A significant percentage of Americans know very little about estate planning. They think that creating a will is the long and short of it, and they assume that they will have time to do this at some point in the future. This is one of the reasons why most people are going through life without a comprehensive estate plan.
In fact, there is much more to the process of estate planning than creating a will. Let’s look at the facts.
Creating a Will
When you are planning your estate, one of the top priorities will be the transfer of financial assets. There are a variety of different ways that you can approach this task.
Everyone is aware of the existence of a legal device called a last will or last will and testament. You can use a last will to state your final wishes regarding the distribution of your property.
If you use a last will, you should include the nomination of an executor or personal representative. This is the individual who will conduct the business of the estate after you pass away. You could also include the nomination of a legal guardian who would care for your minor children should both parents pass away.
Many people do not use a last will to arrange for future asset transfers. When you state your final wishes in a last will, the estate must be probated. Probate is a legal process that takes place under the supervision of the probate court.
There are considerable expenses that can pile up during the probate process. It is a public proceeding that strips your family of privacy, and it is time-consuming. The heirs to the estate do not receive their inheritances until the estate has been probated and closed. This can take months in routine cases, and an estate can be stalled in probate for years under complex circumstances.
Probate Avoidance
You can arrange for the transfer of financial assets after you pass away free of the probate process. One way to do this would be to open payable on death accounts. These accounts are offered by banks and brokerages. You name a beneficiary, and this beneficiary would assume ownership of the assets in the account after you pass away.
There is also joint tenancy with right of survivorship. Property held in this manner would be transferred to the joint tenant after your passing outside of probate.
While these options are available to you, they are not highly recommended by estate planning attorneys. A more reliable way to facilitate probate avoidance would be to convey assets into a revocable living trust.
Revocable living trusts enable you to retain control of the assets that you have conveyed into the trust while you are living. When you create the trust agreement you elucidate terms, and you name a beneficiary or beneficiaries.
After you pass away, the trustee distributes assets to the beneficiaries in accordance with your wishes. These distributions take place in a timely manner outside of the process of probate.
Advanced Estate Planning
There are various different advanced estate planning strategies that can be implemented when certain circumstances exist. The federal estate tax is a factor for people who are in possession of assets that exceed $5.45 million. It is possible to position these assets in a tax efficient manner.
Asset protection can be a concern for many individuals as well. You can protect assets through the use of certain legal devices such as limited liability companies, asset protection trusts, and family limited partnerships.
People who have disabilities often rely on government benefits. Programs like Medicaid and Supplemental Security Income are need-based programs. A direct inheritance could disqualify a person with special needs from eligibility.
This type of situation is properly addressed through the utilization of a supplemental or special needs trust.
Incapacity Planning
A well constructed estate plan will address the period of time that will precede your passing. It is possible that you will become incapacitated late in your life. At this point you may be unable to make your own decisions.
You can name agents to make decisions in your behalf by executing documents called durable powers of attorney.
A living will is also recommended. With this document you state your wishes regarding the use of artificial life-support measures if you were to fall into a terminal condition.
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Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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