There are many and varied reasons to create an estate plan, some of which are listed below:
To make sure your estate is divided among beneficiaries as you wish. In the absence of a will or other estate planning document, your estate will be divided according to a formula in a statute.
To choose the person who will wind
up your affairs after your death.
If you do not appoint an executor or personal representative, any
interested person, including a creditor, can petition the court for appointment,
and the court will decide among competing petitions.
family disagreements over who will have custody of your minor children.
If you do not appoint a guardian, any relative can petition for
appointment. A court battle may
ensue if two or more relatives apply.
Under extraordinary circumstances, a court might appoint an unrelated
person to serve as guardian.
To reduce or eliminate estate taxes.
While it is a challenge to plan for transfer taxes (estate and gift taxes) at the current time because the existing tax provisions are scheduled to change, it is still important to plan and to use strategies that could reduce or eliminate those taxes. The current federal gift and estate tax is only effective until the end of 2012. The federal gift and estate tax exemption — the total amount you can pass to others tax free (besides a spouse or a charity) during life or at death — is $5.12 million. Unless Congress changes the law, the federal gift and estate tax exemption may return to $1 million on January 1, 2013, where it was in 2000, and remain at that level thereafter (with no indexing for inflation). Taxable gifts made during lifetime (above the annual exclusion) reduce this exemption. In 2012 federal gift and estate tax rate is 35% applied on the first dollar above the federal gift and estate tax exemption. If Congress does not act, the top federal gift and estate tax rate will be 55% in 2013. The State of Washington also has an estate tax with rates ranging from 10% to 19% for all state residents on assets over the $2 million exemption. There is no Washington gift tax, which means it may be better to give assets away during life than at death.
To avoid a public probate
proceeding. If you
wish to avoid having your will become a public record in a court file, you can
use a revocable living trust as your primary estate planning document.
To plan for the management of your
affairs in the event you become incapacitated.
A document called “durable power of attorney” will allow you to appoint a
trusted relative or friend to manage your financial affairs and make important
health care decisions if you are unable to do so.
To plan for end-of-life and other medical decisions.
An estate plan typically includes the preparation of a Health Care Power
of Attorney and a Directive to Physicians.
These documents direct your treatment or appoint another person to act
for you if you are incapacitated.
These documents also deal with access to your medical records under a law known