What Exactly Is Estate Planning And When Do We Need It?

Estate planning encompasses a wide variety of subject matter, from how your assets may be titled and who is the beneficiary of your insurance to IRAs and 401(k)s, to the creation of business entities, the establishment of buy-sell agreements, the creation of trusts and gifting during your lifetime. The process allows you, rather than a state’s intestate succession laws, to decide who’s going to inherit your property at your death. Estate planning can be an emotionally charged process for a lot of people.

I like to break estate planning down into three phases. In the initial phase, a client comes to me when they’re healthy and able to make informed decisions about the future of their assets, such as who they’d like to benefit from inherited assets and the way the assets are to be distributed. The second phase is the implementation of the plan, either during life or at death (preferably during life). In this phase we fund the estate plan, or transfer assets according to the plan, to maximize the benefit to your family and minimize the costs and expense of estate administration process, mitigate income and estate tax liability, and minimize, if not eliminate, court-imposed probate fees. The final phase is the post-mortem, post-implementation phase, where someone may have already passed away or we’re making deathbed transfers to facilitate their estate planning. That’s not ideal. We prefer to not be making last-minute estate planning decisions, but in certain circumstances, it cannot be avoided because of poor lifetime planning.

Is Estate Planning Just For What Happens After I Die Or Can Estate Planning Benefit Me During My Lifetime?

In my experience, it is often much more important to plan in anticipation of incapacity during your lifetime. For example, what would happen if one spouse becomes incapacitated, needing to go into a nursing home and the other spouse needs to sell the primary residence during that time? Without a plan in place, such as the execution of a power-of-attorney instrument allowing another person to manage an incapacitated spouse’s or parent’s financial affairs, the healthy spouse or incapacitated parent’s children, a court proceeding is required to (i) declare the person incompetent; (ii) if the person is determined to be incompetent, appoint a court-ordered guardian; and (iii) obtain a court order to facilitate giving the healthy spouse the power to sell the property, that. A situation like this can be cured very simply with a properly drafted power of attorney or, alternatively, a revocable trust.

In North Carolina, if a person becomes incapacitated, the process by which somebody without an estate plan is handled is through a guardianship process. That is essentially a lawsuit filed against the incompetent person to have them declared incapacitated. A sheriff is dispatched to serve legal papers on the incapacitated person, specifically a summons to appear in court. This summons may be served, at the person’s own home, a nursing home, or even sometimes a hospital. I have noticed that a lot of elderly folks become very resentful of this process and if they are not declared incapacitated, may decide to amend their estate plan to disinherit the individuals that initiated the incompetency proceeding.

If the court determines that somebody is incapacitated, then they are assigned a guardian. A person may be appointed as the “guardian of the estate” of an incapacitated person. The guardian of a person’s estate is responsible for managing all the incompetent person’s assets, including financial assets and real estate. The guardian generally has absolute control over those things. However, the guardian is required to report all receipts and disbursements and assets of the incompetent person’s estate. In addition, a person appointed as guardian of an estate is usually required to purchase a bond to reduce the risk of mismanaging the assets or disposing of the assets in a manner that is not permitted under North Carolina law. To be bonded, the guardian of an estate must qualify for a corporate bond issued by an insurance company. Most bonding companies will perform a credit check before issuing a bond. Without a near golden credit score, it may be difficult to qualify for a bond. Without a bonded family member as guardian, there’s a risk that someone else from the community, usually a lawyer appointed by the court, will be assigned by the court to watch over that spouse’s assets. Again, this could be easily cured by engaging a competent estate planning attorney to plan around that contingency.

How Early Should You Start Estate Planning?

In a perfect world, everyone over the age of 18 should think about the deposition of their assets at the time of death or incapacity.

Most 18 years old adults don’t have assets to pass on, but there are additional indicators that you should be thinking about estate planning. If you start accumulating wealth of any substantial size, such as a balance in a 401(k) plan or IRA, or the purchase of a home where you are or expect to experience growth in the home’s equity, then it’s a good time to start thinking about estate planning. Your initial planning may not be very complex at all. It may become more complex over time as you acquire assets, your family situation changes, or the nature of your assets change.

If you’re questioning “when should I do this?” You should have an estate plan when you start developing sufficient assets, or you have family members or individuals you’re responsible for—dependents who would benefit or suffer the consequences of good or bad estate planning.

For more information on Estate Planning Law in North Carolina, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 704-248-6325 to schedule an appointment.