Introduction to Estate Planning
Estate planning is a fundamental step toward making sure that property and health-related demands are honored when you pass. Too many people outright overlook it or put it aside in favor of more pertinent issues, often intending to make arrangements at a later time. Truthfully, a legitimate estate plan can help take care of a myriad of legal issues prior to death, including: who gets what, who takes care of the kids, and what to do in case of extraordinary medical circumstances.
Why Is Estate Planning Important?
The importance of estate planning cannot be overstated. However, the question still remains — what does it accomplish?
- First and foremost, it lets you choose which family members receive property. Who gets the home? Who gets the car? Who receives the remainder of your accounts?
- Next, it ensures that after your death, the aforementioned property transfers occur smoothly with the minimum amount of time wasted.
- It minimizes the quantity of taxes that your family members will have to pay for your property to be transferred.
- It allows you to assign guardians for any children or pets that are dependent on you. Without estate planning, a court would have to decide.
- It sets forth all the instructions for your funeral so that surviving family members don’t have to deal with the added burden after their loss.
- It ensures that your business or businesses keep operating without any unwanted and unnecessary intermissions.
Probate Vs Non-Probate
Before moving forward, we must first understand the difference between probate and non-probate property. Simply put, non-probate property is already intrinsically tied to certain beneficiaries. If a will makes mention of a beneficiary for non-probate property, it is immediately voided in favor of the specifically identified beneficiary for that property.
Examples of Probate Property
- Any piece of property that is owned by the individual; considered probate because they own it and it is not tied to anybody else
- Any sort of bank account that is owned by a single individual
- Any individual interests in business partnerships and LLCs
- Tangible property like cars, jewelry, and furniture
- If multiple people hold a property, it is considered non-probate because ownership gets transferred to the other owners.
- Life insurance is considered non-probate because it identifies certain beneficiaries.
- Retirement accounts are also considered non-probate because they identify beneficiaries.
- Accounts designated as ‘Payable On Death’ (POD) are also non-probate.
Basically, non-probate properties and assets need not concern you that much during estate planning. Why? These types of assets already designate beneficiaries by default. You can include a detailed list of non-probate properties to help organization down the line. Estate planning defines what happens to assets that are not tied to anyone. Who gets the money in your checking account? Who gets your stereo? Who gets your car?
Probate refers to the official legal process by which probate assets are distributed to potential beneficiaries. It’s based on the will. If a will is not present, then things get exceedingly more complicated, as everything must be debated within court. Regardless, it involves three primary steps:
- All the individual’s assets are appraised and designated as probate or non-probate.
- Payments are then made to cover funeral expenses, debts, taxes, and other legitimate claims. The laws pertaining to such payments are complex, but some people are able to get allowances or waivers.
- All relevant property is finally transferred to their new owners. If no will exists, then the court designates who gets what based on state law.
This process is time-consuming and expensive, regardless of whether there is a will. It’s for this reason that trusts exist (to be explained later).
What Does Estate Planning Cover?
A proper estate plan contains four elements, including a will, a health-care proxy, a trust and assignment of power of attorney.
- Will- The will makes up the bulk of estate planning. It lists beneficiaries and sets up the distribution plan for probate estate; it also creates trusts for minors, creates pivotal tax-planning steps, and sets up independent executives to perform all duties of the will. Note that a will only covers probate property. If you do not piece together a will, then probate property gets distributed according to the will of the state.
- Non-Testamentary Trusts These are trusts not included in the will. They are advantageous because they go into effect immediately. Furthermore, beneficiaries can take advantage of them without having to go through the long and time-consuming probate process. If you pass, your beneficiaries immediately get your property, which in term saves them plenty of time and money.
- Durable Power Of Attorney This is a pivotal document that picks an individual to handle all business-related concerns for the individual.
- Medical Power of Attorney This document differs from the previous one only in that the chosen individual gets assigned with taking care of medical decisions. This is important in case the individual develops mental or physical problems that prevent them from making sound decisions.
Occasional Estate Planning Review
One thing to keep in mind is that an estate plan can and should in fact change over time. There are many events and/or conditions that might inspire you to modify your estate plans:
- If the value of your wealth goes up or down by 20% or more within two years, then you should consider updating your plans.
- If you change careers or pursue a new job, you might need to adjust the retirement portions of your estate plan.
- If your children get married, adopt a child, give birth to a child or become incapacitated, you should definitely adjust your estate plan.
- If you buy, sell or liquidate a business or make changes to pension plans, you’ll need to adjust your own estate plans.
- If the trustee, executor, or guardian of your estate plans dies, then you must absolutely replace the individual.
These are just a few of the many reasons you might need to switch up your plans. The key is to regularly review and modify it as the years pass.
Estate Plan Pricing
Estate planning requires the services of a trained attorney. Starting costs range between $500 and $2000, though the price can increase due to complexity — numerous marriages, additional children, etc.
The good news is that you can usually get a consultation for free. It is during the consultation that the attorney will give you an exact price based on the size and composition of your property and the type of documents you want to utilize. You can reduce costs by being prepared: bring all relevant documents, perform the proper research, and follow the attorney’s instructions!
When Should I Start Estate Planning?
It’s literally never too early to get started on your estate planning. The steps to doing this are fairly simple:
- Make an inventory of every single one of your tangible and non-tangible assets. Include EVERYTHING, from ashtrays to investment accounts.
- The next thing you need to do is determine the fate of investments. Do you plan for them to increase? More importantly, who do you believe should inherit them?
- After that, you need to talk with the beneficiaries you chose. You must confirm that they are okay with taking on your accounts.
- The last step involves simply speaking with an attorney.
Tips and Tricks
One of the smartest things you can do in your lifetime is slowly transfer your wealth to your chosen beneficiaries via gifts. At the moment, you can transfer up to $14,000 without inciting the wrath of the IRS. This is a slick strategy to move your wealth without having to contend with taxes.
Also, take advantage of life insurance plans. The money involved in life insurance plans is given out completely tax-free. Suppose for instance that you expect your beneficiaries to pay $50,000 in taxes upon your death. One way to offset this would be by investing in a $50,000 life insurance plan. They would then receive that money and be able to use it to pay off the remaining debts and taxes.
Estate planning is extraordinarily important. Ideally, everybody should start planning in their 30s. Unfortunately, most people wait until the last minute. If you have not already planned your own estate, then we highly recommend you start today! All you really have to do to get started is just speak with an attorney for free. Mind you, we recommend that you first identify assets and pick beneficiaries to save yourself time and money. Nevertheless, the process begins with you, so what are you waiting for!?
About the Author: Victoria K. Stickley is a copywriter, editor, and senior content manager based in the Dallas area. Her graduate education in counseling and research has helped immensely in her writing as well as the care she provides for her grandparents. She currently provides support and resources to senior care websites as she learns and experiences senior care first-hand.