We were talking about the basics of estate planning in our last post, especially how difficult some of the decisions can be. For instance, with a durable power of attorney, you will have to figure out who should take on the responsibility of looking after your affairs and making decisions about your medical care. That person is not always your spouse or one of your children. Sometimes it is a trusted friend or an attorney, someone who can be a little more objective.
It is not easy to make those decisions. Nor is it easy to decide which estate planning tools to use. Well, maybe deciding is easy, but making the right choice is more involved than people sometimes think.
Is it enough just to have a will? Your will designates your personal representative and gives that person instructions about your funeral and the distribution of your assets. Remember, though, that Pennsylvanians are subject to both the state inheritance tax and the federal estate tax. By the time your estate is done paying taxes and the costs of probate, there may be little left for your heirs.
Is it enough to establish a trust? A trust is just a piece of paper if you don't put any money in there. Setting up a trust means deciding where the money to fund it will come from, whether there will be one lump sum deposit at the beginning or a series of deposits over your lifetime and so on. There are many advantages to adding a trust to your plan: A trust can help your estate bypass probate, and the details of the distributions and beneficiaries are not public. It can be a powerful tool, but only if it's funded.
Is it enough just to develop an estate plan? Writing a will and establishing a trust are excellent first steps, but there is more to the estate planning process. A common mistake, especially for young adults, is to develop the plan and assume everything is taken care of for the rest of your life. An estate plan needs attention now and then -- not just when a major life event occurs, like the birth of a child or purchase of a home. Tax laws, for example, change. You should make sure your estate plan makes the most of those changes and reflects your true intentions.
Source: CNBC, "Trust bust: Steer clear of the 8 biggest estate-planning mistakes," Barry Glassman, Oct. 22, 2014