People often think of estate planning as the somber process people engage in near the end of life in an attempt to help their heirs. This view is flawed in at least three respects. First, estate planning is not just for the benefit of a person’s heirs. Many estate planning documents- such as powers of attorney or a directive to physicians- are for the benefit of the person doing the estate planning. Each of these documents is meant to help solve a problem that a person may encounter later in life, perhaps even while still relatively young.
Second, estate planning ideally is something that is done well before the terminal stages of one’s life. Planning early in life ensures that a person’s affairs are settled as desired if that person dies unexpectedly or at a young age. In addition, planning early in life can be exponentially more effective than planning late in life in terms of minimizing transfer taxes.
Third, estate planning need not be a gloomy undertaking. Many Garza & Harris clients have expressed satisfaction and peace of mind after completing the estate plan process, knowing that they have structured their affairs in a way that best benefits themselves and their family members. This is often particularly pronounced when clients’ planning affects the disposal not just of what they currently own, but what they expect to earn in the coming decades from the continued success of their businesses. Armed with the knowledge of where their wealth is going before much of it is even earned, some middle-aged entrepreneurs with a well-drafted estate plan feel an even greater sense of purpose in running their companies.
A good estate plan gives a measure of certainty but always retains the flexibility to adjust to changing circumstances. Death, divorce, the slow maturation of a child, a new-found interest in charity- these are just a few factors that can require revision of an existing estate plan.
A well-drafted estate plan usually contains at least the following documents: a last will and testament, which names the person’s executor and beneficiaries, disposes of household property, identifies a guardian for minor children, and sets forth how the person’s estate will allocate the burden of the payment of expenses and taxes. In some cases the will sets forth the individual beneficiaries and their respective shares of the estate, but with most high-net worth clients, the will directs the bulk of the person’s property to a trust. Once the property is transferred to the trust, the trust’s terms govern which beneficiary receives what property at what time and under what conditions. Trusts are quite popular because they offer unrivalled flexibility to implement the deceased person’s wishes and are critical in minimizing estate taxes.
In addition to the last will and the trust instrument, an estate plan (usually) also includes powers of attorney. A medical power of attorney appoints an agent to make healthcare decisions for the person if the person becomes incapacitated later in life. A statutory durable power of attorney appoints an agent to act to make financial decisions for the person if the person becomes incapacitated later in life. A variety of other documents may be part of an estate plan depending on a client’s unique circumstances.