Isn't That Rich Podcast

Estate planning is often thought of as something only the wealthy or elderly need to worry about. However, as Evan Taylor, a seasoned attorney from Lawler Brown Law Firm notes that estate planning is essential for everyone, regardless of age or financial status. Whether you're in your early 20s or enjoying your golden years, having a well-thought-out plan ensures that your assets are distributed according to your wishes and that your loved ones are taken care of when you're no longer around.

What is an Estate, and Why Does It Matter?

An estate consists of everything you own—your home, car, investments, bank accounts, life insurance policies, and even your personal possessions. You might not think of these as part of an "estate," but together, they represent your life's work and the resources you’ve built to support yourself and your family. While it might be uncomfortable to think about, the reality is that you can’t take these assets with you when you go. This is where estate planning comes in—it’s about making sure your wishes are honored and your loved ones are provided for, even after you’re gone.

The Importance of a Will

A will is the cornerstone of any good estate plan. It’s a legal document that allows you to specify who should manage your estate (your executor), who should receive your assets, and who should take care of any minor children you may have. Without a will, these decisions will be left to the courts, and your assets may not be distributed as you would have wanted.

Evan emphasized the importance of having a will, especially for parents with young children. "In your will, you can name who would be the guardians of those minor children if something happened to you," Evan explained. This decision can bring immense peace of mind, knowing that your children will be cared for by someone you trust if the unthinkable happens.

Beyond the Will: The Role of Trusts

While a will is a crucial part of estate planning, it might not be enough for everyone. Trusts offer a higher level of control and flexibility over how and when your assets are distributed. For example, a revocable trust allows you to manage your assets during your lifetime and seamlessly transfer them to your beneficiaries after your death, all without the need for probate—a costly and time-consuming court process.

Trusts can be particularly useful in a variety of situations:

• Minor Children: A trust allows you to set specific conditions for how and when your children will receive their inheritance. This can protect them from receiving a large sum of money before they are ready to manage it responsibly.
• Beneficiaries with Special Needs: If you have a beneficiary with a disability, a trust can ensure they receive financial support without jeopardizing their eligibility for government benefits.
• Blended Families: Trusts can help you manage the complex dynamics of blended families, ensuring that both your current spouse and children from a previous marriage are provided for according to your wishes.

Avoiding Probate: The Importance of Proper Asset Structuring

One of the primary goals of estate planning is to avoid probate. Probate is the legal process through which a deceased person’s estate is settled, and it can be lengthy, expensive, and stressful for your loved ones. Evan highlighted that probate is often misunderstood—many people think that simply having a will is enough to avoid probate, but this isn’t the case. Whether your estate goes to probate depends on how your assets are structured, not just on the existence of a will.

In Illinois, probate is typically triggered if you pass away with real estate solely in your name or if you have other assets exceeding $100,000 without designated beneficiaries. To avoid probate, it’s essential to ensure that your assets are properly structured—this might include setting up beneficiary designations on your accounts or placing assets in a trust.

The Role of Beneficiary Designations

Beneficiary designations are a simple yet powerful tool in estate planning. By naming a beneficiary on your retirement accounts, life insurance policies, and other financial accounts, you can ensure that these assets pass directly to the person you choose without going through probate. However, as Evan noted, it’s important to consider the specific circumstances of your beneficiaries.

For example:

• Minors: If your beneficiary is a minor, receiving a large sum of money outright might not be in their best interest. In this case, it might be better to name a trust as the beneficiary, allowing the trustee to manage the funds until the child reaches a certain age.
• Special Needs Beneficiaries: Direct distributions to a beneficiary with special needs could disqualify them from receiving government benefits. A special needs trust can be set up to provide for them without affecting their eligibility for these programs.

Common Estate Planning Mistakes

One of the most common mistakes people make is assuming that once they’ve set up their estate plan, their work is done. Evan stressed the importance of regularly reviewing and updating your plan to ensure it still reflects your current situation and goals. Life changes—such as the birth of a child, marriage, divorce, or significant changes in your financial situation—should prompt a review of your estate plan.

Another critical mistake is failing to properly fund a trust. Evan shared a story of a client who had a beautifully crafted estate plan, complete with a trust, but none of the client’s assets had been transferred into the trust. "It was actually going to go to probate if we didn’t do something else," Evan explained. Funding a trust involves transferring ownership of your assets into the trust or naming the trust as the beneficiary of certain accounts. Without this step, the trust can’t accomplish its intended purpose.

Planning for the Unexpected: Powers of Attorney

Estate planning isn’t just about what happens after you die—it’s also about preparing for the possibility that you might become incapacitated. Powers of attorney for healthcare and finances allow you to designate someone to make decisions on your behalf if you’re unable to do so. These documents are essential for ensuring that your wishes are honored and that someone you trust is in charge of your affairs.

• Healthcare Power of Attorney: This document allows you to appoint someone to make medical decisions on your behalf if you’re unable to communicate your wishes. It can also include an advance directive, specifying your preferences for end-of-life care.
• Durable Power of Attorney for Property: This document allows you to appoint someone to manage your financial affairs if you become incapacitated. This includes everything from paying your bills to managing your investments.

Dealing with Debt in Your Estate

What happens if you die with significant debt, and your estate doesn’t have enough assets to cover it? In this case, your estate is considered insolvent. Evan explained that in some cases, going through probate might be necessary to ensure that debts are paid in the proper order of priority. However, it’s important to note that your personal representative (the person you appoint to manage your estate) is not personally responsible for your debts—they are only responsible for managing your estate according to your wishes and the law.

Leaving a Legacy: The Role of Charitable Giving

For many people, estate planning is an opportunity to leave a legacy, not just for their family but for their community or favorite causes. Evan mentioned that you can designate a charity, foundation, or other organization as a beneficiary in your estate plan. This can be done as part of your primary distribution plan or as a contingency if something happens to your other beneficiaries. Including charitable giving in your estate plan is a powerful way to make a lasting impact.

Final Advice: Start Planning Today

Evan’s key takeaway from the podcast was clear: Everyone needs an estate plan, and it’s never too early to start planning. Whether you’re just starting out in life, building your career, or approaching retirement, having a plan in place protects your loved ones and ensures that your wishes are honored. And if you already have an estate plan, it’s important to review it regularly to make sure it still aligns with your current situation and goals.

For those interested in learning more about estate planning, Farmers State Bank is excited to announce the Legacy Series, a fall workshop dedicated to helping you prepare for your future. Evan Taylor will be one of the presenters, offering insights and guidance on how to create and maintain an estate plan that meets your needs.