The process of estate planning is often misunderstood. In the minds of many people, the term assumes wealth and heirs. Single people of modest means may mistakenly believe they don’t “need” estate planning. However, planning for the disposition of one’s assets upon death offers everyone significant benefits.
The greatest benefit may be in knowing that your wishes will be respected. Naming your heirs and relieving them of unnecessary costs and stress by carefully designating which assets they will receive is far preferable to having a court make such decisions. Estate planning should include not only designating your heirs but also possibly using tools such as trusts to protect your assets. This will help ensure they go to the people you care about rather than to the government. And, in the event of mental or physical incapacity, an estate plan can enable other people to help care for you and your property through a durable power of attorney and a health care proxy. You may also want to include a living will among your estate planning documents so your physician knows your wishes regarding life-saving measures in hopeless situations.
Writing It Down: Begin Here
A will is the basis of any estate plan, simple or complicated. To draw up your will, you should consider using the services of an attorney qualified to do estate planning. Although you may think you know your own mind and can do it yourself, an estate planning professional will ask you tough questions you may not have considered. Could your elderly parents manage an inheritance if they were to survive you? Do you want to include your children’s spouses in your estate? If your estate could be affected by the death of a child and/or divorce, then you should consider how these two painful situations might affect the distribution of your assets.
The first name to settle on is that of your executor. Next will be the beneficiaries of your insurance policies. Beneficiaries, and contingent beneficiaries, of assets in retirement accounts, such as pensions, 401(k) plans, and Individual Retirement Accounts (IRAs), are kept on record with the retirement plan administrator, and these nominations take precedence over your will. Retirement plan assets pass directly to the beneficiaries, bypassing probate court unless the estate is named.
Similarly, beneficiaries of mutual funds and other securities holdings are also listed with the custodians who handle these accounts. These listings are made on a transfer on death registration, enabling ownership of the securities to pass directly to the appropriate person. The disposition of other assets, such as real estate and personal property, will also be included in your will.
You’ll want to make sure that you have considered all of your assets when you designate your beneficiaries.
Time for a Trust?
If you find your estate—including your home, pensions, and investments—totals more than $5.43 million in 2015, it may be time for a trust. In particular, an irrevocable living trust (ILIT), which means it cannot be modified or canceled by the creator, is often used to keep assets out of an estate. At its most basic, such a trust allows the transfer of assets to beneficiaries to be treated as a gift— thereby avoiding probate court—which could save your heirs time and money.
Regardless of the level of your net worth, there are a number of reasons why you should consider an estate plan. Take steps now to ensure your wishes will be implemented and followed and that provisions will be made for your dependents and loved ones.
We work with a team of estate attorneys that have your best interest in mind. To learn more about what type of trust might be right for you, schedule a meeting below.