Estate Planning Isn’t About Taxes. And Everyone Over
18 Needs To Plan.
By Mark Powell
It’s a very common sentiment. You need an estate (as in Downton Abbey) before you need an estate plan. People with a lot of money can achieve nearly unbelievable tax savings with the right kind of plan, but that’s estate TAX planning. Plain old “estate planning” is something else altogether, and pretty much everyone over the age of 18 needs at least a little estate planning.
Let’s start by defining plain old “estate planning.” There are two parts to it.
First, an estate plan identifies the people you want to benefit from your assets. Owning “assets” is not the same as having “a taxable estate.” (More on that in a minute.) Your assets include your bike, car, house, furniture, personal items, checking account, savings account, retirement accounts, life insurance and business interests. Although people tend to think that estate planning is morbid, it’s actually about life and making sure that your assets provide support for the people you love. It isn’t about controlling from the grave, it’s about creating opportunities that continue to give benefit for years to come.
Second, an estate plan identifies the people you trust to take care of yourself and your assets if you’re unable to do so. This includes identifying someone to pay your bills (your agent under power of attorney), manage your accounts (your executor or trustee, depending on whether your plan uses a trust), and interact with doctors (your health care agent). If you have young children, this also includes naming someone to raise them (your guardian). These are by far the most important decisions you’ll make as you create your plan, and it’s crucial to identify people who have the time and temperament to take on these tasks.
So why do we say that everyone over 18 needs at least a little estate planning? Let’s consider life in stages.
When you’re in college, you may consider yourself dependent on your parents, but the legal system doesn’t. As an adult, you are entitled to identify the people you want to make health care decisions for you if you can’t. Many young adults would give that authority to their parents if asked, and doctors will usually turn to parents for those decisions, but when these issues arise, it’s because something unexpected has happened. To avoid confusion, every 18-year-old should have a health care power of attorney, which can include instructions about life support. Similarly, every young adult should sign a durable general power of attorney identifying the person who steps into his or her shoes for all other purposes, including accessing bank accounts and school records. If you’re a parent, this is a good way to teach your young adults about managing their personal and financial affairs on their own. If you’re a young adult, it’s a good start in taking control over the most important decisions in your life.
 For the sake of thoroughness, “estate TAX planning” means the coordinated use of complex strategies recognized by Congress and the Internal Revenue Service as ways to avoid the federal estate tax altogether or at least reduce the value of assets that will be subject to it when you die. To decide whether you need estate tax planning, you start by adding up the fair market value of all your assets. If the total value exceeds $5 million, then your family will face a 40% tax on every dollar over $5 million. Luckily, that exemption amount is adjusted for inflation, and in 2015 it’s actually $5,430,000 per taxpayer. A married couple can own $10,680,000 before they worry about the estate tax. Now you see that estate TAX planning does require an estate like Downton Abbey. For the rest of us, we can focus on plain old estate planning.