What Is Estate Planning?
Whether young or old, everyone has spent their lifetime accumulating assets. No one can tell you what to do with the things you own. You can spend your assets, give them away, or save and continue to compile and collect more capital.
Estate planning is the process of getting ready for life’s uncertainties and creating contingency plans for any possible significant event that one might have to contend with. As there are sure to be issues in everyone’s lifetime, a solid estate plan should deal with preparing for these challenges and eventually the disposition of property at death.
To better prepare for such eventualities, wills, trusts, powers of attorney, and other legal tools are essential to safeguard assets and provide effective management of those assets.
Estate planning is the design of an individual’s estate, employing the laws of different disciplines. Since estate planning consists of the management of a person’s assets during their life, and disposition after their death, only an expert estate planning attorney should provide legal advice necessary for such a detailed plan.
What Are The Risks of Failing To Make an Estate Plan?
Thorough estate planning gives family members assurance that affairs will be managed properly, no matter what the future brings. Without the proper documents in place, your estate can end up in Probate Court, both while you are alive and after your death. At that point a Judge will make decisions about your well-being and your assets based on the law, not based on your wishes.
Not only does the Probate Court make legal decisions, but your assets are subjected to unwanted expenses which may considerably diminish the estate’s value. With proper documentation from a well-executed estate plan, your assets will be protected from the unnecessary financial burden of going through a lengthy probate process. The proper choices of asset protection in advance will provide long-lasting benefits for the preservation of your estate.
Probate
Probate is the legal process through which the Court sees that your rights are protected while you are alive and, when you die, your assets are distributed to the appropriate persons and that your debts are paid.
If you need assistance in making decisions about your personal welfare, or if you are unable to make these decisions, the Probate Court may appoint a Guardian to make these decisions for you.
If you need assistance in making financial decisions or in managing your finances because you are unable to do so, the Probate Court may appoint a Conservator to make financial decisions for you and to manage your assets.
After you die, if you own assets in your name alone, the Probate Court may appoint a Personal Representative to distribute your assets to the appropriate persons.
I have worked in the Probate Courts since 1973 and know how to navigate this complex legal process.
How To Try To Avoid The Probate Process
There are numerous reasons you might want to prevent probate. It's a lengthy, expensive, and often difficult process. Thankfully, there are a number of ways to prevent it altogether.
Certain estate planning methods, including a living trust and power of attorney, will assist you to eliminate the expenses of probate.
Why Would You Want To Eliminate Probate?
During your lifetime, you may require a Guardian to make medical decisions regarding your personal welfare or Conservator to make decisions regarding your finances and property.
If you need a Guardian or Conservator, there will be substantial annual expenses and court costs to administer this “Living Probate”.
If you die with assets that are only in your name, Probate is the only way to transfer those assets from your name to your beneficiaries. Unfortunately, this undertaking calls for a large amount of paperwork, time, and expense.
Studies have shown that probate costs will amount to 4-10% of the value of your estate. It will also take from six months to two years to complete the probate process. These costs, which include attorney fees and court expenses related to probate, are usually paid from the estate itself, reducing the sum that family and loved ones may possibly inherit.
One other risk of probate is that it will make all documentation a part of the public record. This simply means that anyone may access the information about your assets and beneficiaries.
How Should You Avoid Going Through Probate?
You can protect your loved ones from having to go through the inconvenience and costs of probate by gifting, joint ownership, beneficiary designation, and Living Trusts.
Gifting
You can give away your titled assets during your lifetime. But once a gift is gone, you can't take it back. There may also be tax consequences to a gift which has appreciated during your ownership.
Joint Ownership
Assets owned jointly belong to both joint owners. When one owner dies, the survivor becomes the sole owner of the asset. Joint ownership can be considered an estate plan to avoid probate but it doesn't always work.
If you outlive the joint tenant, or if you die at the same time, probate will be necessary. The creditor of joint owners can take your asset. The spouse of a joint owner can claim a share in a divorce proceeding.
If a joint owner signature is required to transfer the asset, such as real estate, and the joint owner is uncooperative, unavailable or incapacitated, you may not be able to transfer your joint property.
Beneficiary Designation
You can keep assets from being probated by naming beneficiaries on checking accounts, financial investments,retirement and pension plans, shares of stock, bonds, and much more. Accounts will often carry the designation “POD” meaning “Pay on Death” or “ITF” meaning“In Trust For”. These type of accounts will pass directly to the named beneficiaries upon your death, thus avoiding probate.
Living Trusts
A “Living Trust” is a legal document that contains your instructions regarding the management of your assets while you are alive and the distribution of your assets after you die. But, unlike a “Will”, a “Living Trust” avoids probate at death, can control all your assets, and prevent the court from supervising your assets if you become incapacitated.
Probate is required if you die with assets that are only in your name. When you create your “Living Trust”, you transfer assets from your name to the name of your Trust. Your real estate, stocks, CDs, bank accounts, and other investments must be titled in the name of the Trust. Since you no longer have assets in your name because they are in the name of your Trust, probate is unnecessary.
If you have a Living Trust in place, you will not lose control of your assets as the Trust is managed by the Trustee. While you are alive and competent, you are the Trustee. You retain full control over all the assets of the Trust. At the time you create the “Living Trust”, you select a Successor Trustee who will take your place if you become unable to manage the Trust or if you die. The Successor Trustee is your hand-chosen manager.
If you are married and have substantial assets, separate “Living Trusts” for you and your spouse can save a significant amount of Federal estate tax.
How does a trust avoid probate?
Remember that probate is necessary if you die or become incapacitated and you have assets in your name alone. Since you, as a person, no longer own your property because it has been transferred to your trust, Probate is not necessary.
Your Successor Trustee has been named by you to manage your assets for you or transfer your property to your designated beneficiaries.
The following are just some of the benefits of a Living Trust:
- Avoids Probate including multiple probates if you own property in other states
- Prevents court control of assets at incapacity
- Provides maximum privacy
- Provides quicker distribution of assets to your beneficiaries
- May defer distribution of assets to beneficiaries until they reach an appropriate age
- Can reduce or eliminate estate taxes in most cases
- Is Less expensive than Probate
- Is easy to set up and maintain
- Can be changed or cancelled at any time
- Prevents court control of minors’ inheritances
- Can protect dependents with special needs
- Gives you peace of mind
Wills
A “Will” is a legal document stating precisely how a person wants his or her material possessions distributed after death. A “Will” is considered to be executory; that is, it has no effect until you die.
While you are alive you may create, amend or even revoke your “Will”. If you have not taken the time to create a “Will” during your lifetime, each state has laws known as the Laws of Descent and Distribution which dictates who will receive your assets after your death. These laws have different names in different states.
After your death, a “Will” has no effect whatsoever until it is admitted to the Probate Court. The biggest misconception is that after your death, your “Will” is read and your property is transferred. This is the furthest thing from the truth. A “Will” MANDATES probate. In fact, the definition of the word “PROBATE” is “the official proving of a Will”. A “Will” has no effect; it remains executory until it is admitted to Probate.
Although a “Will” is a simple document and relatively inexpensive to create, the cost of probate should be considered in selecting a “Will” as your estate plan.
Durable Power of Attorney/Health Care Power of Attorney/Living Will
The Powers of Attorney, both Financial and Medical, will alleviate the need for the appointment of a Guardian or Conservator and supervision of the Probate Court over your finances and medical needs.
A Durable Power of Attorney is a document that, once signed by you, continues to stay in effect even if you have diminished mental capacity at a later time.
The Durable Power of Attorney is one of the most important and valuable estate planning instruments available. It is a useful way to plan ahead for the possibility that you may become unable to participate in your medical treatment or financial decisions.
The Durable Power of Attorney for Health Care allows you to choose someone you know and trust to make medical treatment decisions for you should you become unable to participate in those decisions. The person you select is often referred to as a Health Care or Patient Advocate.
Your Advocate may be a family member, such as an adult child or spouse or another trusted adult. In the event that your advocate must make end of life decisions, an additional Power of Attorney document referred to as a Living Will, Advanced Directive, or Designation of Patient Advocate is prepared along with the Durable Power of Attorney for Health Care.
The preparation of the Durable Powers of Attorney for both medical and financial purposes is as simple as an email or phone call to me and the documents can be mailed or transmitted to you the same day.
