The process of estate planning inevitably raises some difficult emotional and personal issues.
It forces you to face the unpleasant fact of your own mortality; you are trying to plan for a time when you won’t be around to make decisions. Others, particularly those you love, will be affected by the plans you make now and will be expected to exercise their own judgment once you are gone. For many people, the most difficult step in the estate planning process is deciding to do it.
Estate planning comprises three major areas: planning for incapacity, directing your wealth and minimizing taxes.
The first component to estate planning is often overlooked. It is very likely that, before you die, something will happen to you that will render you unable to assist in your financial decisions. You should have in place contingent plans — a financial power of attorney, a health care power of attorney and a living will — that nominates somebody else to help you make decisions.
The second step in estate planning is to direct your wealth. Your last will and testament or living trust will designate your beneficiaries. To whom you leave your money and property is obviously a very personal decision. Most people naturally think of planning for spouses, children and relatives first. This is especially true for minor children. In Iowa, 18 is the legal adult age. However, an 18-year-old child may not be mature enough to handle the responsibilities of a sudden windfall. Evaluate at what age your children might be capable of meeting this challenge and consider strategies that can help you plan for that time.
Two things in life are certain: death and taxes. The third part of estate planning is ensuring that one doesn’t cause the other. Your entire estate, no matter its size, can pass to your spouse estate tax-free. This deduction, however, does not eliminate the possibility that estate taxes may be due on assets transferred by your surviving spouse upon his or her death. Careful estate planning also minimizes inheritance tax and preserves the recipient’s basis for calculating capital gains taxes. Both you and your spouse should establish estate plans that will maximize asset transfers to your heirs and minimize estate taxation.
You are never too young to think about estate planning. It is vital for every person to be responsible enough to create a plan for themselves and their family.
Information provided by Ross Barnett, attorney for Abendroth and Russell Law Firm, 2560 73rd St., Urbandale, 278-0623, www.ARPCLaw.com.