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An In-depth Look at Estate Planning, Its Components, and Why Every Responsible Adult Should Create an Estate Plan

WHAT IS Estate Planning?

PAUL A. KRAFT Indiana Estate Planning Attorney What Is Estate Planning?

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Far too many people go through life without thinking about the eventualities of aging and the inevitability of death. It is important to prepare yourself for the future, and estate planning is part of this process. At its core estate planning is a careful, measured effort to make sure that your assets are transferred to your heirs in an efficient manner. However, a comprehensive estate plan will also address contingencies that you may face during the latter portion of your life.

Let's look at some of the components of the typical estate plan.

LAST WILL OR LAST WILL AND TESTAMENT The most commonly utilized estate planning instrument is the last will or last will and testament. With this document you state your wishes with regard to the distribution of your property after your passing.

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When you use a last will to distribute property you should consider the postmortem aspect. Someone has to actually take care of the administration of the estate. This person is called the executor or personal representative. You name your choice of executor when you create your will. In addition to the appointment of an executor, you can also name a guardian for any dependent children that you may have in your last will.

PROBATE Some people are under the impression that the executor acts independently without oversight using the will as a guide. In fact, the executor must admit the will to probate. The probate court supervises the administration of the estate. Probate provides creditors with an opportunity to come forward seeking payment. Final taxes would be paid during the probate process as well. Though will challenges are relatively rare, it is possible to challenge the validity of a last will. If you wanted to challenge a will you would present your argument before the probate court. The assets that comprise the estate are inventoried by the executor during probate. Liquidations may be necessary, and this can involve the engagement of appraisers. The executor will generally retain a probate attorney, and a tax account is often necessary as well.

PROBATE AVOIDANCE There are some negatives that come along with the process of probate. As mentioned above, the executor is probably going to retain the services of various professionals. They are all going to charge for their services, and these payments will come out of the estate.

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There are court costs that must be paid, and the executor is entitled to payment for his or her time and expertise. Other miscellaneous expenses can arise during probate as well. Anything that is spent during the probate process is money that could have otherwise been distributed among the heirs to the estate. The time that it takes for probate to run its course is another negative. The exact duration of probate will vary depending on the complexity of the case in question. At minimum it is going to take months, and it can take multiple years in some cases. For example, the highly publicized Anna Nicole Smith versus the Marshall family case was unresolved for some 15 years. It is possible to arrange for asset transfers that would take place outside of the probate process.

REVOCABLE LIVING TRUSTS A very commonly utilized probate avoidance tool is the revocable living trust. With these trusts you name a beneficiary and a trustee. After you pass away, the trustee distributes assets to the beneficiary or beneficiaries. The trustee is guided by the terms of the trust agreement that you include when you create the trust. The distributions of assets to beneficiaries take place outside of the probate process.

INCAPACITY PLANNING A comprehensive estate plan should certainly include an incapacity component. Advance directives for health care would be part of the incapacity plan. One of these is a living will. A living will is used to state your preferences regarding the

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use of life-support measures like ventilators and artificial nutrition. Another advance directive for health care that is typically utilized is a durable power of attorney for health care or health care proxy. With this document you appoint an agent who is empowered to make medical decisions in your behalf if you become incapacitated. For financial decision-making you could include a durable financial power of attorney.

ADVANCED ESTATE PLANNING There are advanced estate planning techniques that are sometimes implemented under certain circumstances. One of these circumstances would be the existence of estate tax exposure. The federal estate tax carries a 40 percent maximum rate. The amount of the federal estate tax exclusion is $5.25 million in 2013. If you are exposed to the tax you must implement estate tax efficiency strategies when you are planning your estate. Advanced estate planning strategies are also implemented to protect assets; to provide for people with special needs; to give to charitable causes; and to provide inheritances that cannot he squandered quickly.

CONCLUSION Estate planning is a must for all responsible adults. There is no one-size-fits-all estate plan. The optimal way to proceed is going to vary on a case-by-case basis. With this in mind, the intelligent first step is to discuss your unique What Is Estate Planning?

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situation with a licensed Indianapolis estate planning attorney.

REFERENCES Forbes http://www.forbes.com/sites/janetnovack/2012/10/14/the-forbes-guide-toestate-planning/ American Bar Association http://www.americanbar.org/groups/real_property_trust_estate/resources/estat e_planning.html

What Is Estate Planning?

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About the Author Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning. Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work. In addition to his practice, Mr. Kraft has lectured extensively in the areas of living trust planning, Medicaid planning, and presenting public and private seminars on the importance of proper estate planning. He has also authored various articles on estate planning and is a contributing author of LEGACY: Plan, Protect, and Preserve Your Estate–Practical Answers from America’s Foremost Estate Planning Attorneys. Mr. Kraft is a co-founder of the Indiana Network of Estate Planning Professionals, a charter member of the American Academy of Estate Planning Attorneys and a founding member of the National Network of Estate Planning Attorneys. He is also a member of the Indianapolis Bar Association, including the Taxation, Business Law and Estate Planning sections; the Indiana State Bar Association, including the section on Taxation Law; the Indiana CPA Society; and the Estate Planning Council of Indianapolis. Mr. Kraft is admitted to practice law before the Supreme Court of Indiana, U.S. District Courts, and U.S. Tax Court.

Frank & Kraft A Professional Corporation Attorneys at Law www.FrankKraft.com 135 N. Pennsylvania Street Suite 1100 Indianapolis, IN 46204-2485 Phone: (317) 684-1100 Fax: (317) 684-6111

What Is Estate Planning?

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What Is Estate Planning?