The Case for Estate Planning
Many of us remember the days of rotary phones, transistor radios, and 8-track tape players—we are the Baby Boomers. As we age, we know our day of reckoning is approaching, but many of us are avoiding estate tax planning because we believe it is the province of the wealthy. In fact, whether your estate is worth $20 or $20 million, there are documents we should all have in place to protect ourselves and our families.
For example, when you think of putting a will in place, you should think of “control.” Without a valid will, you abdicate control of your estate to the Illinois intestacy laws, which likely will not reflect your intentions for your assets and your family. Often overlooked in a will is the disposition of collections, or assets of personal value—and you can’t divide that precious wedding ring five ways! If you want a special asset to pass to a specific beneficiary, you will need to have that asset appraised to ensure that your estate is divided equitably among your family members.
Avoiding the Estate Treasure Hunt
Your beneficiaries will thank you when you use a well-crafted will to avoid an “estate treasure hunt,” by putting together an inventory of your assets and how they can be accessed. This inventory needs to include accumulated employee benefits from prior employers, and special assets that are not easily accessed.
Powers of Attorney
If you lose your capacity to manage your financial affairs, who will step in to pay your bills and manage your finances? A Durable Financial Power of Attorney addresses this question. A common mistake is to rely solely on your spouse to use joint bank accounts on your behalf because, if your incapacity is long-term or permanent, your spouse is prohibited from executing alone certain sophisticated transactions, such as selling your home. Without the Power of Attorney in place, financial management reverts to the state, where the Probate Court will appoint a guardian or conservator to control the management of your estate.
Another vital document is the Health Care Power of Attorney. This empowers someone to maintain - or terminate - life support if you are incapacitated. Illinois provides a form that can be found on the Illinois Department of Public Health website, but it always is best to seek legal counsel before executing any documents. You will need to appoint someone to make the toughest decision, maybe against the wishes of other family members. It is easy for everyone to agree glibly to “pull the plug,” but it can be a different story when the moment of truth actually arrives.
Protecting Your Legacy
Finally, you will want to protect your legacy. Each one of us would like to see our assets put to good use, and we also remember our days as young adults when we enjoyed the sights and sounds of Woodstock. Some of our beneficiaries happen to be at that same age today! Thus, you should consider putting a trust in place if you do not have confidence in the judgment of your beneficiaries. A trust allows you to appoint a trustee to make the decisions you would have made if you had survived. The assets you leave behind in a trust can be used to meet the basic living needs of your beneficiaries, or for specific goals such as tuition, funding a business, or buying a new home. The trust can be structured to prohibit payments to beneficiaries who fail to meet your expectations because of issues such as addiction or financial immaturity. Trusts provide a wide latitude to ensure that your long-term donation goals are met.
Because the loss of capacity can creep up on us gradually, we can find that our legal capacity to sign financial planning documents can slip away from us. While this issue is particularly important for our parents, who may have neglected to plan ahead, it’s also the right time for Baby Boomers to take up financial legacy planning before the passage of time makes it more difficult.
FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.
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