Page 122 - May 2021

FINANCIAL PLANNING
THE IMPORTANCE OFAN
ESTATE PLAN
Establishing an effective estate plan may seem like an overwhelming task to add to your to-do list. If you’re like most people, you’ve been meaning to meet with an estate planning attor-
ney, but you keep postponing it, especially while in the midst of racing season. Creating an estate plan is something that is a bit undesirable but
is definitely worth the effort in the long-run. Having the correct planning done can ensure that your estate will transfer to your preferred heirs without first going through the probate process and also without taxation by federal
and state government if your estate exceeds the exemption amount. Here are the basics of an estate plan and why it’s so important:
WHAT IS AN ESTATE PLAN?
The result of estate planning is giving what you want, to whom you want, when you want, and if possible, minimizing taxes and saving money on administrative fees. The term “estate plan” often sounds like it’s meant for high-net- worth individuals, however, nearly everyone
has an estate. Your estate is made up of any assets owned in your name or by an entity
you control. This includes your home, bank accounts, horses, retirement accounts, and any other personal property. The most common estate plan includes a trust, a pour-over will, a living will (also known as advanced directive),
a financial power-of-attorney, and a health-
care power-of-attorney. A trust is essentially
an almanac which states how your assets are going to be divided when you die and at what point they will be received by the designated beneficiary. There are two main types of trusts. The first is a revocable living trust, which means the trust is a living document. Amendments
can be made to a revocable trust during the
trustee’s lifetime. The other is an irrevocable trust. As you may have assumed, an irrevocable trust cannot be rescinded or modified after it’s been created. A living will, sometimes referred to as the “pull the plug document,” is created for medical purposes. It also authorizes organ donation if you so choose. This is simply a written statement expressing a person’s desires regarding medical treatment in circumstances
in which their cognitive function or quality of life is substantially diminished – often utilized for people in comatose states. After a trust and will have been established, a financial power-of- attorney should be appointed. Generally, this should be a trusted individual who is qualified to handle your financial affairs when you
are unable. The person appointed should be motivated to act in your best interest rather than their own or even the family’s interest. Finally, you need to name a health care power-of- attorney. This should be someone who is willing and able to make difficult decisions regarding your care and medical treatment.
Listed below are definitions to a few key terms you should understand:
Executor – a male (Executrix – female) person appointed to carry out the terms of a will
Trustee – a person that is appointed to administer and oversee a trust for the benefit of a person or persons
Beneficiary – a person who derives advantage from something, especially a trust, will, or life insurance policy
Financial/Health Care Power of Attorney – legal document that grants a trusted agent the power to execute financial/health decisions on another’s behalf
Grantor – a person or institution that conveys ownership of a property
THE PROBATE PROCESS
Avoiding probate is perhaps one of the best reasons to create an estate plan. If you have gone through the probate process for one of your parents, you know how tedious it can be. If there’s no plan put in place for when you die, your heirs can expect to deal with probate. Absent a signed beneficiary designation or trust ownership of assets, such assets (horses included) will go through probate. Here’s
how the process works: First, your appointed representative will gather and account for your assets and file with the probate court. Creditors will be identified and paid. Beneficiaries will be identified next to ensure your estate is distributed to the right people. Finally, your assets will be distributed. This process can trigger a great deal in attorney fees. According to the American Bar Association, the average timetable for the probate process is between
six and nine months. In some cases, it’s much longer than that. Why is this important? It’s important to know because without an estate plan, it can open a door to several problems that your heirs will have to deal with for a long period of time. These problems include attorney fees, tax liability, will contests, and time wasted. It is also important to know that probate is public record so anyone can gain access to your personal financial information.
CHARITABLE GIVING OPPORTUNITIES
Now that we’ve discussed what you might want to avoid, let’s talk about how you can benefit from an estate plan. There are several tax minimization strategies that can take place when establishing an estate plan. If you are someone who enjoys supporting charitable organizations, you could consider
by Cade Peterson, Financial Planning Associate
120 SPEEDHORSE May 2021