How Estate Planning Works
Generally, not even a single soul would want to spend time thinking about their death. I mean, there are a lot of things one has to get worried about without having to think about death. Actually, it would be a nice world if we just lived without thinking and worrying about what might happen if we die. However, death is inevitable. Each individual is tasked to plan for it. If you have a family, it is even a greater task. If you don’t have a family, there are close friends and loved ones who survive you. It is a very wise step to make your wishes known in advance so that your assets will go where you want after you are gone from the face of the earth.
Estate planning makes this possible
Estate planning is an act of planning for what happens to your assets when you die or when you become incapacitated. A good estate plan has three goals:
• To correctly place your assets where you want them after you die
• To ensure that your heirs do not have to pay heavy taxes on their inheritance
• To make sure that someone you trust takes care of your affairs even when you are alive and unable to take care of anything or make decisions.
An estate plan is wide. Most of the estate plans include:
• A will
• A trust
• Power of attorney
• Health care proxy
It is often referred to as the last will or testament.it is a legal document used to ensure that what you wish for concerning your possessions is carried out after your death. A will is a very important part of estate planning and it is always a wise decision to have one despite the number of assets you possess. Everyone possesses something valuable for something of great importance to their heirs. Therefore, a will ensures that all these are distributed fairly and without any delay. A will is not only about the distribution of possessions. If you have children, a will is the best plan to state who the guardians of your children will be.
Dying intestate means dying without a will. If you this happens to you, the state court is the one that makes a decision on who among your surviving relatives gets what regardless of what you wanted. Even in situations where you had made your wishes clear when still alive, unless you table them in a legally binding will, no one will observe the wishes. As a result, there can be extremely messy consequences especially regarding child custody, and distribution of assets. For example, if you wanted your best friend to become the guardian of your children and inherit most of the money if you die intestate, there is a high possibility that your children will have one of your blood relatives as a guardian and your possessions will be distributed among your family members. Thinking about this happening after you are dead should send you now to make a legally binding will.
This is a way of passing on of money and other assets to heirs. In numerous ways, trusts are known to be more hassle-free than wills. Trusts do not have to be processed in court. This saves one a lot of costs and delays. Trusts also evade the many taxes posed on inheritance. Depending on your financial position, setting up a trust can be a very wise decision towards handing down your assets. The trusts are not only for the wealthy but also for beneficial for anyone whose estate value is $100, 000 or more. The main reason for setting up a trust is to evade heavy tax rates as well as the costs and the delays associated with the court’s probate process. The probate court is a court that handles will. Therefore, you have an alternative to a will if you cannot be able to afford processing one.
No one wants the tiresome probate proceedings. For the estates whose value is more than $100, 000, they are subject to probate under state law. The sad part is that the probate process typically costs between 2-4 percent of the total value of the estate. This money is used for court proceedings and as legal fees. This is because the one who executes the will has to put down a catalog of the deceased property, cater for any debts and taxes, and then give a proof before the court that the will is valid and legal before he is given the mandate to distribute the property among heirs. To add salt to an injury, probate is always slow because most of the time the courts are busy and there can be delays of up to a year before the heirs get any of the inheritance.
The good news is that trusts avoid probate entirely. The moment you table a trust, all the assets you own and are listed in the trust are considered separate from you and the ownership goes to the trust. A trust consists of three parties:
• The grantor – the person setting up the trust
• The trustee – the person who is in charge of the trust’s assets
• The beneficiary – the heir who will benefit from the trust after the grantor dies
The grantor can be an individual or a couple. It is allowed that the grantor and the trustee be the same person. Most of the trusts are what we call living trusts because they are made when the grantor is alive. Trusts accommodate all sorts of assets including stocks, real estate, bonds, savings accounts, and personal property.
Trusts are known to be cost effective with the estates whose value is $1 million or more. If handled through probate, the taxes on such estates can be quite high. On estates whose value is more than $4 million, the taxes add up to 46%. This percentage is referred to as the gift tax and it increases if your money is willed to your grandchildren and not your children.
Power of attorney and health care proxy
Both the power of attorney and health care proxy go hand in hand. They both allow a trusted person to make decisions for your sake. Power of attorney is where someone else is granted the ability to manage your financial affairs and health care proxy also known as medical power of attorney is where someone is given the power to make decisions concerning your medical condition if you are not in a position to do so.
Making a decision concerning power of attorney is equally important as making a will. This is because it affects you while you are still alive. An agent is a person you choose to carry out your decisions. This person should be fully willing to carry out your decisions responsibly, he or she should be able to understand and support your decisions fully, the person should agree to carry out the decision and above all, they should be a trusted person. Note that you do not have to be incapacitated in order to grant someone power of attorney. For example, one can make their spouse their agent so that they can be able to make decisions and manage finances for them when they are out of town. If you want to have someone who makes decisions for you when you are incapacitated, you need to grant them durable power of attorney. Otherwise, this will go out of effect the moment you get incapacitated.
A medical power of attorney works like a financial one but this one involves medical issues. The person you choose as your agent in this needs to understand the wishes that you have and the philosophy concerning the means taken to make your life longer. For example, if you get into a coma and there are no hopes that you will get through it, your agent has the powers to make a decision on whether or not they should keep you out of life support. Note that it is very key to discuss such issues with your doctor just in case you fall ill.
Trusts are a good way of minimizing costs on estate planning as stated before. Another good way is by making gifts known as inter vivos to your heirs when you are still alive. An individual can give inter vivos worth $12, 000 maximum in a year while couples can give up to $24, 000. All of these are free of tax.
Changing a will or updating an estate plan is possible and it can be done anytime. For most estate planning, you may require the help of a good lawyer and this means there are costs incurred out of this. Making a basic Will may cost between $300 and $2000 while making a basic trust plan costs between $1,600 and $2, 300 for a single person while for couples it is between $1, 800 and $3, 000. Trust plans are inclusive of drafting a will.
Remember, you cannot avoid death. But if you plan carefully, you can prevent hazardous consequences from affecting your family due to financial repercussions.
Mistakes to avoid in estate planning
Every estate plan is made with unique features. But the same mistakes and problems recur across all the plans. However, each classic mistake is avoidable and what is needed is just the knowledge of your plan and creating enough time to work on your estate plan.
Failing to understand the plan
Most people, even the rich and the sophisticate tend to be passive in the presence of a planner. They depend on the planner to ensure that everything is done according to their wish. You should know that it is the work of the planner to ensure that you understand the basics of how the plan works. Do not overlook that. You should insist that the planner spends time taking you through the planning process and if possible, take important notes during the process. This is to avoid having hazy details on your plan and confusing your heirs on your possessions
Failing to update asset ownership
You might have ownership over assets on your own, others may be in a joint title with your spouse, and others may be with your children while others might be in partnerships, vehicles or trusts. These assets need to be reviewed. You should from time to time confirm whether the arrangement still meets your needs, if there are changes in the law that can make the ownership better. You should review your plans to check whether they are up to date or if they may incur unnecessary taxes or become complex. If there is need to update anything, go ahead and do it.
Failing to update powers of attorney
Every estate plan has a power of attorney. The financial power of attorney and the medical power of attorney. There is a high possibility of getting disabled and needing these documents before you need a will and the rest of estate planning. It is sad that some people do not have powers of attorney documents or the ones they have kept are obsolete. Ensure that you possess these documents and make sure that they have been reviewed and are up to date with any new terms
Failing to update the plan
There are different parts of an estate plan that become obsolete for a number of people. There are some parts which may vary from time to time. Ensure that you keep in touch with your plan in case there is a major change in your family so that you can alter the necessary details. These changes may include: birth, marriage, divorce or death.
Estate planning is very important for everyone. Whether you are wealthy or not, every possession that you have need to be accounted for and left in safe hands after your death. Since we are not immortal, we need to plan well for the family and friends we leave behind after our death. This is to avoid many family feuds and unnecessary costs of court proceedings to determine who the heir should be.
Estate Planning Lawyer Free Consultation
When you are ready to work on your estate plan, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506