If you recently experienced a major life change or are thinking about the future, now is a great time to develop an estate plan by working with an estate planning attorney. This article explains the basics of finding an estate planning attorney and making an estate plan in The Bahamas, including: (1) what an estate plan is; (2) why your objectives matter in estate planning; (3) assessing expenses, income, and cash flow; (4) basics of estate planning structures such as wills and trusts; (5) making gifts to family members; (6) probate basics; and (7) updating your estate plan.
- What Is an Estate Plan?
Everyone can make an estate plan, no matter how much money they make. The term “estate” simply means any money, assets, or property that you own.
Estate planning allows you to make decisions about who receives your money and property after your death. Many people also decide that they want to make some lifetime gifts to relatives or charities. In the course of setting up an estate plan, you determine which legal documents you need to make your plan a reality.
An estate planning attorney will help you to prepare a plan that allows you to accomplish your objectives while accounting for your individual estate and life circumstances. This article describes the basics of estate planning to get you started in your search for an attorney who can help you plan for the future.
- Why You Need an Experienced Estate Planning Attorney
An experienced estate planning attorney listens to you and customizes your estate plan to your circumstances. An estate plan is not “one size fits all”. Nor are estate planning attorneys “one size fits all”. Rather, you need to find someone with whom you are comfortable sharing financial and personal details. You also need to find someone who can work with you over time to help you update your plan.
Your attorney should have experience drafting all of the typical estate planning documents such as wills and trusts. You may want to choose an attorney who has probate court experience and ask the attorney about handling any probate disputes.
Your attorney should be willing to meet with you and discuss in detail all of the estate planning structures that will be part of your plan. You should understand what you are signing and why you are signing it. You should also understand why the various structures and documents are necessary. Further, your attorney should be willing to help you update your estate plan every few years.
If you are not sure where to start when talking to attorneys, read on below to learn about the information an estate planning attorney needs to know about you. Then read more about the estate planning structures an attorney can put in place.
- Your Objectives
Estate planning starts with your objectives. Your estate planning attorney will guide you in thinking about what you hope to do with your money and property in the future. Maybe you want to give everything to your spouse on your death, or maybe you want to divide your assets among your children. Some people want to make gifts during their lifetimes to family members, friends, or charities. Others want to maximize interest income now to save for retirement. Everyone has different goals, so everyone's estate plan will look different.
Objectives matter in estate planning because the estate documents and strategies you need depend on what you want to achieve. A married person with few assets who does not own a home and wants to give his estate to his spouse will want a different plan than a divorced father of three with a pension, real estate, and a valuable antique collection who wants to give part of his estate to children and the rest to a charity. Find an estate planning attorney who listens to you and considers your objectives in making an estate plan. Your planner should focus on crafting a plan that achieves them.
- Your Expenses, Income, and Cash Flow
Along with considering objectives, figure out your actual cash flow now and your projected cash flow during retirement. To determine which estate planning structures will work best, a good estate planning attorney will ask you about very specific financial information. Some people spend most of what they earn aside from retirement savings, while others have unspent savings that will become part of their estate. Your expenses, income, and cash flow factor into the size of your estate and your planning needs.
Your expenses include rent or mortgage payments, food, car payments, insurance costs, and daily expenses. People with health conditions should include the cost of medical treatment in their expenses. Others may pay child support or make regular donations to charity. Income includes wages from employment, dividends, gifts, any rents you receive from tenants on your real estate, and other incoming money or property.
You may need different or additional kinds of estate planning structures depending on your expenses, income, and cash flow. For example, you may pay for a relative's health care and need to set aside money in trust for him or her after you pass away. Your estate planner might recommend additional structures to help you and the relative, such as a power of attorney. In addition, your estate planner will need to know how much you earn and spend to suggest any changes you can make now to your assets. These changes could maximize bequests. You may, for example, want to start placing savings money in trust now so that it can earn more interest over time.
Tell your estate planner if you have any sudden changes in expenses or income. You may begin supporting an older relative, or you may receive a windfall from an inheritance. As discussed in the “Updating Your Estate Plan” section below, these changes matter when making a new estate plan. They also affect any existing estate planning documents you have in place. Make sure your attorney plans to account for these changes in your estate plan.
- Estate Planning Structures
After you decide on your objectives and gather information about your expenses, income, and cash flow, consult an estate planning attorney. Estate planning attorneys can set up the proper legal structures to make your objectives happen. These structures include wills, life insurance, trusts, and more.
You will put these structures into place by signing legal documents describing your objectives. The legal documents are necessary because they tell executors, heirs, and the probate court what your objectives are and how to carry them out. Without written documents, determining a deceased person's wishes may be very difficult. An estate planning attorney will take the time to explain what each document means and how it effectuates your wishes.
A will sets forth who will receive a deceased person's property after his or her death. For many people with smaller estates, a will is the central document explaining how their estate passes and to whom. Wills can state that all a person's property goes to one person (a sole heir) or is to be shared equally among a number of people, or they can go into detail about specific gifts to many different people.
The gifts made in a will can be of personal property such as jewelry, money, cars, or any other assets owned by the deceased person or they can be of real property, that is houses, buildings and vacant land. If the deceased person owns a partial interest in a business or in real estate, then making the gift may be more complicated. For example, you may not be able to give away your interest in a joint tenancy in property in your will because your interest in the property passes to the other joint tenant upon your death. This is only one of the many reasons that wills are best drafted by qualified attorneys.
Wills provide most people with a legally binding means of conveying their last wishes. After death, a specially designated person called an executor carries out these wishes. The executor is named in the will and must apply to the court to probate the will. If family or other heirs dispute the terms of the will, the executor may need the help of the court to settle the dispute. This means that the court will review the will to determine whether its terms should be enforced.
- Life Insurance
Many people purchase life insurance before they even think about doing further estate planning. To obtain life insurance, a person makes a series of premium payments to an insurance company over a period of time. If the insured passes away while the insurance is in place, his or her beneficiary receives a lump sum payment from the insurance company.
Insurance companies offer several different types of life insurance depending on your needs. Term life insurance lasts for a specified term of time. Whole life insurance lasts for the insured's entire life, and the insured can borrow against the policy during his or her lifetime. Universal life provides investment opportunities during the policy term in addition to a death benefit payout.
Life insurance can give you the assurance that your family will receive some financial assistance if you pass away, even if the rest of your estate is very small. You can name one or more beneficiaries whom you would like to receive the payout from the insurance company. Unlike a will or trust, life insurance offers the opportunity for a lump sum payment only.
If you are younger and healthy, premiums can be low, so you have a low barrier to beginning estate planning early. If you are older and/or have medical issues, life insurance premiums can be very expensive, and you may wish to investigate other estate planning options.
A trust is a very helpful estate planning structure. This is because you can create it while you are living and have it continue after your death. Using the structure of a trust, people can continue even after death to support a disabled relative or fund a child's education.
The person who forms the trust, called the settlor, appoints a trustee, who watches over any property placed in trust and invests it prudently to best serve the beneficiaries. The beneficiaries are people designated by the settlor to receive the benefit of the trust. These beneficiaries may receive regular payments of interest earned by the property in trust or may receive all of the trust property at a particular time.
The settlor decides how beneficiaries will benefit and which property is placed in trust. In this way, trusts are customizable to fit individual objectives and wishes. Further, the settlor can place all kinds of real and personal property in trust, and he or she can do it over a period of time.
Because trusts are flexible, they can help people in many different estate planning situations. Trusts are great tools for supporting children and relatives. In addition, settlors lose their ownership interest in the property when it is placed in trust because the trustee must obtain legal ownership of the property. Not having ownership of property may have practical benefits for the settlor. Similarly, the beneficiaries get the benefit of the property, such as interest payments, without the burdens of legal ownership.
- Powers of Attorney
A power of attorney allows another person to act on your behalf. In a written power of attorney document, you explain who may act on your behalf and for what reason. For example, you might appoint an agent to run your business while you travel internationally without cell phone service. The agent can sign legal documents for you and make decisions you would have made. Standard powers of attorney expire on the death or incompetence of the creator.
In the estate planning context, people use powers of attorney to specify who can make decisions for them if they are unable. Lawyers call these “enduring” or “durable” powers of attorney because they do not expire if you are considered incompetent. In The Bahamas, an enduring power of attorney may only give an agent power to make decisions about property, not healthcare. For example, you might sign an enduring power of attorney to allow your adult child to pay bills and manage your bank accounts if you are seriously ill.
Powers of attorney give agents the ability to step in when you need help the most. Your agent under an enduring power of attorney can keep your estate from losing value or keep your business running. Consider signing a power of attorney if you own your own business, if you pay your family's bills, or if you think you might need someone to look after your estate if you are unable.
- Making Gifts to Family Members
For some people creating estate plans for the first time, their top priority is making gifts to family members. Estate planning attorneys should be sensitive to this priority when designing an estate plan. Gift-givers often have one of two goals: supporting close family members who have no income of their own, such as children, or passing assets on to someone who the giver feels is deserving.
As part of determining your estate planning objectives (described above), you may have decided who should receive various gifts. The next step is to figure out when you give the gifts and how to give them. Some choose to make lifetime gifts so that the recipients can use the assets immediately or earn interest on them. Some choose to make the gifts in their wills. Giving in a will allows the giver to use the asset or item for as long as possible.
Think carefully if you plan to give a single gift that cannot be easily divided, such as your house, to multiple people. What if the recipients cannot agree to share the house and end up selling it? What if one refuses to let the other use the gift? Your attorney can advise you on addressing or avoiding these situations through careful estate planning. Your attorney will address your questions about worst-case situations when you make gifts to family members.
- Probate Court
Most of this article has discussed making an estate plan. This section explains what happens after someone makes the plan and then passes away. If that person worked with an estate planning attorney who also has experience in contentious probate matters, the same attorney may be able to handle a probate dispute for the estate. During the probate process, the court provides a structure and timeline for assessing the estate's assets, determining the heirs, and distributing the assets.
Some estates end up in probate court because the heirs or other relatives dispute the will's validity or the gifts made in it. Some estates end up in probate court because they are very complicated. For example, the deceased person may have owned assets in multiple countries, have owned a variety of different business structures or types of property, or have a complicated set of objectives listed in estate planning documents.
If the deceased person died with no will, family members likely will need to apply to the probate court for letters of administration and the provisions of the Inheritance Act will determine who will inherit the estate. These letters allow an appointed family member to gather and distribute the estate's assets according to the law. The family member should enlist the help of a qualified probate attorney in this process.
- Updating Your Estate Plan
The most important part of estate planning (besides making a plan in the first place) is updating that plan regularly. You should update your plan every few years or every time you have a major life change. Life changes could include:
- Getting married or divorced
- Having children
- Deaths or serious illnesses of relatives
- Your own serious illness
- Changes in your estate planning objectives or gift-giving plans
- Changes in your income or expenses
- Retirement or a new job
- Sale or purchase of real estate
- Acquisition of property by inheritance
- Opening or closing your own business
- Changes in estate planning law
Other significant life changes could trigger the need to update your estate plan. You decide how to customize your estate plan, and you decide how often to update it. It is recommended that you do so every few years because your wishes and/or the means for carrying out those wishes change over time. If you create a comprehensive estate plan and then do not update it for 30 years, your estate plan might not match your wishes when you pass away.
An estate planning attorney can evaluate your existing estate plan and help you update it. Estate planning attorneys review changes in the law to determine whether legal documents will have the same effect. Sharing your objectives with your attorney will help him or her draft appropriate estate planning structures that are appropriate for you.
Whether you want to start an estate plan or need to update an existing one, seek out an estate planning attorney today to plan for the future.
To find out more about estate planning in The Bahamas, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.