The Beginner’s Guide to Estate Planning for Young Families in Cary, NC

estate planningThis past week, I attended several networking meetings. When I told people that I was an estate planning attorney for young families in Cary, I was absolutely blown away at how many people really didn’t understand what estate planning is, or the benefits and peace-of-mind that a carefully thought out estate plan can bring to you and your family. Having a complete and thorough estate plan in place is an amazing gift to your family and children.

Unfortunately, most people think that estate planning is simply drafting up some legal documents, such as a will or a trust, throwing those documents in a drawer or file cabinet, and checking “estate planning” off the list of things that they have to do. Nevermind that those documents you just finished up are stale from the moment you signed them.

In that sense, estate planning is kind of like buying a new car. While a car loses value from the moment you drive it off the lot, your estate planning documents will require changes and updates as your life changes. And after a few years, just as you are ready to turn in your car for a new one, you may need to change and update your estate plan.

So that may help you to understand how an estate plan can change over time, but it still begs the question… “What is estate planning?”

Well, for starters, estate planning is a whole lot more than buying a car. The decisions you will make are much more important than color and whether you should have power windows or not.

Depending on your personal circumstances, estate planning can mean different things to different people. But the bottom line is this… everyone has an estate. And everyone is going to die someday. So… you need to have an estate plan.

Let’s start with the basics.

What is an estate?

Your estate is composed of everything you own, including your car, home, bank accounts, furniture and all of your personal property (i.e. jewelry, tools, camping gear, etc.). Your estate will also include your retirement accounts and life insurance.

Estate planning is the process of making a plan that distributes your estate to the people and organizations that you want to receive those assets after you die. In other words, putting together a set of written instructions that dictates who will receive the assets in your estate after you die, what they will receive, and when they will receive them.

This is what most people envision when they think of estate planning. They envision sitting down with a lawyer, telling the lawyer who will receive all of their “stuff”, and the lawyer drafts up a will that they will come back and sign. It’s no wonder that so many people turn to online services to get this done.

I wish that estate planning where that simple. But it’s not…

Estate Planning is much more than just dividing up your Assets

There is so much more to estate planning than just dividing up your “stuff”. When you meet with a lawyer to design an estate plan, they will (should) help you:

  • Decided how to pass along your intellectual property, including your values, stories, ethics, etc. This is frequently referred to as “legacy planning”. Be aware that many lawyers ignore this very important part of the estate planning process.
  • Set down written instructions for what should happen if you become disabled or incapacitated.
  • Name temporary and permanent guardians for your children in the event of your death or incapacity.
  • Protect your children’s inheritance from their own creditors or divorce.
  • Put in place the proper insurance to provide for your family if you die, become temporarily disabled, or have an extended illness or injury.
  • Map out a strategy to minimize taxes, court costs, and legal fees when the time comes to implement your plan.

And this is the tip of the iceberg. It’s no wonder you need an estate planning lawyer to help you navigate it all and make these decisions!

Who Should Do Estate Planning in North Carolina?

One of the biggest mistakes many people make is thinking that estate planning is only for old people or people with millions of dollars. This is simply not true.

As I mentioned at the beginning of this article, here at The Hart Law Firm we focus mainly on helping young families with minor children. We think it is vitally important that young families put a plan in place to protect their children in the event something were to happen to one or both of their parents. But this is just one subgroup of all the other people who will need estate planning.

Honestly? Everyone needs an estate plan. If you are reading this, YOU need an estate plan.

And while everyone needs an estate plan, we strongly urge the following types of people to get working on their estate plan right away:

  • People who have minor children;
  • People who own real estate; or,
  • People who have $100,000 or more of investable assets outside of their personal residence.

What If You Fail to Plan?

It’s unfortunate but true. There is still a large segment of the population that desperately needs an estate plan, but refuses to spend the time or money to go and see a lawyer. To those of you in this situation, I urge you to pick up the phone and call an estate planning lawyer immediately.

Here’s a quick rundown on what will happen to you and your heirs if you should die or become incapacitated and you haven’t prepared an estate plan.

If you die without a will in North Carolina

Every state has a default plan for people who fail to do their own estate planning. They are called “intestate laws”. If someone dies without a will, they are said to have died intestate.

In these situations, someone would step forward and file a probate case for the estate of the deceased (also called the “decedent”). They would let the court know that the decedent died without a will. Accordingly, the court would appoint a personal representative of the estate, who would likely be required to post a bond.

The personal representative would then begin the process of trying to find out what the decedent’s assets were, what needs to be accounted for and what should be distributed according to the intestate laws of the decedent’s state.

In North Carolina, how your property is distributed depends on whether you were married, for how long you were married, and how many heirs (i.e. children) you have. If you have a spouse but no children, your spouse gets everything. If you have children, but no spouse, then your children get everything. And if you leave behind a spouse AND children, then they will split up the probate property. The more children you have, the smaller the share for your surviving spouse.

Also, keep in mind that if you leave money to minor children, either through intestate laws or by naming them as beneficiaries on your retirement accounts or life insurance, then the court will oversee those assets until you children turn 18. The court will appoint a guardian to manage those funds on your children’s behalf.

In addition, if you leave behind minor children without an estate plan that names emergency guardians, your kids will be taken into protective custody until a suitable guardian has been named. Because you didn’t plan, you would not have any input into who this person would be.

If you become disabled without an estate plan

Many people think that estate planning is only for planning what will happen if you die. The fact is, it can be much harder for your family if you become incapacitated without a plan in place.

For example, say that you own a joint house and joint bank accounts with your spouse. If you become incapacitated with no estate planning, you cannot sign off on any transactions that involve your house of your bank accounts. That means your spouse can’t cash that joint tax refund you just received, and you can’t sell or take out a second mortgage on the house, even if you needed those funds to care for your disabled spouse.

This is because you can only transfer titled property with a signature or a court order. If you become incapacitated, your spouse can’t get your signature, so he or she is forced to file an expensive, public, and time-consuming guardianship proceeding to get the court’s permission to manage those assets.

Other benefits to proper estate planning:

So as mentioned above, the clear benefits of proper estate planning are that you will control your estate after you die or become incapacitated. You can name the guardians for your children. You can provide your spouse with a mechanism to sell or encumber the marital home if he/she needs the money to pay for your care.

Here are some other benefits to estate planning:

  • You can keep your assets out of the court system
  • Estate planning forces you to get your financial house in order and organize all of your relevant financial information into one single file so that your family will have access to it when they need it
  • It provides you with the “peace of mind” that you have made all the important decisions about how your loved ones will be taken care of if something were to happen to you
  • It protects your assets from your children until they are old enough and mature enough to manage their inheritance on their own
  • Estate planning allows you to keep your affairs private and out of the public record
  • It allows you to name a guardian for your pets, thus providing them with a loving home so that they don’t end up at the pound or animal shelter
  • It allows you to appoint someone you know and trust to make health care decisions for you if you become incapacitated and are unable to make your health-related decisions on your own

What are the Elements of an Effective NC Estate Plan?

So we have talked at length about what an estate plan is, who should prepare an estate plan, and what happens if you die or become incapacitated without an estate plan in place. Now let’s discuss what a typical estate plan looks like.

Your Will

When most people think of an estate plan, they think, “I need a will”. A will is just one component of an effective estate plan. A will is a document that provides a set of written instructions to the Probate Court for how you want your property divided.

If you have a will in place, you will not avoid the probate process. Any assets that are titled in your sole name must go through the probate process before they can be passed on to your heirs. The will is just the written instructions that tell the probate judge how to divide up your assets.

Some states are probate friendly, while others are not. North Carolina is middle of the road. The probate process in North Carolina can be expensive, time-consuming, and is open to the public.

Generally speaking, any asset that is titled in your sole name will have to pass through the probate process. This includes real estate, bank accounts, cars, etc. Some assets can avoid going through probate, including:

  • Jointly owned property or bank accounts (think Joint tenancy accounts);
  • Bank accounts with a beneficiary designation (payable on death or terminates on death); and,
  • Retirement accounts and life insurance that names a beneficiary

However, if you forget to name a beneficiary, or if you name a minor as a beneficiary (as many people do for life insurance and retirement assets), then some of these assets may still end up in probate. Furthermore, if you name a minor as beneficiary, then the court is likely to insist on a guardianship to manage those funds until the minor child turns 18.

A Revocable Living Trust

A revocable living trust is a tremendous estate planning tool for individuals and families that want to avoid probate, while at the same time maintaining control of their assets and keeping their affairs private.

A trust is basically a contract between a trustee and a grantor to manage property for a beneficiary. While you are alive, you play all three roles. If something happens to you (either you die or become incapacitated), the trust will have a set of instructions for who should step in to manage your estate as a “successor trustee”.

One of the main benefits of a trust-based estate plan is that your assets will remain in your trust long after you die or become disabled. Your assets will either stay in your trust or be distributed into one or more new trusts for the benefit of your heirs.

In addition, if you have a spouse, they can step in and take control of your assets without having to request permission from the court. Not only will this save them time, but it can also save your family thousands of dollars.

Other Legal Documents You May Need

I put together another detailed article on North Carolina estate planning. You may want to review it here. It contains a list of 5 additional documents that every estate plan needs.

Is Estate Planning Expensive?

Whether or not you consider estate planning expensive depends on your perspective. Certainly, spending several thousands of dollars to hire a lawyer and put together an estate plan may seem expensive. But if you compare that cost to the peace of mind you will immediately obtain after you sign those documents, as well as the amount of money your family will save in legal fees if they have to probate your estate or file a guardianship for you, then the cost of planning quickly turns into a bargain.

For example, if your assets that have to go through probate, and you have a modest, $300,000 estate, then you are looking at costs of roughly 5%, or $15,000 to probate that estate. If you have minor children, the cost to set up a guardianship through the courts will further drive up the legal fees.

And imagine what would happen if you became incapacitated and your spouse could not access your assets – what would this cost your family? Your spouse would have to hire a lawyer to file a guardianship at a tremendous expense, not to mention that your spouse may be prevented from selling any assets (such as the marital home) without a court order.

If your spouse could not afford to keep the marital home or needed equity from the home to pay for your care, then this becomes a big problem… which is quickly alleviated by doing some basic estate planning.

When is the best time to plan your estate?

The best time to plan your estate is today. Nobody thinks that they are ever going to die or become incapacitated, but unfortunately, we will all die someday. If you have children or a spouse and you haven’t prepared your estate plan, you are quite literally, playing with fire.

Leaving your heirs without an estate plan in place could have a devastating effect on your family. On the flip side, by leaving your loved ones with a well thought out and organized estate plan, you are leaving them with an amazing gift that can set your spouse and your children up for years to come.

If you have questions, you may fill out our contact form or simply call our office at (919) 460-5422. We work with young families in the Triangle Region of North Carolina, including Wake, Orange, and Durham Counties. Our office is conveniently located in Cary, North Carolina, an easy drive to Raleigh, Chapel Hill, Durham, and RTP.

North Carolina Estate Planning for Young Families… What you need to know

estate planning for young familiesLike most people, I didn’t give estate planning much thought until my Wife and I got married and started to pop out some babies. And I’m a lawyer! Shame on me… But in North Carolina, estate planning for young families is a hot topic right now because of all the people moving to the area.

But in all seriousness, how do you know if you should have an estate plan? Many lawyers will say that everyone needs an estate plan, but that is not necessarily the case. In my experience, I’ve found that you really need to fall into one of the following three types of people to make estate planning valuable to you.

You must have children, you must have money, or you must own a home. If you don’t have any of these things, then you may not need a full-blown estate plan. Some simple documents (as outlined at the bottom of this article) will probably do the trick for you.

But let’s assume you do have kids, money or a home. Then what do you need to know about estate planning in Cary, North Carolina?

In this brief article, we are going to go over the basics of estate planning for young families specifically, what you need to do to protect your children, some basic information about wills and the probate process, a little more information about trusts, why you probably don’t need to worry about estate taxes, and finally, the 5 documents that you absolutely, positively, must have in place, even if you don’t have a full-blown estate plan.

Sound good? Let’s get started.

North Carolina Estate Planning for Young Families

I like to think of estate planning as a set of instructions that you will leave behind for your loved ones to follow in the event you are no longer able to manage your own affairs, either because you are incapacitated or have died.

Estate planning is especially important for families with young children. Consider for example what would happen to your kids if you and your spouse went out on a date night and never came home. What would your babysitter do if they couldn’t reach you?

Have you left them instructions on who to call?

Do you have instructions in your wallet/purse, in your car, or on your phone for the police?

Do you know who will take care of your children on an emergency basis? What about their long-term guardians?

Nobody likes to think about these things, but they are very real considerations for every young family to think about.

If you don’t make decisions about what you would want to happen to your children, then they could be taken into foster care through child protective services. Your family would have to go through a long and potentially expensive guardianship process, and a judge that you don’t know, who has never met you, would decide where your children would live.

You don’t want that, do you?

Your First Priority… The Children

estate planning for kidsSo your first priority has to be your children. Many lawyers believe that they can just add some guardianship provisions to a will and you are all set. But estate planning for young families carries with it some special considerations.

I believe that some boilerplate guardianship clauses are not nearly enough protection for my clients. I want my clients to be able to rest easy knowing that their children will be properly cared for with the people THEY have chosen to be the emergency guardians.

How do we do this? By drafting up some temporary guardianship paperwork that will instruct the police, were something to happen to you, with whom your children should be placed in the temporary custody and care of.

This paperwork is sent to the temporary guardians we have chosen, along with care instructions and medical releases so that they have everything they need to keep your children safe in the unlikely event that something terrible were to happen to you.

In addition, we provide our clients with the phone numbers of all temporary guardians in laminated cards that they can place in their wallets and purses. Copies of all this information is of course placed in a conspicuous spot at your home for the babysitter to have immediate access to she he or she need it.

What You need to Know About NC Wills and Probate

Probate is the process by which a court (in North Carolina the Clerk of Court is the “judge” for this process) overseas the division of your assets and insures that all your creditors are paid.

Some states are probate “friendly” while other states are not. North Carolina is somewhere in between. If you have little in the form of assets and do not own a home, the probate process would be relatively painless if something were to happen to you.

For that reason, the default estate plan for many people with very minimal assets and no real estate is called a “will-based” plan.

Your will would be submitted to the court, and the Clerk would oversee the administration of your estate. Your will would name a personal representative or executor who would report back to the court on the status of any required payments or transfers.

There is a cost, in both time and money, to probate an estate in North Carolina. This cost typically increases the more complicated and valuable your estate is. In addition, the probate process is public, so the whole world can see what you own and the people you owe money to.

There are a number of ways to avoid the probate process. I discussed some of these in this video discussing transfer on death designations, but be careful, these techniques may or may not be appropriate for your situation.

Does Your Estate Plan Need a Trust?

This leads me to a discussion of one of the best vehicles for estate planning for young families, the trust. A trust is nothing more than a contract between a grantor and a trustee to manage property for the benefit of a beneficiary.

The most commonly used trust is a revocable living trust. With this trust, you (or your spouse, or both of you jointly) will play all three roles. You are the grantor, the trustee, and the beneficiary.

If something were to happen to either one or both of you, then the trust provides for instructions on what is to happen with the money in the trust. By doing this, you can keep all of your trust assets out of the probate process.

This is also a great way to provide for your children if something should happen to you. Make note that you should NEVER leave money or property to your minor children outside of a trust. If you do, then the court would be forced to appoint a guardian to manage those funds and provide reports and accounting back to the court. As you can imagine, this is expensive and does not always fulfill your wishes.

If you are interested in learning more about trusts and whether they may be appropriate for your situation, you can contact our office at (919) 460-5422 to conduct a wealth planning session and learn about all of your options.

Why Estate Taxes are Largely Irrelevant to Most Cary Families

As of 2016, there is a Federal Estate tax exemption of $5.45 million. That means that the first $5.45 million of your assets will pass to your heirs estate tax-free. In addition, there is no estate tax in North Carolina.

For those reasons, many young families do not need to concern themselves with planning for estate taxes.

5 Documents You MUST Have in Place ASAP, Even if You Don’t Do Anything Else

If you have read through this article and realize that you probably don’t need a full-blown estate plan, that’s fine. But chances are that you will need a combination of some of the following documents regardless.

  1. Temporary (Emergency) Guardian Paperwork – This is a set of documents that will give legal authority to an emergency guardian for your children. When doing estate planning for young families, this becomes the single most important information we provide. We typically also recommend that you include a set of care instructions for your children, as well as laminated contact cards to carry in your wallet. The entire point of this paperwork is to make sure your children are properly cared for by a guardian of your choosing until the permanent guardian you selected can take custody of them, thereby avoiding having them taken into protective custody if something were to happen to both you and your spouse.
  2. Durable Power of Attorney – This is a document that appoints someone to make financial decisions on your behalf and becomes effective immediately. It will remain in effect, even if you become incompetent (i.e. think coma), but will expire when you die.
  3. Health Care Power of Attorney – This is a document that appoints someone to make your health decisions in the event that you are incapable of making your own health-related decisions. You can authorize organ donation and spell out when it will become effective – typically when a physician deems you are unable to make decisions on your own.
  4. Living Will – Also called an “advanced directive”, this is a document that spells out what you want to happen to you in the event that you are being kept alive on life support. You can decide whether you want your health care power of attorney to make these decisions or whether you would prefer that your living will override your health care power of attorney.
  5. HIPAA Authorization (for both you and your children) – This authorizes your health care provider to disclose your protected health information to anyone that you specify. It is important that you have a HIPAA authorization for both you and your spouse, as well as for your children so that their health care providers can share information with your selected guardians.

If you have questions about any of this information, or would just like to schedule a legacy planning session with an estate planning attorney at our office, please feel free to give us a call at (919) 460-5422 to set something up.