Estate planning is the process of specifying how you would like your assets to be distributed after your death. It entails deciding who will inherit your property and what percentage of it they will receive as well as where the money should go, who should manage it for any minor children, what taxes might apply to a transfer of ownership, and more.
Goals of Estate Planning:
When creating or updating an estate plan, there are a few goals to keep in mind:
Manage Your Affairs and Property
Make sure you and any dependents don’t become a burden on the state when you can no longer handle everyday living.
Plan for Contingencies
What would happen to your assets if you lost the capacity to manage your affairs? Plan ahead because you can’t do that if something happens to you.
Ensure your loved ones receive what you want them to after your death.
Reduce or eliminate estate taxes by planning well enough in advance, so that the inheritance of certain assets can avoid the higher taxes that might apply.
Don’t Forget About a Will
The first thing you should do is create a will. It’s often harder to write a will from scratch than to update an old one, so if you have a will, take the time now and make sure you have all your family members listed and that your property is divided up the way you think it should be. Even if your state has a law that details what happens to your assets if there’s no will, different states have different laws, and they might not match exactly how you want things to go.
Importance of Estate Planning Tools:
In addition to your will, you should start planning for your retirement and health care needs. There are several other “estate planning tools” that help protect you and your family. Some of these documents are required by law, and some are optional. Before you decide which documents to use, think about your goals for your family and how you want the distribution of your assets to look after you’re gone.
It’s important to determine what type of estate plan best meets your needs. As stated before, a will is one of the most common documents because it allows you to decide who gets what assets after your death.
The Will and Its Importance
In many cases, estate planning efforts begin with a will — a document that outlines how you would like your property to be distributed upon your death. For example, if you have several children and assets to share between them, a will can specify who inherits what. Although not always necessary because of how your assets are titled, having a general idea of who is to inherit certain assets can ensure they’re passed on as easily and efficiently as possible. A will also ensures that your property is used for the people or organizations you wish it to go to upon your death.
The importance of a will is undeniable because it allows for ease of management, maximizes an estate’s value, and ensures that property is transferred to the right people. For example, if you have assets that are not in your name or property that cannot be transferred by way of a will, they may need to go through the probate process upon your death. This can be time-consuming and awkward, as contesting wills can lead to unexpected complications for the heirs after your passing.
In the end, a will is one of your main estate planning tools because it allows you to dictate who should receive what property after your death. It also minimizes the likelihood of litigation following your passing and simplifies an otherwise difficult situation for your heirs.
A valid will transfers ownership of property from the deceased to their beneficiaries. You should update your will whenever major life events occur that might affect your estate plans, such as a birth or a death in the family.
For a will to be considered valid, it needs to meet several criteria:
- If you’re married, your spouse needs to sign the will.
- It needs to be signed by two witnesses who can confirm that you’re of sound mind when signing it’s done.
- You need to make sure the will describes how any assets or property will be allocated after your death.
A living will is an instruction that tells doctors how much life support you want. It allows you to state what medical treatments should be performed on you if there is no hope of recovery.
Some states have specific regulations regarding living wills, but most of the time, you will need to use a general form or one written by an attorney.
The law requires certain terms for it to be considered valid; they are as follows:
- It must state you are of sound mind when the document is signed.
- Your signature must be clear.
- Sometimes the living will is made in front of a notary, but it does not have to be.
The living will state that you are willing to accept only the minimum medical treatment required to keep you alive, or it can simply state you do not want any treatment at all. This will affect your doctor if they believe that you need medical treatment to live. If the doctor does not follow this document, then they may be held liable for damages.
It’s important to note that a living will does not prevent doctors from giving you the proper medical aid because they believe it’s necessary. It only allows them to do what you have asked in your living will.
The Probate Process
If there’s no valid will, you die “intestate,” and the state decides who gets what under the laws of that particular state, which is called property or probate law. If you did not leave a will behind, this property distribution decision becomes the court’s job, but it may take months before it’s final.
Probate can be a long process, it usually takes anywhere from six to nine months if there are no complications and your assets are not under dispute. It could take even longer if the state decides you should have had a will and forces one on your estate or if someone contests the will and hires an attorney for the representation.
A trust is a legal agreement wherein a trustee holds assets on behalf of a beneficiary. The purpose of a trust is to manage the property and distribute it according to the wishes of the creator. Trusts can be set up during your life— “living trusts”—or for after you die, called a testamentary trust.
The main benefit of a living trust is that it helps avoid creating a probate estate. This means that it removes your property from the public record so that it’s not available for creditors, heirs, or even the courts to view. This also means that your beneficiaries cannot look up your property at their local courthouse.
A living trust can help you avoid estate taxes and probate costs if you’re married and have a large estate. Some states have laws that allow you to avoid probate costs by having only certain types of documents. An estate planning lawyer can help you determine whether living trusts are right for your needs.
Types of Trust
There are several different types of trusts you can set up. But two main categories take them all in. These two categories are revocable and irrevocable trusts.
A revocable trust is one that you can modify whenever you want. If you have a property that you want to give away while you are alive and well but want to control your property or assets until your demise, then a revocable trust would probably work best for your needs.
An irrevocable trust remains unchanged throughout. Because of this, you will be unable to give away the assets even if you have full command of your mental faculties at the moment of signing. If you want to give away an asset, but don’t want to go through probate, you can establish an irreversible trust.
A guardianship trust is set up for a minor. A court decides who the beneficiaries are in this type of trust.
A survivor’s trust is set up for you and your spouse. It allows the surviving party to inherit the assets without probate, but only if the first party dies after the living trust has been signed by both parties.
A dynasty trust can be set up for your children and grandchildren. The assets will pass on to the next generation without having to go through probate.
A charitable trust allows you to gift assets to your favorite charity during your lifetime or after death. This type of trust is usually irrevocable.
A discretionary trust allows the trustee to choose how and when money gets distributed to beneficiaries. This can be beneficial if you want to give your children or grandchildren money without having to hand it over all at once.
Durable Power of Attorney:
A Durable Power of Attorney allows you to appoint an agent, also called a “proxy” or “attorney-in-fact,” before you are incapacitated. This is required for all adults; there’s no required amount of time until it expires. If you appoint a proxy for health care and become incapacitated, most states allow the power of attorney to remain in effect until you recover or die. There’s also an alternative called “springing durable power of attorney,” which takes effect when it’s officially declared that you are incapacitated. This document cannot be revoked after you have signed it, but it can be revoked before it has taken effect. It’s important to notify your beneficiaries and agents of any changes to your current plan.
Some problems may arise with the power of attorney. For example, appointing someone who is not capable of doing the job or one who disobeys your previous instructions. Also, it has been said that this document does not go as far as to say your proxy can make your health care decisions. It simply allows them to speak and/or sign medical documents on your behalf.
Estate Planning in a Nutshell
Estate planning is a costly and time-consuming affair. You have to consider several measures, including state taxes, unfair appraisals, probate courts, health care concerns, life insurance, and several other matters. Lack of in-depth knowledge regarding your legal and financial rights and experience in handling such affairs can eventually cost you much more than you presumed.
Planning about what happens to your estate after your death can seem frustrating and just the thought may make you uncomfortable. You might not want to consider it, but the fact of the matter is that planning for your estate goes a long way in ensuring your heirs don’t have to spend their precious time and money in the legal process.
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