estate planning

Practical Aspects of Estate Planning

It is not enough simply to have an estate plan. Everything must be thought out, and the documents have to be known to your family and friends and available in time of emergency. Here is a starting list of what you need and how to let your family and executor know about your plan:

  • Last Will and Testament ‒ Very basic. Do not use an online will. Oftentimes an incorrectly prepared will is worse than no will at all.
  • Living Trust ‒ This avoids probate on your assets. Checkett & Pauly prepares many living trusts, but sometimes there are cheaper and easier ways.
  • Healthcare Power of Attorney ‒ This is sometimes called an "advance directive." It allows you to declare your desires to forego life-prolonging medical interventions when there is no hope for recovery. Everyone in your family needs to know about your living will and where it is located.
  • Durable Power of Attorney ‒ A durable power of attorney continues even after you are incapacitated, unlike a regular power of attorney. It is coupled with healthcare provisions and authority to handle legal and financial matters as well. Again, do not just sign this document and put it in your safety deposit box. Your living will and power of attorney need to be available to all of your family.
  • Computer information ‒ Keep a list of your passwords and logins for everything.
  • Tax Returns ‒ Make sure everyone knows your tax preparer and the location of all of your returns.
  • Bank Accounts ‒ It sounds simple but your family needs to know where and how you bank.
  • Everyday Items ‒ Where are the keys? Where are the insurance policies? Where do you keep the titles to the vehicles? 

The whole purpose of this process is to be sure that your family has as easy a time as possible upon your passing. Checkett & Pauly has a brochure that you can use to make your last wishes known to all of your friends and family. The brochure is free and available just by calling (417) 358-4049.

Can I Inherit Debt?

The New York Times recently ran an article about laws, primarily in India, but also applicable to other countries, where a spouse or children inherit debt when a loved one passes away. The point of the article was that such laws stifle economic growth and progress. A surviving spouse or children are saddled with debt over which they had no part in accruing and no control over repaying. Fortunately, there are no such laws in the state of Missouri, and to my knowledge, anywhere in the country. We are each responsible for our own actions. No heir or executor becomes liable for the debt of a deceased person. While it is important that we each remain liable and vigilant about our own obligations, we may inherit assets, but we will never inherit debts.

Death and Taxes

Not long ago there was a 40% federal estate and gift tax and a 15% capital gains tax. The thinking at the time was that it was better for individuals to cash in their assets, pay the capital gains tax, and give away the money to their children. Now, the calculation is completely different because federal estate tax starts at $5.34 million ($10.68 million for a married couple), so that 99.8% of all estates will pay no estate tax whatsoever. The aim is not just to avoid estate tax but capital gains tax as well, and this is where the stepped-up basis for capital gains comes in.
If you have a portfolio with an investment cost or basis of $1 million that is now worth $3 million, upon your death, your children receive a capital gains tax basis of $3 million. This means that in this scenario your children would receive the $3 million investment portfolio free of federal estate tax and free of capital gains tax up to $3 million. While Benjamin Franklin’s quip about death and taxes still being the only certainty remains largely true, estate tax and capital gains tax has been vastly minimized in the past few years and will likely stay that way for years to come.

The Guardianship Procedure

The guardianship court process involves a number of people, at least one physician, two attorneys, the next of kin, and a judge who you do not know and who likely does not know you. This is a court case with all records and hearings open to the public. First, someone hires an attorney to file a petition with the court containing your personal and financial information. The court will hear testimony in a public proceeding to decide who will be the guardian to handle your personal and financial needs. As a general rule, the court requires a certificate of incapacity from a local physician.
Guardianships are costly, time consuming, and very public. Even worse, an unqualified person could end up being appointed on your behalf. Protect yourself from this situation by executing a power of attorney. The time and cost to obtain a power of attorney is insignificant compared with the alternative of a court ordered guardianship.

What Is a Guardianship?

If you become disabled because of a serious physical or mental condition, someone must have the authority to make the decisions about your medical and financial needs. If you have not assigned this role to someone through a power of attorney, a petition must be filed with the local probate court to nominate your guardian. The guardianship petition seeks to have you declared as incapacitated so another person can step in and make decisions on your behalf. This person may or may not be who you would otherwise choose. The guardianship procedure is in place so that a person’s physical and mental well-being are honored when he or she is no longer able to make sound decisions. All of this could be avoided through the execution of a well-drafted and carefully executed durable power of attorney.