It’s never too early to start creating an estate plan. Estate planning allows you to dictate what happens to your assets in the event of your death or incapacity. Planning ahead will ensure a smooth probate process for your loved ones and beneficiaries, or help them avoid probate altogether. Early estate planning will also give you peace of mind knowing your wishes are clearly documented if something were to happen unexpectedly.
To get started with your estate plan, follow these five steps.
1. Identify and record all your assets
Your assets include tangible and intangible items. Tangible assets are assets that can be measured physically, such as any furniture or furnishings or other items in your home, your car, or any work tools or equipment you own. Intangible assets are not physical and may include any business licenses, trademarks, digital (social media) assets, or intellectual property you have. Certain assets come with risks. For example, if you own a home and you have overdue mortgage payments and property taxes at the time of your death, your estate will need to have sufficient funds to settle those debts. Take a look at your asset list and consider what you can do to mitigate risks that could come from them.
2. Choose your agents
When estate planning, choose both a healthcare and financial agent to carry out your wishes once you cannot. These agents are typically named in a Power of Attorney (POA) document.
Appoint a healthcare agent — also known as a proxy or attorney-in-fact — in the power of attorney portion of your Durable Medical Power of Attorney or Advanced Medical Directive. Should you become incapacitated, your health proxy will make medical decisions on your behalf.
You can also select a separate financial agent who will oversee your mail, bills, property management, filing of tax returns, investments, safe deposit boxes, insurance, and more by creating a Durable General Power of Attorney (a.k.a “financial POA”). The person you choose will be required by law to act within your expectations to the best of their knowledge when you no longer can do so yourself.
Keep in mind that you can choose one agent to serve in both roles or appoint different people as your medical and financial proxies. Someone with a power of attorney is different from a conservator, who requires a public proceeding and the incapacitation of the estate owner to be appointed. Additionally, an executor is responsible for the estate once the owner has passed away, whereas someone with a power of attorney is no longer responsible for the estate once the owner dies.
3. Protect your loved ones and name your beneficiaries
If you are a parent with minor children, you’ll want to name a legal guardian who can take care of them in the event that you and your child’s other parent pass away simultaneously. You may also wish to set up a trust plan to provide for your children financially until they reach adulthood.
Next, consider what assets you want to pass on to your family and friends. Go down your list of assets one by one and decide on the beneficiaries of each item. Some individuals choose to leave their entire estate to one person while others divide their estate and leave assets to different heirs.
Lastly, learn how to avoid probate of your assets, which can best facilitate your long-term planning goals and avoid needless probate taxes and administrative paperwork burdens for your family.
4. Review local and federal estate tax laws
Virginia does not currently have an estate or inheritance tax for estates of any size, keeping in mind that inheritance taxes are imposed upon your beneficiaries (not your estate) and are entirely dependent on whether your beneficiaries reside in Virginia or elsewhere. If your beneficiaries do not reside in Virginia, it’s important to know whether the State in which they reside has an inheritance tax.
If you do have a particularly large estate, your executor may be responsible for paying federal estate taxes. To help ease the burden of these expenses, you or your attorney should review current federal estate tax laws to determine your estate’s liability. Generally, the estate tax is applied to estates larger than $12.92M per person as of January 1, 2023; or $25.84M per couple. The amount of inheritance tax pays depends on each estate and how much its value exceeds that upper limit.
5. Hire an estate planning attorney to help.
Due to the complexity of estate planning, it’s always wise to contact a professional for help. To get started with your estate plan or update your current plan, contact the Law Office of Patricia E. Tichenor, P.L.L.C. and schedule a free consultation. Our firm has over 20 years of experience helping Virginia families with creating and updating their estate plans.