With all that we are already doing every day, it is sometimes difficult to remember that we also need to take care of our family in the future, through estate planning. It is not something that any one of us wants to think about, as we cannot imagine not being there for our families. However, providing direction in the event of our incapacity or death leaves our families in the best possible situation under unfortunate circumstances.
What Should You Consider for Your Estate Planning?
Estate Planning Documents. The most basic estate plan should include a Will, durable power of attorney, and health care directive. A Will generally provides for the distribution of your assets upon your passing and also appoints a person to administer your estate. Importantly, you name a guardian for your children in your Will and might include trust terms for any assets held in trust for your children. A durable power of attorney is essential to ensure that, should you become incapacitated, your spouse or others you named will have authority, as your designated attorney-in-fact, to make financial and medical decisions for you. Finally, a health care directive provides specific instructions to your physicians concerning life support. While there are other documents that might be appropriate for you, such as a revocable living trust, these should be discussed with your professional advisor.
Where Should You Begin?
Naming a Guardian for Your Minor Children. One of the hardest decisions in estate planning might be deciding who can take care of your children in the event you and your spouse are unable to. However, it is one of the most important decisions and must be done through your durable power of attorney (in the event of your incapacity) and Will (in the event of your death). Otherwise, you are leaving it to the courts to decide who should be taking care of your children. When choosing a guardian or guardians, you will want to consider their age, where they live, whether they have other children, their activities, and their current relationship with your children, as well as other characteristics and circumstances that are personal to you and your family. We know that no one can take care of our children as well as we can, but by naming a guardian or guardians to be appointed, we are ensuring the next best choice.
Naming Other Representatives. Careful consideration should be taken when naming personal representatives and trustees through your Will or trust documents, as well as attorneys-in-fact in your durable power of attorney. There are many factors to consider when choosing your representatives. First, you should trust your representative to perform his or her duties with your best interests or the best interests of the beneficiaries in mind. Second, your representative should be organized and capable of managing assets, paying bills, and providing accurate reporting. While expertise in financial or legal matters is not required, it might be helpful. Finally, your representative should be available, which means having the time and being in close proximity. While you can choose a spouse, family member, or friend to serve in any of these representative roles, remember that there are professional fiduciaries that could be appointed as well. Your choice of named representatives should be revisited from time to time to make sure they are still appropriate, taking into consideration the type of assets in your estate, potential beneficiaries, and the overall role expected.
Review Your Current Estate Plan. As you have more children, or as your children grow older, the direction that you want to provide for them will likely change. If your children are minors, you will likely want a trust to hold assets until they reach certain ages. A trust might include various guidelines and/or incentive provisions relating to distributions for the benefit of your children. There might also be reasons to use different types of trusts. In addition, if you have experienced significant changes in your family, you should make sure the appropriate family members are named and taken care of consistent with your plan. Finally, if your financial circumstances have changed considerably, adjustments might be required for formulas, set amounts, or specific bequests in your Will, and various tools or gift plans. Changes in the law might also require updates to your Will.
Portability. In 2025, each individual has a $13,990,000 federal estate tax exemption. With spousal portability, if the first spouse to die does not use his or her estate tax exemption, it is transferred (ported) to the surviving spouse so that any unused exemption can be used at the surviving spouse’s death. Portability can be helpful when a married person dies intestate, an estate is left outright to a surviving spouse, or there is unequal asset ownership. It can also be a useful capital gains and income tax planning tool and can allow individuals to take better advantage of trusts. Spousal portability is just one of many considerations in your estate planning. However, an important note is that we do not have spousal portability for the state estate tax. In the State of Washington, the estate tax exemption is only $2,193,000 per person. While this might seem high enough per person, it can be easily exceeded when adding in life insurance policy proceeds or when one spouse leaves everything outright to the surviving spouse without using their exemption. Since Washington does not have portability, if an individual does not use his or her exemption it is lost and the surviving spouse has the entire estate with the benefit of only one exemption. Through proper planning with trust formulas in your estate planning documents, this issue can be avoided.
Review the Titling of Assets and Beneficiary Designations. It is also important to review the titling of your assets and beneficiary designations. Based upon the intent of your Will, all or a large portion of your estate assets might need to be available to fully fund trusts or provide for specific bequests. However, non-probate assets pass outside of your Will, even though these assets are still included in your estate for estate tax purposes. Non-probate assets include assets held as joint tenants with rights of survivorship, payable-on-death accounts, life insurance, and retirement plans. If you are relying on any of these assets to be available to fund a testamentary trust, then accounts or property should be held as community property or tenants in common. Moreover, depending on the direction of your Will, beneficiary designations should name the trust itself or provide for a disclaimer into the trust. Finally, if your children are minors and you want to name them as beneficiaries, special care needs to be taken to ensure that you are protecting the assets and maximizing the benefit to them.
Name a Charity as a Beneficiary. If you have charitable goals as part of your estate plan, naming a charity as the beneficiary of your traditional IRA or retirement plan can be compelling. When you name your spouse, children, or others as beneficiaries, the full value of your traditional IRA or retirement plan will be part of your taxable estate. In addition, the beneficiary will be subject to income tax on the distributions received. In contrast, if you name a qualified tax exempt charity as your beneficiary, your traditional IRA or retirement plan will not be subject to estate tax as your estate will receive a charitable deduction. Moreover, the charity will not have to pay any income tax on the funds received. If you are including charities in your estate plan, you should consider if this is the right choice for you.
Succession Planning for the Business Owner. Finally, if you are a business owner, a succession plan is necessary to protect your family, as well as preserve what you have worked hard to build. A succession plan will guide the business based upon the current ownership, management, and overall plan. A succession plan can also provide for the management of your business, ensuring that your business will continue to operate in the event of your incapacity or death. A succession plan can be a means of transferring the business to employees or family members and can be structured as a sale or as a gift. In order to implement a plan, it is important to identify your goals, consider the goals of family, other owners or key employees, review the management of the business, explore various options of succession, and ultimately design the plan. We all want the peace of mind that comes with a finished, thorough estate plan. The information identified above can help ensure your family is in the best possible situation in the future, so that you can continue to take care of your family today.
If you have questions about estate planning, including creating or updating your will, selecting guardians for your children, or reviewing beneficiary designations, please contact any member of our Estate Planning & Probate group.
