Key Estate Planning Tools Continued

It is important that during this unprecedented time, that we remain optimistic but, also plan for the future. With more time at home, this might be the perfect time to consider things like estate planning tools that best suit you and your objectives. 

When it comes to designing your estate plan, you have an array of tools from which to choose. Wills, trusts, powers of attorney, and other legal documents may all be used to create a plan that addresses your unique needs and objectives. Previously in one of our blog posts, we had covered some key estate planning tools (click to read), and here we’ll introduce more common tools and provide details about what they are used for. We can tell you more about them and help you determine which ones may be best for you.

Beneficiary Designations
Do not underestimate the beneficiary field you fill in when you open a new financial account. Beneficiary designations are powerful estate planning tools- so powerful that people you name as beneficiaries on your accounts will generally inherit those accounts regardless of any instructions to the contrary that are included in your will.
One of the main benefits of using beneficiary designations as an estate tool is that assets with named beneficiaries generally avoid probate. Unless you named your estate as the beneficiary (in which case the account will need to go through probate), the assets in your accounts can generally be transferred directly to your beneficiaries without probate first. This can save time and money.
Because beneficiaries can be so powerful, it is important to review them periodically to ensure the person you chose is still the person you want to receive that asset. You may also want to name secondary beneficiaries on your accounts in case your primary beneficiaries die before you do.

Life Insurance
If you have loved ones who depend on you for support and might suffer financially without your income, life insurance may have a crucial role in your estate plan.
The money from a life insurance policy can help your loved ones maintain their current standard of living after you are gone. This might be used for daily living expenses, paying off debts, such as mortgage, or fund college educations for your children or grandchildren.
Life insurance can also be used to equalize your children’s inheritances. For example, let’s say you own a business that represents a large portion of your estate and you want to leave it solely to one of your children who is currently involved in the business. Life insurance can provide the necessary cash to provide comparable inheritances to your other children, without having to sell the business.
Life insurance can also provide the cash necessary to pay estate taxes, replace wealth that you donated to charity so that your loved ones still receive an inheritance, fund a buy/sell agreement, and meet many other estate planning objectives.
One thing to keep in mind about life insurance is that the proceeds will be considered part of your taxable estate for estate tax purposes if you own the policy. If estate taxes are a concern for you, you may consider having an irrevocable trust own the policy so the proceeds are not part of your taxable estate. You can either have the trust purchase a new life insurance policy or you can transfer ownership of an existing policy to the trust. If you transfer an existing policy, be aware that you must survive three years for the proceeds to be excluded from your taxable estate.

Durable Power of Attorney
Some documents are designed to help protect you during your lifetime, not just after. The durable power of attorney for finances lets you name a trusted person to manage your finances if you ever become too ill or injured to manage them yourself. This gives the person you choose the legal authority to handle financial tasks, such as paying your bills, managing your investments, and filling your tax returns, when you are mentally incapacitated. You choose the activities that your agent will have the authority to oversee. The “durable” nature means that it remains in effect even after you become incapacitated.

Health Care Proxy
This legal document, also known as a durable power of attorney for health care, is what you use to name someone you trust to make health care decisions for you if you are unable to. The person is generally known as your health care agent and can be whoever you choose.
By appointing someone as a health care agent, you can help mitigate conflict among family members regarding your care and makes it clear to health care providers who you want making decisions for you.
In addition, you should consider naming an alternate agent who can step in if your primary agent is not available or is not willing to make the decisions.

Living Will
Appointing a health care agent is a great first step. Next you may want to provide some written guidance regarding medical treatments you may want to receive, or not, in an end-of-life or permanently unconscious situation. You can do this with a living will, which lets you specify your preferences for life-prolonging treatments in situations where there is no hope for recovery.
By providing specific instructions regarding your preferences, you can help lessen the burden on your loved ones who might otherwise have to make these decisions without any input from you.

An estate plan can help protect your loved ones’ financial futures, as well as your own. Please consult us for help designing or updating your estate plan.

With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. We look through every aspect of your financial plan and identify opportunities to put tax-efficient strategies into play for you – strategies that should be applied today and revisited as your circumstances evolve with the goal of a prosperous tomorrow. Call us today at 802-536-1843 to schedule a strategy session and begin building your road map to financial success.

Article published in March 2020 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.