A Will Is Not An Estate Plan
Many people feel a sense of relief once they create a will. They have decided who should inherit their property and believe their affairs are in order. But a will, important as it is, represents only one part of a complete estate plan.
An estate plan considers not only what happens after death, but also what happens if you become unable to manage your own affairs. It coordinates legal documents, financial accounts, beneficiary designations, and tax considerations so that they work together.
A WILL HAS AN IMPORTANT BUT LIMITED JOB
A will generally directs who receives property that passes through your estate, names a person to administer that estate, and can nominate a guardian for minor children. However, a will does not automatically control every asset you own. It also does not, by itself, eliminate the need for probate.
WHO MAKES DECISIONS IF YOU CANNOT?
Suppose an illness or accident leaves you unable to pay bills, manage investments, or make medical decisions. Your will provides no authority while you are alive. A durable financial power of attorney can authorize a trusted person to handle financial matters. Health care powers of attorney and advance directives can address medical decisions and your treatment preferences. Without appropriate arrangements, your family may need to seek court involvement.
YOUR BENEFICIARIES MAY MATTER MORE THAN YOUR WILL
Retirement accounts, life insurance policies, and accounts with payable-on-death or transfer-on-death designations typically pass directly to the named beneficiaries. Certain jointly owned property also passes outside the will. Imagine that your will divides your estate equally among three children, but your IRA names only one child. The IRA will generally go to that named beneficiary, not be divided under the will. Keeping beneficiary designations current is therefore essential.
DOES EVERYONE NEED A TRUST?
No. A trust may help manage assets for children or vulnerable beneficiaries, provide continuity if you become incapacitated, and avoid probate for assets properly transferred to it. But trusts have setup and maintenance requirements, and they are not automatically the best choice for every household. The right approach depends on your property, family circumstances, and state law.
DO NOT OVERLOOK THE TAX CONSEQUENCES
Estate planning is not just about estate taxes. Inherited traditional IRAs can produce taxable income for beneficiaries, and distribution rules may require withdrawals within specified periods. By contrast, many inherited assets receive a new income-tax basis based on their value at death, subject to exceptions. Coordinating asset ownership and beneficiary choices with tax planning can make a meaningful difference to heirs.
AN ESTATE PLAN IS NOT A ONE-TIME PROJECT
Marriage, divorce, a death in the family, the birth of a child, a home purchase, or a change in financial circumstances may all call for a review. A well-written will cannot fix an outdated beneficiary designation or an unfunded trust. Periodically checking that all parts of your plan still agree is just as important as signing the documents in the first place.
THE BOTTOM LINE
Having a will is a good start. Having a coordinated estate plan is the goal. Estate planning is not reserved for wealthy families: anyone with a home, retirement savings, dependents, or wishes about future medical care can benefit from a thoughtful plan. An estate planning attorney can prepare the legal documents, while your CPA can help you understand the financial and tax implications.
The article is meant for informational purposes only. Please contact me directly to discuss how this applies to your individual tax situation.