Texas Wealth Advisors Explain: Who Needs an Estate Plan and Why
It’s never too soon to start planning for the future. What if the future arrives earlier than expected?
As a Texas wealth advisory firm for nearly 50 years, we at Linscomb & Williams know all too well what can happen if you don’t have a plan. The financial foundation that many people work so hard to build for themselves and their families can be jeopardized by insufficient planning. Once a financial emergency takes place, there’s often very little you can do to undo the damage to your property and assets. Planning beforehand is the key to securing your financial future, and estate planning is an essential element to make sure your family is protected, and that your legacy continues.
Create an Estate at Any Age
If you have any assets you want to protect, it’s important to have an estate plan. It’s a common misconception that estates are only for the ultra-wealthy.
In truth, estate planning legally mandates that a pre-determined plan automatically takes place if something happens to you. Without an estate plan, the courts will determine how your assets will be divvied up, which can take several months without any guarantee that your family’s interests will be met.
The creation of an estate will provide clear directions for your assets and identifies who will execute your plan. Everything you own will have defined instructions, including stock and bond investments, real estate, the family farm, jewelry and more.
Texas leads the nation in agricultural real estate, with 248,416 farms and ranches covering 127 million acres. Land assets like crops and cattle cannot be protected with simple beneficiary instructions alone. You need an estate plan.
An Estate Plan Protects Your Family and Your Wealth
Another common misconception of estate planning is that forming an estate exposes you to an estate tax, costing you hundreds of thousands of dollars, if not more. But this is not necessarily the case.
For 2020, the estate and gift tax exemption is $11.58 million per individual, and $23.16 million for married couples, meaning that an individual or a married couple can leave $11.58 million (or $23.16 million, if married) to heirs and pays no estate or gift tax.
Without an estate plan, your assets will undergo court-ordered probate, and your affairs will be managed by a court-appointed public administrator. Each state has its own rules. Texas probate laws do not force heirship. So, a parent’s property is not required to be bequeathed to children. But a court proceeding is often required to determine heirs or designate an administrator to carry out several duties.
A busy courthouse docket can make the probate process time-consuming and arduous, depending on the complexity of assets and the number of parties involved. Many families feel the burden of mounting costly legal fees and court costs. In some cases, the process take so long that the estate is completely depleted.
Creating your estate beforehand eliminates much of the unnecessary costs and headache of involving the courts, while ensuring that your wishes are met.
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What is IN an Estate Plan?
Estate plans can incorporate many layers, but the essentials of an estate should indicate at least two things. Simply put, your estate should dictate who your assets will go to, and who you are appointing to carry out the process.
Last Will and Testament: Your last will and testament are legal documents that designate who will receive specific assets upon your passing. The state of Texas recognizes 2 types of wills: Formal and holographic. A formal will is drafted by an attorney and requires that at least two people over the age of 14 witness the signing of the document. A holographic will can be drafted without an attorney and can be signed without a witness, though it requires further verification in court.
Power of Attorney: The role of the power of attorney is key to carrying out your estate plan. This appointed person is granted permission to act on your behalf if you are unable to make decisions and sees that your estate is executed accurately and smoothly.
Living Trust: One way to manage your estate before a family emergency is the establishment of a living trust. A trust is a legal arrangement that gives you the opportunity to place a pre-determined set of rules around specific assets, so you can earmark some or all of your wealth for a specific purpose while you’re still alive. Trusts are treated as their own entities and can also be used to avoid probate and follow very specific instructions for your beneficiaries. Estates can have many shapes and sizes, but at a minimum, they dictate who receives what, and who oversees its execution.
Review Your Estate Plan Regularly
Establishing an estate plan is a significant step forward in your wealth management. But it doesn’t stop there. As the market changes regularly, so too does your financial life. Your priorities, work-life and family needs can change, and your estate plan should follow.
An easy way to keep your estate plan up-to-date is to include an estate review with your regular financial planning review. You’ll be able to cover your full financial life and ensure your estate’s priorities are consistently aligned with your wealth management needs.
Additionally, it’s crucial to update your plan after any significant life event, such as the birth of a new child, the start of a new business, changes in federal or state laws regarding taxes, etc.
Why a Financial Advisor is Instrumental to Your Estate
While your estate plan gives you legal authority to instruct how to distribute your assets, your financial advisor is still an integral component of your legacy. Your investment management choices are determined by your goals. With an estate, you can design your portfolio to outlive you and precisely serve the needs of future generations.
For example, if you’re a middle-aged investor, but know a portion of your assets will go to your youngest son, a financial advisor can configure a percentage of your assets to specifically fit the time horizon for college tuition or other likely expenses. Planning an estate with your financial advisor gives you a full financial picture, as well as control of your assets beyond just setting beneficiaries.
A financial advisor can be the key to your wealth management and estate planning, providing the guidance you need to secure your legacy.
The Texas wealth advisors at Linscomb & Williams can help. Contact us to schedule a free, no-obligation consultation.