Establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Death is certain for all of us, and becoming seriously disabled will be a part of life for 58 percent of us.
Failing to have an estate plan will require that everything you own pass through probate court. This process can be expensive, time-consuming, and is open to the public. It is not unusual for a probate court to freeze all of the decedent's assets for weeks or months while this process takes place. This can make it difficult for your loved ones to have immediate access to the funds required to pay for their living expenses and funeral costs.
If you already have an estate plan in place, you are on the right track but remember that life is full of change. It is very important to have your estate plan reviewed periodically to ensure your plan still represents your current situation and desires and stays up-to-date based on changes in the law.
Q&A for Estate Planning | Wills | Trusts
Q: What is a will and why do I need one?
A: Simply put, a will is a tool that allows you to tell the world who you would like to receive your assets. If you have an opinion on who will get your possessions, you need a will. A will can also express who you want to become the guardian of any minor children or dependents. Having a will creates peace of mind and is one of the most thoughtful things you can do for your family.
Q: What happens if I don’t have a will?
A: It does not matter if you told your friend that you want “Sue” to get your diamond necklace, your survivors do not get to decide who gets your possessions when you die unless you put together some simple estate planning. If you die without these documents in place, the state decides who gets your possessions. Failure to properly plan often leads to family arguments. Without a valid will, your choice for guardian of any dependent children will not be considered.
Q: When should I write a will?
A: Now! Death is certain for all of us and very few know when it will be. A valid will must be completed before death, but also, you must complete your will while you have the capacity to do so –- capacity that could be lost at any time with a severe accident.
Q: What is a Trust?
A: There are typically three parties involved in a trust, the Grantor, the Trustee, and the Beneficiaries. The Grantor is the person wanting to transfer his property to others, upon the occurrence of conditions that he sets. The Trustee is the person who has been designated to manage the Grantor’s property according to the trust agreement. The Beneficiaries are the person(s) who will benefit from the trust property, or the one(s) receiving the property.
A trust is an effective tool to transfer your assets to others while avoiding the time and expense involved in using the probate courts required of wills. A trust is flexible and can be custom tailored to your wishes. For example, “I would like my son to receive a college degree before he receives my life insurance money”.
Trusts can also help lessen gift and estate taxes as well as protect your loved ones from creditors and predators.
Q: What is the difference between a will and a trust?
A: A will and a trust serve different functions but work together to effectively manage your estate if you become incapacitated and when you die. A will goes into effect upon your death, but a trust goes into effect when created.
Wills must be submitted to the probate courts and become public record while a trust does not. Having your possessions held in trust saves time, money and frustration. The average cost for probating an uncontested will is approximately 2-7 percent of the value of the estate. For a modest estate of $100,000, this could be almost $7,000 (http://personalfinance.costhelper.com/probate.html). This money is taken out of the estate before it is distributed to the beneficiaries.
Lastly, a will is used to name a guardian for any dependent children you may have.
Q: What is an estate plan?
A: An estate plan is a comprehensive plan for managing and transferring your property to your loved ones upon incapacity or death. This plan uses several documents to accomplish this. Examples of these documents include, power of attorney, wills, trusts, and medical directives. An attorney will help determine which, and what kind, of these types of documents you will need.
Q: Where should I keep my will/estate plan?
A: You should keep your estate plan where your trustee and/or personal representative can access them after your death, but secure from perils such as theft, fire, and water damage. A safety deposit box might not be the best place to keep documents such as these since it may be time consuming to gain access to a safe box after your death. Ask your attorney for suggestions on where to store such important documents.
Q: Isn’t estate planning only for wealthy people or the elderly?
A: No, that is a myth. Some people think they don’t need to create an estate plan because they are not wealthy or they are not old enough. The truth is most people have something of value that needs to be distributed upon their death. Your estate includes all of your possessions (your home, bank accounts, car, furniture, life insurance, personal belongings). Additionally, those with minor children can use a will to nominate a guardian. It is certain we will all experience death. What is uncertain is when we will experience it. It is important to get prepared before it’s too late.
Q: When should I update or how can I make changes to my will/estate plan?
A: You can make changes to your estate plan as needed. A good rule of thumb is to review these important documents every few years because your assets and the laws change. Regularly reviewing your plan with the help of an attorney will keep your plan current.
Q: Can I write my own will or trust?
A: In order to be valid, these documents must comply with state specific laws. Failing to comply with the formalities required by statute could result in your “will” being invalid and your estate will be administered as if it never existed. Additionally, failure to accurately, completely and clearly draft your wishes can cause confusion and unnecessary expense when a court is needed to interpret your will’s meaning.
Q: How do I avoid the probate courts to transfer my possessions after death?
A: The best way to avoid probate is to have a fully funded trust.
Q: Why do I want to avoid probate?
A: Avoiding probate can save time, money, and frustration. Upon the passing of a loved one, the survivors are burdened by grief, funeral arrangements and figuring out how to cope emotionally with their loss. The last thing a survivor wants to do is work through a sometimes long and costly court process in order to settle the affairs of a loved one and gain access to the funds necessary to support the loved ones left behind.
Q: What are Estate (death) taxes?
A: Estate taxes are federal taxes paid based on the value of the deceased person’s estate. This is done before the distribution to heirs or beneficiaries. Currently, the federal estate tax rate is 40 percent of the non-exempt taxable estate. Many states also impose additional taxes on a person’s estate. Estate taxes can be minimized through proper estate planning. Ask your attorney for more information on estate taxes.
* The information contained on this website is not to be taken as legal advice and my be incorrect. Laws vary from state to state and change. Consult with an attorney to understand how these issues affect you.