Thanks to the large federal estate and gift tax exemption (currently $5.49 million for individuals and $10.98 million for married couples), most people do not need estate planning for the purpose of saving estate or gift taxes. Regardless of whether or not fall under the exemption amount, there are many reasons why you still need to plan in the event of your incapacity or your death. Even if you are just 18 years old and you have just one bank account, you need a plan. Below are a few basic scenarios why many people need an estate plan:
- If you become mentally incapacitated in an accident or due to an illness, or if you are travelling overseas without easy access to your bank accounts, who will manage your financial affairs? This is where a Durable Power of Attorney comes in.
- What if you are also unable to make your own medical decisions? This is where a Living Will and Patient Advocate Designation comes in. Perhaps if you have certain wishes you’d like to spell out with regard to life support measures and organ donation, you can spell that out in your Living Will.
- If you die without a Will, Michigan has a set of default rules that say who will receive your assets and how much. Surely, you would prefer to control exactly who receives and how much.
- And if you die without a Will and any plans in place to transfer your assets to your beneficiaries, your assets become part of the Probate Court’s review and they will then determine how they should be distributed. It could be a lengthy and expensive process. Not to mention a headache for your family members. It is so simple to avoid this by having an estate plan in the first place.
- Do you have children under the age of 18? If so, naming their guardians will save your family members from having to go to court to get a guardianship and conservatorship opened and you would not have any say in the matter. Only you are the best person to decide who can care for your own children.
- Or do you have a child over 18 and away at college? Eighteen year olds are truly not always capable of managing their own finances and health. It is always recommended that at least a Durable Power of Attorney, a Living Will and Patient Advocate Designation, and HIPAA document be set up for them when they turn 18.
- Are you divorced? Are you in a second marriage? If you don’t have a plan, children or family members from different marriages may not be treated as you would wish. And you will want to make sure that the requirements set forth in the divorce judgment are honored as it relates to your former spouse and any children.
- Do you have retirement accounts and life insurance with beneficiary designations? It is important to ensure the beneficiary designations coordinate with the dispositive provisions of your Will and Trust. These are non-probate assets which pass by beneficiary designation and are not controlled by your Will.
- Do you have a beloved pet that you would like to name someone to care for him or her if the pet outlives you?
- Are you passionate about certain charities or charitable causes? There are several good ways to provide for your family while also giving to your favorite causes. Doing so would be a wonderful way to leave a meaningful legacy.
Please note that the above is not a comprehensive review of all the tax and non-tax reasons why you should have an estate plan.