary bond or an estate bond, is often required. Essentially, fiduciary and estate bonds serve as a guarantee that duties will be carried out in accordance with the law and in the best interests of the estate and its beneficiaries. Sometimes, the bond is specifically referred to as an executor or trustee bond. Whatever type of bond a fiduciary may need, Colonial Surety is here to help. As a leading national provider of all kinds of fiduciary bonds, Colonial Surety makes it easy and speedy to obtain them. Simply: get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere.
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Gifting In The Here and Now?
If you have had the good fortune of accumulating more assets than you and a life partner are likely to need for your own care as you grow older, seriously consider making gifts to loved ones while you can experience the positive impact an infusion of cash can have. Even relatively modest gifts can make a tremendous difference. Payments towards homes, cars, loans, education and entrepreneurial ventures can be life changing. Why not give now and have the opportunity to savor the good that results from your generosity? As Peterson reminds us:
Gifting can be a powerful estate planning technique, but failure to properly design and execute a gifting program in a timely manner can cost your heirs. Reach out to an estate planning professional to review your gifting strategy and discuss how you can proactively plan to avoid last-minute gifting traps….The complex techniques sometimes used in estate planning can feel daunting. Ironically, one of the simplest strategies can be effective for some investors: Utilizing your annual gift exclusion ($18,000 per individual in 2024). When applied year-over-year, annual gifts can potentially significantly reduce your overall estate tax liability over time. And for those with more significant assets, larger gifts that utilize the lifetime gift tax exemption (in 2025, $13.99 million per individual), can dramatically increase the “after-tax” return on assets passed to your heirs.
Estate Law Practice?
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