Non-Tax Reasons for Estate Planning

Non-Tax Reasons for Estate Planning

From GRC’s Fall 2018 Newsletter

While estate tax minimization continues to be an important estate planning goal for Massachusetts residents, there are many “non-tax” reasons to regularly review and update your estate plan as well.

One of the more overlooked non-tax reasons is planning for incapacity. If you become unable to care for yourself during your lifetime, it is important that
you have documents in place to ensure that somebody can step in and manage your affairs for you. Under a Durable Power of Attorney, you give someone the right to make economic decisions on your behalf. Under a Health Care Proxy, you give someone the right to make medical decisions on your behalf if you are incapacitated. Absent these documents, a Guardian or Conservator would have to be appointed for you in the event of your incapacity, and that involves public court proceedings which could otherwise be easily avoided.

An estate plan is also critical to ensure that your family members receive your assets upon your death in the proportions of your choosing. Without an estate plan,
your assets will pass to your family in accordance with the laws of intestacy. These laws are designed to reflect how the legislature thinks most people would
want their assets to pass, but they may not reflect your personal circumstances. In addition, in marriages where one or both of the spouses have children from
a prior relationship, the intestacy laws are complex and can lead to distributions that vary significantly from what you might have expected. Accordingly, it
is important to have a well drafted Will and trust that clearly sets forth who will inherit your assets and who will administer your estate after you pass away.

Furthermore, a Will is the instrument under which you nominate Guardians for your minor or incapacitated children in the event of your death. Absent a clear
Guardianship designation in your Will, the Court will have to choose a Guardian based on what the court believes to be in the “best interests of the child” and
the Court’s decision as to what is in the best interests of your children could vary significantly from your own values and beliefs.

Probate avoidance is another important reason to have a well-structured estate plan. The “probate” process is the judicial administration of an estate. Assets owned
in your individual name at your death will be subject to probate, and they will be inaccessible until the Court appoints a Personal Representative (Executor). This can be time-consuming and public process that could be avoided by implementing a revocable trust as part of your estate plan. If you fund your trust during your lifetime (i.e. re-title assets such as real estate and investment accounts in the name of the trust), those assets will not be subject to probate upon your death,
thereby significantly streamlining the administration of your affairs after you die.

Leaving assets to a revocable trust at your death also allows a Trustee to manage assets for the benefit of your children or other beneficiaries after your passing. If you die without a trust, assets can be held by a child’s Guardian until the age of majority, but after that the child has a legal right to his or her inheritance. A trust on the other hand, allows a Trustee to manage the assets on the child’s behalf and to make distributions to or for the child’s benefit, until such time as the child has sufficiently matured.

In addition, it often makes sense for assets to continue to be held in further trust for an adult child, not due to the child’s inability to manage his or her affairs, but rather to help insulate a child’s inheritance from divorcing spouses, professional creditors, bankruptcy, etc., while still giving the child significant access to the assets.