Gina Parissi, CFP®
Senior Wealth Planner
When we hear the term “Estate Planning”, we may think it doesn’t pertain to us right now or it is a topic we would rather avoid. We tend to place it on the back burner with the intention of getting to it later. It can be uncomfortable to plan for your own death or incapacity when times are positive, but that is often the right time to do so, regardless of your age or net worth.
Estate Planning is the execution of documents designed to reflect your personal, financial, and healthcare wishes both during your life and after your death. It can help ease the burden on your family and friends, by effectively communicating your wishes. In the absence of an estate plan, your loved ones may be left with confusion, stress, and even unintended disbursement of your assets.
While the process may seem daunting, estate planning can be very manageable with a basic understanding of the documents needed and steps to take.
What is estate planning?
Estate planning is the process of developing the documentation necessary to determine who will make decisions on your behalf, who will manage the administration of your estate, and how your assets will be distributed to your beneficiaries. If you have a will, a power of attorney, or beneficiary forms, your estate plan is already underway. A proactive estate plan can not only ease estate administration but can also create a gifting or legacy strategy during your lifetime.
The process involves collaborating with your team of trusted advisors and other stakeholders, like your spouse, family, or other loved ones, to prepare the appropriate legal documents, develop trusts, or structure other assets to best meet your goals, such as:
- Providing financial support for your spouse or children.
- Ensuring your assets will be distributed according to your directions.
- Preserving assets for future generations.
- Minimizing gift or estate tax and legal expenses.
- Selecting the individuals that can make decisions on your behalf in the event of your incapacity.
- Supporting a favorite charity.
Who needs an estate plan?
You do. No matter your age or net worth, we believe an estate plan is essential. Estate plans can range from relatively simple to more complex depending on your financial situation, family circumstance, and overall goals. There is basic documentation that all adults should have in place, such as a will, power of attorney, and health care directives. If you have substantial wealth, you may benefit from a more comprehensive plan that takes advantage of current estate planning laws or trust strategy to minimize taxes and other costs. Estate planning can be helpful in controlling the transfer of wealth to those you care about, protecting your assets, and creating a gifting or legacy strategy.
Without estate planning documents, your assets may be disbursed per your state’s laws, which may not be as you wish. This potentially creates stress and frustration for your loved ones during an already challenging time. In some states, estate planning documents are a good mechanism to avoid a costly and time-consuming probate process.
Key Documents
Will
A will is a legal document that outlines an individual’s final wishes including how personal items, assets, and property should be distributed as well as who should care for children, dependents, and even pets. For large estates, it can also be used to create trusts to save taxes. Should you pass without a will, or intestate, state law will determine how your assets are distributed., which could be differently than intended.
Along with creating or updating your will, you will need to name an executor who is responsible for carrying out your wishes as defined in your will. This is a large responsibility and requires meeting deadlines along with the ability to understand financial, tax, and legal concepts. You can select a family member or friend to serve as executor or enlist the help of a corporate trustee, such as The Haverford Trust Company, to settle your estate or serve as trustee for trusts created under your will. Many people opt to split the duties between a family member and a corporate trustee or choose both so that personal and financial/tax goals can be met easily.
Trusts
Trusts are a commonly used estate planning vehicle for managing, transferring, and protecting assets. A trust is a legal entity that allows a third party to hold assets for the benefit of other parties. The individual who creates the trust is called a trustor, settlor, or a grantor. A beneficiary is the person or group who benefits from the trust, or for whom the trust is created. A trustee is the individual or individuals responsible for properly overseeing the assets placed in the trust for the beneficiaries. A trustee’s specific responsibilities are unique to each trust and defined in the trust agreement. There are numerous types of trusts that can be implemented depending on your financial and tax situation, family circumstances, and overall estate planning goals.
There are several advantages to including trusts in your estate plan. Trusts allow you to set parameters for how funds can be used by the beneficiaries, providing a greater level of control and privacy rather than distributing assets outright or through your will. Trust assets do not go through the probate process unlike assets passed through your will. Probate is the formal legal proceeding where a court recognizes a decedent’s will and appoints the executor who will administer the estate. In some states, and under some circumstances, avoiding probate can help save time and money for your beneficiaries and may give them faster access to funds. Certain types of trusts can also be leveraged to reduce estate and gift tax or other expenses.
It’s important to speak with your attorney to review the various benefits of trusts, and to determine whether a trust is right for you and your estate planning needs.
Powers of Attorney
Powers of attorney are critical tools in estate planning, regardless of your level of wealth. A power of attorney is a legally binding document that allows you to appoint someone to manage affairs during your lifetime. Depending on your needs, it can go into effect immediately or only if you become incapacitated.
Medical (Healthcare) Power of Attorney – This document allows you to choose someone who can make important decisions about your medical care on your behalf or have access or your medical records.
Advance Health Care Directive – An advance directive communicates your wishes regarding certain medical decisions and treatments if you are unable to make decisions yourself. These medical decisions may include special actions or emergency care from your medical team.
Before you send your child to college, discuss the benefits of having them sign a power of attorney. If your child is 18 years old, as a parent you may not have a say in the event of a medical crisis or hospitalization. A medical power of attorney can help you stay informed or make decisions in an emergency.
Beneficiary forms
Many common assets, such as life insurance and retirement accounts, like IRAs or 401(k) plans, require you to name a beneficiary and a contingent beneficiary. Even checking accounts and investment accounts can have these helpful designations and allow you to include payable on death or transfer on death. These vehicles may avoid probate and allow the account to be paid directly to the beneficiary. You should speak with your attorney before making these designations so that they fit within your overall estate plan.
We recommend reviewing beneficiary forms at least annually and all of your estate planning documents every few years or at major life milestones.
How do I get started?
The best way to get started is to review where you are now, gather information, and assemble your team of trusted advisors.
While the Haverford Trust team does not provide specific legal or tax advice or prepare estate planning documents for our clients, our wealth planners are uniquely qualified to facilitate the planning process or assist with the conversations between clients and their advisors. We can also provide referrals to estate planning attorneys if you don’t have one.
- Start off by completing an inventory of your assets and liabilities. This is an important step in estate planning as it provides a snapshot of your current financial situation in order to create a plan for the future. Your advisors at The Haverford Trust Company can help you to develop your net worth statement.
- Collect existing documents and important information. This may include:
- Current will and powers of attorney if you have them
- Family information such as names, dates of birth, and social security numbers for your beneficiaries such as children and grandchildren.
- Existing Trust Documents—your own or those under which you are a beneficiary or are given a power of appointment
- Entity formation documents (Family Partnership or LLCs)
- Assemble your team of trusted advisors
This team should include your attorney, accountant, and Haverford team, in addition to any family or other loved ones that may have a significant role in your estate plan. Open and ongoing communication among important parties provides ease of future estate administration.
Key considerations as you embark on or evaluate your estate plan:
Fiduciary Appointments
- Who will you name as primary executor for your Will? Alternates?
- Who would you like to serve as agent for your power of attorney and healthcare directive documents?
- If you have minor children, have you named a guardian?
- Would you benefit from having the Haverford Trust Company serve as executor or trustee?
Family & Children
- Do you have any pre or post-nuptial agreements that need to be considered?
- Do you have any children or family members with special needs that may need additional support?
- Are any of your children or grandchildren adopted?
Gifting & Asset Transfer
- Do you gift more than the annual exclusion amounts and have you filed a gift tax return (Form 709)
- Do you expect to receive a significant inheritance?
- In general, how would you like your assets to be distributed amongst family members? Outright? In trust?
- For assets that are in trust, would you like your children to receive the full balance at certain ages or have access rights for their lifetime?
- Would you like your child’s spouse to benefit from the trust, or should assets be kept within the family?
- Is there anyone, other than your spouse or children, that you would like to leave assets?
- Are there any charitable gifts that you would like to include?
- In a disaster, if none of your immediate family survives, how would you like your assets distributed?
We are here to help
If you have any questions about the concepts discussed in this document, we encourage you to reach out to your Portfolio Manager for more information. Having a comprehensive estate plan in place can help you feel more confident about the future and that your loved ones will be taken care of in the event of the unknown.
The information provided is not intended to be and should not be construed as legal or tax advice. Haverford does not provide legal or tax advice. You should consult with your legal or tax advisor regarding your specific tax situation prior to taking any action based upon this information.
