How to Protect Your Most Valuable Assets in an Estate Plan

Use these links to jump to different sections:

• What Personal Assets Go to Family Members Without a Will
• An Asset Protection Plan is Worth It
• The Tax Impact

Misconceptions surrounding estate planning are plentiful: It’s only for those with substantial wealth; a will should suffice; preparations can wait until retirement. Some people also fall into the trap of doing nothing. “They believe they don’t have any options at all,” says Jeff R. Hawkins, an estate planning and probate attorney at Hawkins Elder Law in Sullivan.

But with a range of tools at your disposal—wills, trusts, real estate deeds—it’s possible to preserve assets and provide care for loved ones in your absence. 

However, time is of the essence. “Procrastination gets a lot of people in trouble,” says Brad A. Galbraith, an advanced estate tax planning attorney and managing partner at Galbraith Law in Indianapolis. 

What Personal Assets Go to Family Members Without a Will

In Indiana, when no estate plan exists, assets are split between a surviving spouse and children. If the decedent is unmarried and has no children, proceeds go to parents and siblings. And in the absence of living siblings, nieces and nephews receive the inheritance.

“For some people, doing no estate plan is OK because the state laws are fine with them,” says Galbraith. “But in most instances, the state default language isn’t necessarily something that matches what you would like.”

Estate planning can benefit “anyone with at least one financial account,” says Rebecca W. Geyer, a Carmel-based attorney. Significant assets usually warrant more detailed preparations, as do specific family concerns, such as how a divorce or second marriage may affect asset distribution.

An Asset Protection Plan is Worth It

Parents of minor children and those with special needs should have a guardianship plan, including for periods when the parents are temporarily incapacitated, such as during an extended ICU stay. “You’re more likely for a husband and wife to be out of commission during life than for both to die,” says Hawkins. “You can designate guardians in your power of attorney for a [period of] disability, and guardians in your will who handle the children after your death.”

Ideally, anyone who has a prominent role in your estate should be “healthy, well-balanced, ethical and responsible,” says Hawkins, especially if land is at stake. To simplify planning, parents sometimes name just one child as the beneficiary, with an understanding that the child will later divide the property among siblings. But suppose the inheriting child ends up in financial straits. In such a case, creditors may seize the assets and leave the remaining children empty-handed.  

“It’s important to not only think of who should get things, but how they should get it,” Hawkins says. “Should there be some trust arrangement that protects the property until distribution so that everyone gets their share instead of it being tied up with one person’s drama?”

Failing to account for family dynamics and personalities can complicate matters. If siblings do not get along in the present, conflicts will almost certainly worsen when emotions run high and money is at stake. “It is not reasonable to name all of your children to serve as health care representatives or executors if they cannot work together,” says Geyer.

Another common mistake is assuming the legal document circumvents probate. “Wills do not avoid probate; wills guarantee probate,” says Galbraith. “For a will to be authenticated, valid and effective, it has to be probated.” Revocable living trusts can bypass probate issues, but it requires strict compliance and attention to detail to appropriately title all assets and accounts to the trust.

It’s wise to review your estate planning documents at least every three years. Unfortunately, most people wait decades between updates, says Galbraith. “An estate plan is as good as the time when you create it,” he says. “When tax laws, family situations or your intent change, those documents don’t just automatically change.”

The Tax Impact

Comprehensive estate planning should minimize tax repercussions. While the current federal estate tax exemption allows individuals to pass $12 million tax-free, that will be halved in 2022. “For high-net-worth clients, we’ve been doing trusts to lock in that $12 million exemption before it goes down,” says Galbraith.

Separately, individuals can gift $16,000 per year per person. They can also pay an unlimited amount of educational and medical expenses on behalf of others, including non-relatives, so long as it is paid directly to the institution or provider. None of these funds are taxable, nor do they count toward the federal estate tax exemption.