Estate planning in AL is the most critical thing you can do as you move through life and begin to acquire assets and build wealth. Not only does it something that will protect said assets and wealth, but it’ll also protect your loved ones in various ways when and if the time comes.

However, it’s not enough to simply have an ‘estate plan. You .need to have a good estate plan in place, meaning that it must be comprehensive and go beyond the basic wills and trusts that most people assume they need to set up.  

In this article, we’ll tell you all about what it means to have a good estate plan. Keep reading to learn more.

The Importance of Having a Good Estate Plan

To understand the importance of a good estate plan, you must first understand what it means to have an estate plan. Estate planning is an entire process of designating your assets to specific beneficiaries during your death or even mental incapacitation. Your assets are essentially everything you’ve acquired over time that holds value, such as your home, car, artwork, retirement account, investment accounts, and so on. 

Estate plans are typically (and very much encouraged to be) drafted with the help of a Huntsville attorney. What’s more, the goal isn’t just to ensure that your heirs receive your things. It also ensures that your entire estate is managed appropriately to reduce tax implications. All of the assets you acquire and the value they hold come together to form your overall net worth, and the greater your net worth, the more will come out of your estate.

Fortunately, the state government of Alabama does not impose an estate tax. However, the federal government does — and that’s enough to plan your estate as effectively as possible. 

Of course, taxes won’t be the only potential issue. In fact, minimizing taxes is the least of your worries, despite how much it can take away from your estate and family in the end. A poorly planned estate can lead to the loss of virtually all the value you’ve amassed over the years. For example, it could leave your estate wide open to creditors, and other liens — even past legal matters can crop up, looking for what they feel is owed to them.

A poor estate plan could also mean that your minor children are left without a proper guardian or that the spouse you leave behind doesn’t receive the necessary financial support needed to care for your young children. It could also mean that the loved ones you leave behind get stuck dealing with the probate court, which could take anywhere from six to nine months or even longer. It’s also a costly process that ties up your assets until its conclusion.

If you pass away without so much as a last will — known as dying intestate — your entire estate will be left up to the Alabama Intestate Succession laws. Put simply, this means that the probate court will be responsible for combing through your assets, settling any debts, appointing a guardian for your children, and distributing what’s left according to the succession laws.

The Components of a Good Estate Plan

Now that you know what a poorly planned estate plan can lead let’s discuss what you need to create a good estate plan. While the following list may seem simple enough, your Huntsville attorney will assure you that there’s much to consider when drafting each component involved. 

Here’s a quick rundown of what makes for a good estate plan:

A Last Will and Testament

A last will is a legally binding document that outlines your specific wishes regarding who will receive the assets within your estate upon your death. It’s the basic yet one of the most important components of a good estate plan because it’s used to designate a guardian for minor children, how you want certain assets distributed, and plans for your funeral.

Keep in mind wills can be contested in probate court. They’re also a matter of public record, meaning any assets left in your will can be subject to the public, creditors, and other liens. That’s why the next component listed is arguably even more important.

Living Trusts

A living trust is another legal document — or a fiduciary arrangement — for more specific asset allocation. Essentially, when you create a trust, you funnel specific assets into it (this could be a small business, money, cars, or other assets) and name a beneficiary who will receive these assets at a certain date. Living trusts can be either revocable or irrevocable, meaning that you can maintain ownership over the assets within them or completely relinquish your legal ownership.

Irrevocable living trusts are among the most popular type of trust. This is because once an irrevocable living trust is set into motion, the assets officially become the legal property of the named beneficiary. This means that no one can legally touch those assets except the beneficiary, which keeps them safe from creditors and other liens.

Trusts also do three important things: They keep your assets private, they keep your assets out of probate court, and they minimize the overall value of the estate — which minimizes taxes and other associated costs in the end.

A Power of Attorney

Appointing a power of attorney or powers of attorney (POAs) is a key component of a good estate plan. Your power of attorney is the person you appoint as your attorney-in-fact. In other words, it’s an individual you put in charge of your financial affairs, business, and medical care in the event that you become mentally incapacitated. 

Ideally, you’d appoint a different person for all three things and more separately. But, more importantly, it would have to be an individual you can trust for each affair to act in your best interest and represent you. 

There’s a lot to learn about POAs, what they do and how many responsibilities to give them. Your Huntsville attorney will guide you through all the dos and don’ts of appointing these individuals.

Medical Directives

Your medical directives are incredibly important as they involve making specific medical decisions about your life and health care in the event there’s an accident or other health event that leaves you mentally incapacitated. This document typically includes healthcare-related documents, including:

• A healthcare proxy (which is the individual who will make medical decisions on your behalf along with your medical team)

• A living will (this document will be used to provide your healthcare provider with information regarding how you feel about life support if you end up in a vegetative state)

• Medical instructions (to help your healthcare proxy make said medical decisions)

• A durable power of attorney (who will handle your financial affairs and business affairs)

Keep in mind that the person you choose as your healthcare proxy should be someone you can trust to act in your best interest. Additionally, they must clearly understand what your wishes are regarding a variety of healthcare topics and be able to make the tough decisions according to your medical instructions if necessary.

Beneficiary Designations

Beneficiary designations are often overlooked; however, they’re an incredibly important piece of the estate planning puzzle. They’re especially important if you have life insurance, retirement accounts, investment accounts, and more. It’s also important that you keep them up to date throughout your life as things change and as you update your estate plans. (Yes, you must continuously update your estate plans to reflect your current situation, acquired assets, dependents, and more).

A beneficiary designation is simply a named beneficiary listed on these accounts. They also directly affect how certain assets are distributed because if you don’t name beneficiaries, then the assets within these accounts will end up being the responsibility of the state to distribute. 

Additionally, some accounts or plans automatically distribute assets to your surviving spouse and children or your estate. This could actually come with some serious tax consequences that you don’t want your loved ones to have to deal with. That’s why it’s beyond important to name a beneficiary on each account you have.

Things to Think About When Drafting Your Estate Plan

By now, you’re realizing just how much is involved in creating a good estate plan. There are a lot of things to consider beyond who will get certain assets, which is why you need to think about the following when drafting your estate plan in Huntsville, AL:

Your Tangible and Intangible Assets

If you think you don’t have ‘enough assets’ to justify a solid estate plan, think again — because you’re going to need to take an inventory of all the tangible and intangible assets you have that contributes to your overall net worth. 

Tangible assets are the physical assets you own, such as the following:

• Your home, vacation home, land, or other real estate

• Your vehicles — cars, motorcycles, boats, etc.

• Collectibles, such as artwork, antiques, or anything else of value

• Your other personal possessions, including family heirlooms, furniture, and anything else that can be sold

Intangible assets are valuable assets that aren’t necessarily physical, such as the following:

• Your checking and savings account and any certificates of deposit you own

• Stocks, bonds, and mutual funds (your entire investment portfolio)

• Your life insurance policies

• Your retirement accounts, such as your 401(k) and any other individual accounts

• Your health savings account (if you have one)

• Your ownership or partnership in a business

Once you take an inventory of your assets, you’ll have to estimate their value. You’ll likely need to use outside valuations, such as recent appraisals on your home and financial statements. Once you come up with a total value, you’ll have your net worth and will be able to determine any taxes and fees that would occur later on.

Your Family’s Needs

Once you have an idea of what’s in your estate, you’ll need to think about how you can protect those assets to better protect your family. This also means considering their needs regarding their current lifestyle and living situation —and their futures. The most important thing is to ensure that they can continue living according to what they’re used to and will have the financial support and other means to not only survive but thrive as time moves on.

Here are the most important things to keep in mind:

• Make sure you have ample life insurance. The amount of life insurance you need depends on several factors, but it’s especially important if you have a child with special needs or incoming college tuition bills.

• Make sure you’ve named a guardian in your will for your minor children. You’ll also want to revisit your decision frequently and name a backup guardian just in case.

• Make sure your wishes for your children’s care are well documented. This is part of your considerations for guardianship, and you want to ensure that whoever you choose to care for your children will continue raising them how you want them raised. 

• Make sure your debts are covered. The last thing you want is for your surviving spouse and children to have to sell their family home to cover any unsettled debts you’ve left behind.

Your Health

Remember, estate planning isn’t just planning for an untimely end. It’s also important to plan for potential health events that can take place in the future. To comprehensively plan your estate, you’ll need to consider your health.

In other words, what does your family’s health history look like? If certain diseases or illnesses run in the family, you’ll want to plan for those events — especially if they can leave you mentally or physically incapacitated or put you in an early grave. 

Aside from ensuring your medical directives and other POAs are set up properly, you’ll also want to make sure you can fund the healthcare you may need in the future. This could mean creating a living trust meant to fund the healthcare in addition to your health insurance coverage. It could also mean creating living trusts to protect certain assets from medical debts and liens that can occur if you don’t have the proper funding for your healthcare needs. 

Don’t Forget Your Huntsville Attorney

There is so much to consider when it comes to creating a good estate plan. There are a lot of things you may not even realize you need to know. That’s where your Huntsville attorney comes in.

Working with an attorney for your estate planning in Huntsville, AL, is the most important thing you can do. This is because they will ensure that your estate plan has everything it needs and can guide you through the entire process, as well as offer you guidance and advice when it comes to making tough decisions.

Let us help you create a comprehensive estate plan so you can have the peace of mind you need to enjoy your family and your assets. Contact us today to schedule a consultation with Sarah S. Shepard or another experienced Huntsville attorney to get your estate plan where it needs to be.