Estate planning sounds quite complicated, but it’s extremely important to avoid putting it off, especially for physicians and dentists. Estate planning is a broad term that covers a variety of methods for determining what happens after your death, including the disposition of assets and appointing a guardian for your children. Without an estate plan, you risk leaving those decisions up to a judge and the laws of your state.
An essential piece of an estate plan is a will, yet a will is the least effective tool for transferring assets at death. In fact, the will is just the “catch all of last resort,” because the first rule governing the transfer of assets is ownership. With that being said, a will is a good place to start to ensure you have a plan and streamline the process for your loved ones. It gives you the opportunity to describe your wishes in the event of your death, including how your financial assets should be distributed. Dying without a will means you are “intestate,” leaving it up to the courts and state law to determine guardianship for your minor children and how your assets are distributed.
In addition to naming a guardian and providing instructions for your children’s inheritances, a will allows you to name an executor for your estate. An executor, usually a trusted friend, family member or financial professional, is in charge of making sure the estate is distributed correctly, paying debts and paying taxes.
Understand Tax Implications
Another reason for estate planning is to reduce the amount of potential taxes on your estate. This is often accomplished by setting up one or multiple trusts that can shelter assets from taxes. A revocable living trust can also allow for a quicker distribution of assets by immediately transferring assets to your named beneficiaries. Furthermore, this type of trust is also used because it does not require the cost of probate court, which administers wills. It is becoming more common for physicians to leave their assets and insurance for their children’s benefit in a trust, rather than giving it to them outright. This can also provide effective asset protection for your heirs.
Other steps in preparing an estate plan include assigning power of attorney to someone who can act in your place, should you become incapacitated. It is interesting to note that a power of attorney is null if you die and a will is null while you’re alive. The person with designated power of attorney can pay your bills, manage investments and make other decisions.
A living will, or advance medical directive, is another element of estate planning. You also may be familiar with an advance medical directive as a physician or dentist in the field. A living will provides instructions about the type of life-saving intervention you do or don’t want, in case you can’t express your wishes due to becoming critically ill or injured.
The importance of controlling how your assets are distributed can be daunting. Remember, your plan doesn’t have to be complex. Partnering with solid legal and financial advisors can help you understand the intricacies of the estate planning process, so your loved ones can live the life you have planned for them. Contact Spaugh Dameron Tenny if you have any questions.
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