Forming and maintaining an estate plan is an important step in ensuring your assets are distributed according to your wishes, your loved ones are taken care of, and potential financial burdens are minimized after you die. A well-formed estate plan will also prepare for your proper care during your life if you are ever permanently or temporarily incapacitated. Understanding the basic components of an estate plan, knowing which professional help to seek, and being aware of common pitfalls can make the process smoother and more effective. In this blog, we’ll delve into these important aspects to help you navigate the complexities of estate planning in North Carolina.
Basic Estate Planning Components
Property Distribution
One of the primary objectives of estate planning is to dictate how your assets—both the tangible and intangible—are distributed after your passing. This includes the distribution of real estate, investments, bank accounts, vehicles, and all other personal possessions. In North Carolina, people primarily use wills or trusts to distribute a majority of their assets. Certain other intangible assets—for example, life insurance policies, retirement accounts, or payable-on-death accounts—pass directly to the named beneficiary within the account policy.
Regardless of how you structure your estate plan, it’s crucial to periodically review and update your distribution plan as your circumstances and wishes change over time.
Asset Protection
Estate planning also involves safeguarding your assets during your lifetime and after. Asset protection strategies can help shield your wealth from potential creditors, lawsuits, or financial downturns. In North Carolina, certain legal instruments, such as irrevocable trusts, can be employed to protect your assets while still allowing you to benefit from them. Often times, these trusts are essential to protecting your property while ensuring that you or a beneficiary remain eligible for certain aid as you age or become disabled.
Plan for Incapacity
Estate planning isn’t just about distributing property after you pass away. It’s also about preparing for the possibility of your incapacity during your lifetime. While not the case for everyone, many people who live to old age will face incapacity to some extent before their death. This could be a short-term status after an accident or a permanent state after a medical diagnosis like dementia.
To ensure your medical and financial decisions are managed according to your preferences, you need to establish a healthcare power of attorney, a durable power of attorney, and advanced directives to provide instruction and designate trusted individuals to make important health and financial decisions on your behalf if you are unable to do so. If you do not preemptively designate such individuals, the probate court will make these decisions for you. Probate is a costly, time-consuming, and emotionally draining option you will want to avoid for yourself and your loved ones.
Plan for Minor Children
If you have minor children, you should also use your estate plan to appoint guardians for your children if both you and your child’s other parent pass away. Additionally, you can establish a trust to manage and distribute assets for your child’s well-being and education, ensuring their financial security and a responsible caretaker.
Estate Planning Professionals
Estate planning often involves a team of professionals who can address various intricacies and work together to achieve your goals. These professionals include:
- Attorneys. An estate planning attorney is essential for creating comprehensive and legally sound documents. Your attorney will provide guidance as to complex laws and ensure your plan is tailored to your unique situation and your wishes are legally enforceable.
- Financial Advisors. A financial advisor assesses your assets and determines the most effective ways to achieve your financial goals through estate planning. They can provide strategies for wealth preservation, investment, and retirement planning that align with your estate plan.
- Accountants. An accountant can help you understand the tax implications of your financial decisions and recommend strategies to minimize estate and inheritance taxes, ensuring that more of your wealth is passed on to your beneficiaries.
Although an attorney, accountant, or financial advisor may have general knowledge of each other’s area of practice, only a licensed professional can provide the specific knowledge and advice unique to their legal or financial expertise that is beneficial to create the best estate plan for you and your family.
Common Pitfalls to Avoid
Estate planning can be fraught with potential pitfalls. Here are some common ones to steer clear of:
Procrastination. No one enjoys planning for their eventual death. Our hectic everyday life makes estate planning easy to put off until some later day or time that may never come. However, this delay can result in unintended harsh consequences if you die unexpectedly or become incapacitated. Life is unpredictable, and accidents or health issues can happen at any time. It is important to establish your estate plan early and update it often to ensure that you, your assets, and your family are cared for.
Incomplete or Outdated Documents. Failing to regularly review and update your estate plan can result in your documents becoming outdated. Changes in family circumstances, assets, or laws may necessitate revisions to your documents. For example, if you get divorced, North Carolina will automatically remove your ex-spouse as an executor or beneficiary of your estate, but it will not fill this position with another person. Failing to update your will in that situation would leave your will without an executor.
DIY Mistakes. While DIY estate planning tools are available and sometimes suitable, they can also lead to errors, invalid documents, disputes among beneficiaries, and other unintended consequences. For example, if you improperly execute a will, it will be invalid. Or if you impermissibly distribute certain firearms, your executor (or trustee) and your beneficiary can both be charged with felonies. As the common adage goes: “you don’t know what you don’t know.” Consulting with professionals helps you ensure that your estate plan is comprehensive, properly structured, and most advantageous to your interests.
Lack of Communication. Finally, failing to communicate your estate plan with family members and beneficiaries can lead to confusion, misunderstandings, and disputes. Open and honest conversations can help prevent future conflicts.
Conclusion
Contact Skufca Law at (704) 376-3030 today to schedule an estate planning consult and take steps to plan for the future, whatever it may bring, and provide peace of mind to you and your family that you have a carefully thought through plan in place.