WHY YOU NEED AN ESTATE PLAN (OR ONGOING UPDATES IF YOU ALREADY HAVE ONE)
I can already hear you thinking, “Of course I’m going to hear a lecture on why I need an estate plan, coming from an estate planning lawyer!” Well, I decided to check with Google to see what it thought about the topic. I ran the search “Why do I need an estate plan”, and among the top 10 pages were articles from Forbes, Fidelity, Charles Schwab, Vanguard, and Market Watch—all financial advisory/investment firms. They aren’t even in the business of estate planning, so why would they be promoting it? It looks like estate planning actually is an important—no, essential—part of your financial planning and organizing your affairs to operate smoothly when you’re not capable of managing them yourself someday.
Some of the benefits of estate planning that they list are the same things my father and I have been writing about here for years: Avoiding Probate; managing your assets during your incapacity; deciding who inherits from you when you pass away (rather than letting the State decide); reducing or eliminating estate taxes; saving on income taxes; protecting your assets from lawsuits, divorce, and creditors; sheltering your assets in the event you ever need nursing home care; and last, but not least, protecting the inheritance your leave to your family or heirs from their future lawsuits, divorces, creditors, and nursing home costs.
Rather than elaborate on these points (you can get more detailed information on our website at https://okuralaw.com/blog or by reviewing our articles in past issues of the Hawaii Herald), I want to touch on some of the things that they brought up which I haven’t written extensively about before.
At what Age Should I Start Estate Planning?
A Forbes article cites that “64% of Baby Boomers didn’t even have a living will, which anyone over the age of 18 should have.” Most parents are still supporting their children even after they turn 18, while still in college or getting established in a career. Maybe it’s as simple as keeping the child on the parents’ health insurance plan. But if an accident or illness were to incapacitate that child—who is no longer a minor—the parent would have to go to court and ask the judge to give them legal authority to make decisions about their own child’s health care, and to manage whatever meager finances the child may have. It’s likely that the court and legal fees would exceed the assets that most 18-24 year olds have. Even if it’s only a power of attorney and an Advanced Health Care Directive (which replaces the old “living will”), every 18 year old should have this in place. It only costs a few hundred dollars and is a great way to start teaching children the basic responsibilities of becoming an adult.
What if I don’t have an estate (or think that I don’t)?
Even if you don’t have a lot of assets, you do have an estate. Most of us hear the word “Estate” and think of a sprawling English countryside manor with lavishly manicured gardens, complete with servants’ quarters and horseback riding stables. It would be nice to have an estate like that, but even if you don’t own your own home, you still have an estate—it could just be a bank account, a vehicle, a life insurance policy, or retirement benefits from work. Often these “minor” estates are overlooked and the lack of planning ends up costing the family complicated legal and court fees, or excessive income taxes because of a lack of proper planning. There are ways to properly name beneficiaries on retirement accounts that can save thousands of dollars in income taxes after you pass away.
Doesn’t everything just go to my spouse if I die without a will?
It’s not that simple. In the State of Hawaii, who inherits what if you die without a will is determined by State Laws, and it all depends on which of your various family members are living at the time of your death. For example, if you are married, but your parents are still alive when you pass away, your parents would inherit 1/4th of your assets over $200,000. Many of our elderly clients have designed estate plans to move assets to their children in order to plan for the possibility of qualifying for Medicaid for nursing home costs. If their child passes before them without a will, some of the child’s assets go to the parent, requiring the parent to give those assets away again and start a Medicaid 5-year lookback period all over again!
In another problematic example, if you or your spouse have children from outside of your marriage, your children will inherit some of your estate instead of your spouse—even if your children are minors at the time!
In short, everyone over 18 needs an estate plan, and it should be reviewed every 3 to 5 years to make sure it still fits with changes in the laws, your finances, and your family situation.
OKURA & ASSOCIATES, 2015
Honolulu Office (808) 593-8885
Hilo Office (808) 935-3344
Ethan R. Okura received his Doctor of Jurisprudence Degree from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing home costs, probate, estate taxes, and creditors.
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This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.