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Five basic documents you need in your estate plan – even with limited assets

Lastwilltestament For decades, Hilliard Lyons has worked with clients’ attorneys and tax advisors to help devise estate plans to protect clients’ assets and minimize costs to beneficiaries. Contact an estate planning specialist to ensure the future of your legacy and your family’s peace of mind.

For those of modest means, the word “estate” may sound a bit lofty, but the term itself doesn’t speak to the value of assets; it simply refers to the assets themselves. A single-family home, a basic savings account, a small life insurance policy – all of these can be part of an estate. Individuals with assets of any size and a family to consider can benefit from formal estate planning.

The natural time to begin thinking about estate planning is after the birth of your first child, said Chris Staples, senior vice president, trust and estate planner for Hilliard Lyons Trust Company. “Besides planning for the distribution of your property, one of the primary things you do in an estate plan with children under age 18 is to nominate who you want to take care of those minors if you are no longer able to,” he said. “Without your nomination, it’s left to family members and the court to decide who will care for the children.”
Where there’s a will: Naming a guardian for your children is done via a Last Will and Testament, the first step in estate planning. A will also describes how personal assets are to be distributed at a person’s death.
“A will is your foundational estate planning document,” said Staples. It can control the disposition of bank accounts, real estate, property, and personal possessions such as tools, jewelry, and furniture, all owned solely by the individual drawing up the will. “It won’t control assets that are subject to a beneficiary designation like a life insurance policy or a retirement account. It also won’t control jointly held assets,” added Staples.
In trusts we trust: The most popular secondary estate-planning document is a revocable living trust. “Individuals can put assets in there today, and those assets won’t be included in the person’s probate estate when he or she dies,” Staples said. Trust documents offer an element of privacy and can be more easily modified than a will while the person is still living.
“With the changes our clients see in their lives, they are revisiting their estate plans more often than they were even a decade ago, and a revocable living trust gives them more flexibility to do that,” he said.
Three more essentials: Beyond wills and trusts, most estate planners also advise clients to include three personal documents in their estate plan.
The first is a “durable power of attorney,” which names someone to take care of your financial affairs if you become debilitated. The second is a “living will” or “advance directive,” which sets out your wishes for end-of-life medical care. The third is a “health care surrogate designation” or “health care power of attorney,” which names someone to make decisions about your ongoing medical care if you become incapacitated. It does not include directives about life support.
“These documents usually name a close family member – not only someone you trust, but someone who is capable of carrying out your wishes,” said Staples.
“If you have those five documents – a will, a trust, and the three personal documents, that’s a pretty complete estate plan, and it’s a foundation for other planning strategies as well,” he added.
Death and taxes: Taxes used to be the motivating factor for additional estate planning beyond the “big five,” said Staples, but that’s no longer the case. “The federal estate tax exemption is $5.43 million today and indexed to inflation, so a married couple can shield almost $11 million from estate taxes. Now that taxes are off the table for the vast majority of people, estate tax planning isn’t as necessary.” Those with substantial wealth may benefit from additional trusts, such as an irrevocable life insurance trust or trusts specific to charitable giving, he added.
It’s surprising what happens without an estate plan: While most people don’t need complex planning, the basics must be in place to avoid certain pitfalls. “If you don’t have an estate plan, you are what the state considers intestate. In that case, state statutes determine who gets your assets,” Staples said.
“It’s always a huge surprise to people that, in Kentucky, the surviving spouse doesn’t automatically get all of the assets,” he added. “A surviving spouse is essentially entitled to half, and then your children or their descendants get half. If you have no descendants, the other half may go to your parents. If you don’t have living parents, it will go to your siblings or their descendants. Only after you go through children, parents, and siblings does the spouse get back in the queue to get the other half of the estate.”
Also, without any direction on distribution of assets, family conflict can ensue, and often it’s not over bank account balances. “A lot of time, it’s Dad’s tools or Mom’s quilts that cause the biggest problems. It’s the emotional attachment,” Staples said. “Don’t leave it up to the family to decide ‘this is what Dad would have wanted.’ Let Dad tell them himself through an estate plan.”
Ultimately, an estate plan gives you control of your assets after you are gone, and it removes the burden from your survivors. For decades, Hilliard Lyons has worked with clients’ attorneys and tax advisors to help devise estate plans to protect clients’ assets and minimize costs to beneficiaries. Contact an estate planning specialist to ensure the future of your legacy and your family’s peace of mind.