Everyone has an estate. Your estate consists of everything you own: car, home, bank accounts, 401(k), furniture, jewelry, art work, etc. No matter how large or small your estate is, you cannot take it with you when you die (and everyone dies).
Estate Planning is about control. It’s about you controlling who gets your money and stuff, controlling how and when those people receive the money and stuff, and controlling who is in charge of following your wishes. To do that, you need to provide instructions stating who gets, how they get, and who is in charge. And of course, you will want all that done with the least amount paid in taxes, legal fees, and court costs. This is Estate Planning-making a plan in advance.
Everyone has an Estate Plan. If you die without an Estate Plan, any assets owned in your individual name and without a beneficiary designation or other governing contract will be distributed according to your state’s intestacy laws, typically through a court-supervised probate proceeding. In many states, if you are married and have children, your spouse and children will each receive a share, even if your children are from a prior marriage or no longer minors. That means your spouse could receive only a fraction of your estate, which may not be enough to live on. If you have minor children, the court will control their inheritance. If both parents die (e.g., in a car accident), the court will appoint a guardian without knowing whom you would have chosen.
Estate Planning starts with a Will or Trust. A will provides your instructions, but it does not avoid probate. A will only directs how assets titled in your name and without a beneficiary designation or other transfer on death designation will be distributed. The assets must still go through probate court before they can be distributed to your intended beneficiaries. (If you own property—usually real estate—in other states, multiple probates may be required, each one according to the laws in that state.) Probate can be expensive with attorney’s fees, executor commissions, and court costs. It can also take anywhere from several months, to years, or longer. With some exceptions, probate proceedings are open to the public, and your creditors and any excluded heirs are notified of their opportunity to file for payment of a debt or a share of your estate. In short, the court system, not your family, controls the process and the timing of distributions to your beneficiaries.
Not everything you own will go through probate. Jointly-owned property and assets that let you designate a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, and certain other accounts) are not controlled by your will and usually will transfer to the surviving owners or beneficiary without probate. However, there are many problems with joint ownership and using these methods for estate planning. In addition, avoidance of probate is not guaranteed. For example, if a valid beneficiary is not named, the assets will have to go through probate and will be distributed along with the rest of your estate. If you name a minor as a beneficiary, the court will require a conservator until the child reaches the legal age of majority.
For these reasons, a revocable living trust (combined with a pour-over will) is preferred. Establishing and funding a revocable living trust can avoid probate at death (including multiple probates if you own property in other states), prevent court control of assets if you become incapacitated during life, bring all of your assets (even those with beneficiary designations) together into one plan, and provide increased privacy. Because the trust is revocable, the instructions governing it can be changed by you at any time. The accompanying pour-over will is a backup measure in the event that any assets are not funded into your trust during your lifetime and provides that those assets should be poured over into your trust upon your death.
Unlike probate, which will end at some point, a trust can continue long after your death. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age you want them to inherit or longer to provide for a loved one with special needs; to protect the assets from beneficiaries’ creditors, spouses, and irresponsible spending; or to provide for future generations.
Estate Planning is also Incapacity Planning. Your Estate Plan will also include instructions for your care and financial affairs if you become incapacitated.
Estate Planning is an ongoing process. Estate Planning is not a one-time event. You should review and update your plan as your family and financial circumstances (and the relevant laws) change over your lifetime.
Estate Planning is peace of mind. Knowing you have a properly prepared plan in place—one that contains your instructions and will protect your family—will give you and your family peace of mind. Estate planning is one of the most thoughtful and considerate things you can do for your loved ones.
