Advanced planning and a good estate plan can make a difference for any person or business. A good example was in the news last week when the Carnival ship Triumph broke loose from its moorings and was damaged. This was the same ship that was towed across the Gulf of Mexico about a month ago. At that time I read in the New York Times that it would cost $500 million to replace a ship like this, so whatever the cost to clean was a worthwhile option (and probably a more eco-friendly one). Carnival was in the process of cleaning the ship when it broke loose.
You may be shaking your head in disbelief, who wouldn’t carefully moor a $500 million ship? While you are wondering how the Carnival staff could be so careless, ask yourself this: “Are my personal and business affairs in order?” Do I have the four main tools of advanced planning in place? Or will my financial ship lose its mooring?
Because of a lack of advanced planning you could lose money in the form of probate, state estate taxes, and federal estate taxes. These are costs that you could avoid with a good estate plan. Lack of planning could also cost you in such ways as paying more taxes than you need or in the form of an unexpected lawsuit. Advanced planning and asset protection go hand in hand. Take the time to plan your estate in advance so you can get the most asset protection. Establishing a good estate plan in advance is not just smart, it is essential.
More important than the monetary cost of probate, taxes, and everything else is the emotional cost. The time and effort required to handle advanced planning is not that big. If you take time to put the four elements of a good estate plan in place and know how to use it, you’ll be saving your family not only money, but a lot of stress. That’s sometimes more important than the money.
A Good Estate Plan is Your Best Advanced Planning Tool
What elements make a good estate plan? The advance planning tools you need are a will, a trust, a durable power of attorney and a living will. The will and trust work together in a good estate plan. Most people understand what a will is and what is does. They may question why they need a trust.
A trust is a legal entity that is allowed to hold property for the benefit of another. This means that the property that is held in a trust can pass free of a probate court. Avoiding probate is a time and money saving tool and the basis of a good estate plan. If structured correctly it can be used and changed at will. This is called a revocable trust. A revocable trust, as its name suggests, may be amended, altered or revoked by at any time. It will be taxed under your social security number so it does not require an extra tax filing. Such a trust is easily managed and a good choice for holding property. Revocable living trusts not only minimize costs by avoiding probate, they also provide easy administration of a person’s assets and they provide maximum privacy.
Many people excuse themselves from estate planning by saying they aren’t wealthy enough for it to matter. Just like it seemed so obvious that significant care would be taken to tie up an expensive ship. Advanced planning requires that you ask, “Do I have the vital four estate planning documents that would prevent my financial life from breaking lose from its moorings in a storm?
Why anyone would risk this happening is a mystery to me. The legal process, including these four tools, can protect your assets, save you lots of grief, and allow you to pass the maximum amount on to your heirs. If you neglect your advanced planning, it will not only cost your family when you die, it will put you at risk during your life.
For other tax saving tips, check out my 10 Tax Tips.