Ask the average person about the first thing that comes to mind when they think of personal and household risk mitigation and they will probably mention an alarm system, regular visits to the doctor, pepper spray, and a whole laundry list of other things that don’t include estate planning. An estate plan is synonymous with one’s dying wishes in the popular imagination, after all, and yet it is so much more than this.
Estate Planning and Risk Management
Beyond being a forum for articulating where you wish your assets to end up when you are gone, an estate plan is a set of documents that keeps you are your loved ones safe now and in the future. This happens on three distinct levels.
One of the ways an estate plan keeps your family safe is by transferring risk to a third party. A life insurance policy pays out a lump sum if you, the policyholder, die while the plan remains active (or if you are diagnosed with a terminal illness during this period and are not expected to live longer than 12 months).
While your loved ones will need to shoulder the burden of your passing, they will be shielded from crippling financial consequences and thus able to maintain their standard of living.
2. Asset Protection
Numerous estate planning strategies exist to protect your assets both while you are living and when after you pass away. Naming all of them goes beyond the scope of the present article—though the experienced estate planning attorneys here at the Polaris Law Group would be happy to talk about them with you in an initial consultation—and yet a few are worth underscoring.
An irrevocable living trust, for instance, places your financial assets beyond the reach of lawsuits and creditors. A revocable living trust, meanwhile, empowers you to set conditions upon which beneficiaries may access an inheritance should you worry about their spending habits. Lastly, a Medicaid asset protection trust prevents your life’s work from being eaten up by long-term care costs should they arise.
3. Risk Reduction
Business owners and holders of large estates shoulder a lot of risk. An estate plan helps with this by providing mitigation techniques that reduce risk probability and potential negative impacts. Principle among these is discounting.
Estate tax is calculated based on the value of your estate. This, in turn, is determined as a function of your assets’ fair market value (FMV). Discounting is a strategy that allows you to reduce the FMV of your assets by reshuffling their structure. Again, entering into detail is beyond the present piece but our experienced estate planning attorneys would be happy to explain how this works.
In addition to the above, an estate plan helps with risk management and mitigation by ensuring you have financial and medical powers of attorney in place and by providing your family an opportunity to talk about difficult decisions that may otherwise result in conflict.
To learn more, do not hesitate to contact the Polaris Law Group either by calling or using the contact form on our webpage.