Estate planning is the process of creating an organized, legal procedure regarding the distribution of your property and assets should you become mentally incapacitated or die. This task is one that everyone should be sure to tackle with the help of an estate planning lawyer. Every state has its own “intestacy” laws to follow should you die without an a valid estate plan, but the best way to control what happens to everything you own when you have passed on is having an estate plan. Estate plans are either built around a will or another legal instrument called a trust.
Last Wills and Testaments
A last will and testament addresses four main points: who will inherit from you, when, and how, and who will “execute,” or take charge of disbursing those inheritances. A will also defines how much power the executor should have. Lastly, if you have minor children, your last will and testament says who shall serve as their guardian until they come of age. An important consideration when forming a will is that it will be probated when you pass away. Probate is the legal, court-supervised process by which your executor sorts through your will, interprets it, pays funeral expenses and other debts, and transfers your property according to your wishes. This process with all of its petitions and legal hoops can take over a year.
Drafting and funding a trust is another way to securely and explicitly plan what happens to your property when you pass on. It addresses the same items as a will as a basis, but you’ll fund the trust, meaning that you’ll transfer ownership of your assets into your trust’s name so that a probate proceeding is not necessary after death. Avoiding probate means that your estate plan is kept private; a last will and testament becomes public court record when the executor of the will petitions for probate. Creating a properly formed and funded trust can be time-consuming, costly, and require a good deal of legal documentation and work with a lawyer, but will save your beneficiaries time, money, and tedious legal proceedings in the future and allow your assets to be distributed to them more quickly than with a last will and testament.
Another difference between a trust and will is that in a trust you can be very specific about how your money and property should be used once it is passed on to your beneficiaries. For example, if you want to pass your money to your child, but disagree with their spending habits or affiliations, you can designate what kinds of things they can spend their inheritance on, such as house payments or food. You have the ability to stagger payments, create incentives such as graduation or age milestones before payments are disbursed, choose single items to pass on to certain people, keep beneficiaries’ spouses from obtaining your savings, and dictate which beneficiaries get to use or sell a piece of real estate. Selecting a trustee who will responsibly follow your instructions and expected legal duties when the time comes is key.
A trust that includes a comprehensive disability plan can also plan ahead of time for the circumstance in which you are no longer mentally capable of making financial decisions. Your successor trustee will take care of your affairs at this point until the time of your death.
It is advisable when using a trust-based estate plan to also have a “pour-over will.” This is essentially a catch-all for assets you may forget to or improperly transfer into your trust’s name. A pour-over will ensures that these assets are disbursed according to the arrangements set down in your trust.
Trusts are either revocable or irrevocable, with other types falling under each of these broader categories, each with specifics that should be assessed in regards to your circumstances. Working closely with an attorney will help you determine what kind of trust to create and how to execute it correctly and completely.
An attorney who helps to create your estate plan should ensure that all of your affairs are in order, which means more than forming a will or trust. They should ensure that assets don’t slip through the cracks of your plan, help to protect them from beneficiaries’ creditors, and navigate the possibility of estate taxes.
Your attorney can help designate beneficiaries on your retirement account and life insurance, create a succession plan for your business, and organize your records and important documents. They can prepare health care directives and documents such as power of attorney and a living will to plan for your care should you become unable to clearly communicate your wishes regarding medical procedures and to what extent your life should be prolonged.
Estate planning is for everyone, no matter their age or net worth, for all of the reasons described above and more. Whether you form a will or a trust or both, and regardless of your personal circumstances, forming a plan is worth considering sooner rather than later.
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