Having a Family Has an Impact on Your Estate Plan—Here’s How
Creating estate plans is partially about making sure your own wishes are followed at the end of your life, but it’s largely about protecting the people you love most. Well-made estate plans allow you to preserve your assets and transfer them to your surviving family members with minimal stress and minimal taxes. Your specific family structure will affect how you and your estate planning advisors create your estate plans, and your plans will also evolve as your family changes. These are just a few of the key ways that your family might affect your choices while estate planning.
You have to think about replacing yourself. Parents of minor and/or disabled children naturally have to make many other significant decisions as part of estate planning. Namely, who do you want to become guardians for your children if you’re incapacitated or die while they still need care? Whose values are similar to yours and will raise your children the way you want them to be raised? Choosing a guardian (and backup guardian) to name in your Will is one of a parent’s most important decisions during estate planning.
If you have dependents of any age, your estate plan also needs to address their financial needs if you were to die or become incapacitated. If you earn a salary, your family would lose that income and might not be able to cover expenses long-term without it. If you’re a full-time caretaker, your surviving family members would probably need to hire help to do the things you do now. Maintaining adequate life insurance is one way to give your family a safety net. Speak to your financial advisors about how you can use your estate plans to give your family the financial protection they’ll need if something happens to you.
You have to be very clear about what you want to happen before and after you die. A health care proxy needs to be part of everyone’s estate plan. It lets you name someone to make medical decisions on your behalf if you can’t speak for yourself, and you can write out specific instructions and special wishes that you want to be followed. Having a health care proxy spares your family members from having to make really difficult decisions. You don’t want your spouse or child to agonize about whether they made the choices you would have wanted them to make for you.
Creating clear instructions for your estate also protects your family after you’re gone. When the time comes for your surviving family members to settle your estate, you want them to do it together—not for the process to divide them. Too many families have been splintered over fights about settling a late loved one’s estate. You don’t want to leave any room for debate about who you wanted to receive this family heirloom or that piece of property. (You also don’t want your family spending thousands of dollars in attorney and court fees fighting those battles!)
Creating a thorough estate plan eliminates any ambiguity about your wishes. Hopefully, that clarity makes difficult times a little bit easier for your family. For this reason, it’s essential to update your estate plans any time something changes; for example, if someone you named in your estate plans dies, or you open a new investment account or buy new property.
You have to plan for unexpected, expensive things happening to your family. Having a family means that you’ll almost certainly be affected if something financially catastrophic happens to one of them. Your financial plans can be derailed by a spouse’s need for long-term care or an adult child’s financial crisis. If you have aging parents who can’t afford their own expenses, your financial resources may be depleted by helping care for them. And if you’re nearing retirement yourself and can’t work long enough to make up for the money you spend, your long-term financial plans and estate plans will naturally be affected.
Long-term care insurance for you and your spouse is one way to potentially protect your assets. Still, you may also speak to your estate planning advisors about using trusts and other tools to put money aside for whatever crises you and your family may experience.
You have to think about estate taxes. After working for decades to earn what you have, you want your money to pass to your family when you die. The next generation should benefit from your efforts. Keeping assets in the family requires you to do some strategic estate planning around estate taxes. While the federal estate tax threshold is high ($12.06 million per individual, for 2022), individual states that impose their own estate taxes have much lower thresholds. Under current law in Massachusetts, estate taxes are owed by any estate that’s worth more than $1 million at the time of the owner’s death.
Sachetta, LLC works with new parents, retired couples and families of all kinds to make the estate plans that best support their specific needs. Our advisors can help you look at the big picture to make sure your estate plans are aligned with both your financial goals and your wishes for your family’s future. Contact us today.
Stephen P. Ahern, CPA/PFS, CFP®, AEP®, MST provides individual financial, investment, estate and tax planning and small business consulting to a diverse base of clients including key top-level executives, high-net-worth individuals, business owners, venture capitalists, and entrepreneurs. Before joining Sachetta, Stephen co-founded and served as President of Wealth Management Advisors, LLC.