What key points should I know when planning my estate?
If you’ve ever considered estate planning, now is the time to take care of it. So many people wait until it’s too late, leaving their family to deal with the process, which is much more difficult. To the surprise of many, estate planning isn’t only important in distributing your assets and minimizing estate/death taxes, but also in the event you become incapacitated.
If you pass away and don’t have sufficient estate planning in place, your family must go through a probate process. Probate can be costly and time consuming. In most states, the cost is six to 10 percent of the estate. Additionally, the average uncontested estate can take nine months to two years to settle. A complex or contested estate may take even longer, and the cost can be in the tens of thousands of dollars; not to mention the stress involved.
There are many estate-planning tools available to help you make this painstaking process a little easier, or avoid it altogether:
- Wills – Everyone should have a will. It allows you to determine the distribution of your property, nominate an executor to execute your wishes and name a guardian for your minor children. If you don’t make these designations through your will, it will most likely be left to the courts. Property distributed through a will is subject to probate. Wills also can include trusts to help protect assets from the creditors of spouses, children, other beneficiaries and estate-tax exposure.
- Trusts – A trust is similar to a will in that it defines how you’d like to distribute your property, with a few extra advantages. A trust is an actual legal entity, allowing for property management and enabling your heirs to possibly avoid probate. Estate-tax minimization also can take place with properly drafted trusts. See below for more information about trusts.
- Durable Power of Attorney – The durable POA allows you to designate someone to make your legal and financial decisions in the event you’re unavailable to do so or if you become incapacitated. Without it, your family might have to seek a costly guardianship and/or conservatorship through the court system to take care of you and to manage your assets. A standard power of attorney doesn’t remain valid if you become incapacitated.
- Health Care Proxy/Directive (in Georgia, the living will is included) – This document enables you to designate someone to take care of your health care decisions if you’re unable to do so and allows you express your choice to physicians regarding life-sustaining treatment (or the removal thereof) in end-of-life illnesses.
How does a living trust help me with my estate?
A will becomes effective only upon a person’s death. A trust established inside a will (a testamentary trust) also comes into effect upon death and is subject to probate.
A trust is a legal document in which one individual (the trustee) controls property given by another individual (the grantor) for the benefit of a third individual (the beneficiary). With a revocable living trust, you’re allowed to be the grantor, the trustee and the beneficiary of that trust, as well as have additional beneficiaries.
A living trust—as its name suggests—is effective while the creator (grantor) of the trust is alive. The term “living trust” typically refers to a revocable living trust that’s created during life, but that may be revoked by the grantor at any time, so long as he or she is legally competent to do so.
With a living trust, you transfer ownership of all the chosen assets from yourself to the trust. Legally, your trust now owns the assets, not you. But as the trustee, you retain total control. It’s important to have beneficiaries named in a living trust. As with any trust, it should be properly established and professional counsel can be vital.
If you have all your assets in a living trust (or, alternatively, payable to an individual or held jointly with one or more survivors), there may not be a need to go through probate upon your death. If everything is in the revocable trust, there isn’t anything to probate because the assets are held in the trust. With a properly established living trust, probate can be avoided upon your death and your estate may be available to the beneficiaries without the interruptions and expenses of probate court.
If, however, you have assets held in your own name at death without a designated beneficiary or joint owner who survives, those assets typically must go through probate, despite the existence of a living trust. Because many who create living trusts never fully fund them, keeping at least some of their assets in their own names—whether to have a feeling of security or for other reasons—it’s quite common for the living trust to have little, if any, effect with respect to avoiding probate. So, if you set one up, make sure you put your assets in it to avoid probate!
Living trusts also are helpful when individuals own property in multiple states. If it’s held in the individual’s name (outside of the living trust), then upon death, it will likely be forced to go through probate in each state where the individual owned property. However, if the various properties are titled in the name of a living trust, probate can be avoided in all of the states with respect to that property!
What are the downfalls of probate?
Probate can be expensive and time consuming. Depending on the state in which you live, the process can be fairly quick and administratively easy or the process can involve multiple court hearings, yearly reports to the court, posting of bonds, and other costly requirements. Additionally, if you don’t hire an attorney to assist with the probate process, the probate courts will assume the executor/administrator has taken the time to learn the law and that he or she will meet all the requirements to properly appear before the court and file pleadings. People mistakenly believe that probate is easy and then end up making mistakes that could easily have been avoided with proper counsel.
Estate planning tips
Keep all your important financial and legal information in a central place for the executor, including:
- Letters of last instruction (funeral, burial, cremation preferences)
- Bank account and outstanding loan statements (home, car, etc.)
- Brokerage account statements and/or stock holding statements
- Tax returns, including all 1099s and/or IRA distributions
- Insurance policies
- Titles and deeds
- Will and trust documents
- Safe deposit box information
- Account numbers and passwords to online accounts
- Medical records