What You Need to Know to Keep Control of Your Assets and Protect Those You Love
What is estate planning?
Your estate is comprised of the assets you accumulate during your lifetime: your home, car, bank accounts, investments, jewelry, furniture, a business and so on.
You already know you can’t take it with you when you die, so there has to be some way of distributing your assets to those who are still living. Your estate plan includes written instructions stating whom you want to receive something of yours, what they will receive and when you want them to receive it.
But good estate planning should also include planning for incapacity; a guardian and inheritance manager for minor children; transfer of a business; coordination of assets so each person receives what you wish; providing for those who depend on you; tax planning; and more. It needs to include all the areas in your life that would be affected if you were no longer here. It is a process, not a document, and it needs to change as your situation and laws change.
Who needs estate planning?
Estate planning is something everyone needs to do—regardless of age, marital status or wealth—if you want to keep control of your assets and protect your loved ones when something happens to you.
Older people and those who have accumulated some wealth may be more inclined to think about planning. But it often means more to families with modest assets because they can least afford to pay unnecessary costs and fees. And none of us knows how long we have on this earth; we all know of someone who was cut down in the prime of life by an accident, illness or crime.
What happens if I don’t have a plan?
You’re not alone. Too many people procrastinate about estate planning. They’re busy, or they don’t think they own enough, or they’re not old enough, or they’re confused and don’t know who can help them. Then, when something happens, their families have to pick up the pieces.
If you own assets titled in your name and you don’t have a plan when you die, your estate will go through probate and your assets will be distributed according to state law—and that is probably not what you would want.
For example, if you are married and have children, each will likely receive a share of your estate. This means your spouse could receive only a fraction of your assets, which may not be enough to live on. Also, because state laws usually allow for the inheritance of property only by bloodline, an unmarried partner, special friend or favorite charity would be excluded.
If you have minor children, the court will appoint a guardian to raise them without knowing whom you would have chosen. It will also control their inheritances until they reach legal age, at which time they will receive the full amount. Most parents prefer their children inherit when they are older.
If you become incapacitated before you die, the court can take control of your assets and your care. If your assets are titled in your name, no one but the court will be able to conduct business for you.
Doesn’t a Will help?
A will contains your instructions for what you want to happen to your assets after you die, and it lets you name a guardian for minor children. But it does not provide any help if you become incapacitated, because a will cannot go into effect until after you die. It is not a complete plan.
Also, a will does not avoid probate. In fact, it guarantees probate. Only the probate court can verify that your will is authentic, remove your name from the titles of your assets and transfer them to the new owner(s).
Does everything I own go through probate?
Not necessarily. Many people also own some assets that transfer to a co-owner when they die and others that will be paid to a beneficiary. Generally, these do not go through probate, but there can be problems with both.
Assets in a living trust also avoid probate, which is one reason why they are so popular. But a trust in a will, called a testamentary trust, does not avoid probate because the will must be probated before the trust can go into effect.
What’s so bad about probate?
Probate is an orderly court process that makes sure your debts are paid and your assets are distributed to your heirs. But most people want to avoid it for several reasons:
It can be expensive. Probate costs and attorneys’ fees must be paid from your assets before they are distributed. If you own assets in another state (like a vacation home), your family will probably face multiple probates, each one according to the laws and costs in that state.
It takes time, often 4 to 6 months or longer. Probate moves on the court’s schedule, not on your family’s schedule.
It is a public process. Unintended heirs are invited to come forward and claim part of your estate. Court records are public, so any interested party can find out details about your estate, including who the heirs are, what they will receive, their addresses, and more.
What about a Living Trust?
Assets in a living trust avoid probate at death, court interference at incapacity (yours and your beneficiaries’) and court control of minors’ inheritances. It brings all of your assets together under one plan, preventing unintentional disinheriting and ensuring the distributions you desire. Assets that remain in the trust are protected from beneficiaries’ creditors, ex-spouses, predators and irresponsible spending.
For these reasons and more, a living trust is generally preferred over a will, and is often the perfect foundation for most families’ estate plans.
Elements of Good Estate Planning (Summary)
Provides clear instructions for distributing your assets after you die.
Protects your assets and gives instructions for your care should you become incapacitated.
Names a guardian and inheritance manager for minor children.
Provides for those who depend upon you (parents, children, pets).
Provides for the transfer of a business at retirement, disability and death.
Provides for family members who may be irresponsible with money or need future protection from creditors or divorce.
Includes life and other insurance to provide for your family and protect your assets.
Coordinates your assets so that each person receives the inheritance you want them to have.
Is an ongoing process, not a one-time event. You should update your estate plan as your situation and the laws change.