When people think of estate planning, they tend to focus on the distribution of an individual’s assets and other property when he or she passes away. Although that’s certainly a component of estate planning, there’s much more that a person can do to ensure that his or her intentions and wishes are honored in the case of mental incapacity or upon passing away. This section provides resources related to estate planning, including a discussion of estate laws, tips for creating an estate plan, and an explanation of how probate works. Estate planning allows a person to make decisions that include medical treatment care options and the distribution of property when he or she passes away. Planning ahead provides time to carefully consider and review estate decisions and to create tailored plans that preempt any disputes. As a side benefit, a person who plans ahead will become knowledgeable about important issues such as estate taxes. Keep in mind that estate plans can generally be amended, so you needn’t fear being locked into a rough draft plan that’s created early on in life.
A person who doesn’t plan his or her estate runs the risk of family members fighting over property and over difficult decisions such as end-of-life care. If a dispute over the estate goes to court, expenses can quickly add up, the process can be painfully slow, and in extreme cases, family relationships can be ruined. Land can be troublesome to divide, with the problem compounded if some family members want to sell, against the wishes of other family members.
Types of Estate Plans
As many people know, planning an estate involves the distribution of real property, bank accounts, insurance policies, investments, and/or other assets a person owns when he or she passes away. However, estate planning also includes trusts, school tuition accounts, and other plans that can take effect during a person’s lifetime, and remember that medical care and end-of-life decisions are also forms of estate planning. This section provides an overview of common estate plans, and an attorney can help you to fully understand the plan options available to you.
Estate Planning Factors to Consider
The various forms of estate plans have their unique features and benefits. For example, one type of plan may provide advantageous tax benefits compared to another plan, and certain requirements may apply to one type of plan but not to another. Along with the federal government, states have passed estate laws, and it’s important to understand the laws that apply as you begin planning. If you do so, you can minimize costs and tax payments while tailoring a plan that suits your needs and carries out your intentions. An attorney can help you to understand the basics of estate planning, and he or she can help you to create a plan that reflects your wishes.
Common Estate Planning Mistakes to Avoid
Contrary to popular belief, estate plans are not just for the rich and famous. Most people have at least one thing of value such as money in bank account, a car, a home. The reality is that many people could benefit from having an estate plan in place. Not only can it help maximize the actual value of the estate you’ll pass on to your heirs and beneficiaries, you’ll have an opportunity to make informed decisions concerning how your assets should be handled while you are still alive.
• Not having an estate plan at all. The most common estate planning mistake is not having an estate plan. Unfortunately, no one can escape death, but thoughtful planning for what may occur after your death is one of the most important things you can do to ensure your personal and financial affairs will be handled properly when the inevitable occurs.
• Not updating your will. There are many changes that can take place within a family or business structure, such as births, deaths, divorces, and new property acquisitions. Therefore, to ensure the assets you leave behind are given to those you intend, it is wise to perform a periodic update of your will when these changes take place.
• Not planning for disability. An unexpected or long term disability can often have greater consequences on your personal and financial affairs. Decisions such as who will handle your finances, raise your children, or make healthcare decisions on your behalf are extremely important. Therefore it may be necessary to appoint a power of attorney and/or create a living trust to work on your behalf if you’re unable to do for yourself.
• Not making gifts to reduce your estate tax. A common estate planning mistake is failing to make gifts under your estate plan to reduce your estate taxes. According to the Internal Revenue Code, gifts up to $14,000 a year per spouse may be excluded from estate tax. So gifts made to individuals, groups, or business, are subject to a $28,000 estate tax savings. Not only will this leave more money in your estate for distribution, you can positively impact a specific person or individual cause of your choosing.
• Putting your child’s name on the deed. When you put your child’s name on the deed to your home, you are essentially giving your child a hefty sized taxable gift. While gifts up to $14,000 are excluded from estate tax, gifts more than $14,000 per spouse are taxable. Instead, create an estate plan that passes on the home or value via an inheritance.
• Choosing the wrong person to handle your estate. Sometimes the person you think is the best choice for executor of your estate is not always the case. For example, while you may think your spouse or child may be best suited to handle the affairs of the estate when you are gone, there may be someone else who is not as personally invested to objectively handle the extensive duties and demands required of an executor, trustee, or guardian.
• Not transferring your life insurance policies to a life insurance trust. A life insurance policy is subject to a hefty estate tax when you die, resulting in most of the proceeds going to the IRS instead of your intended beneficiaries. One way to avoid this is to set up a life insurance trust to act as the owner of your life insurance policies. This way you avoid hefty estate taxes being placed on the insurance proceeds, and spare your spouse or beneficiary any undue hardship in waiting up to several months for a pay-out of the insurance proceeds.
• Not taking advantage of the federal exemption (per spouse). For married couples, one of the easiest ways to save on estate taxes is to fully use the federal exemption for each spouse.
• Procrastinating. Even for those who realize an estate plan can benefit them; this realization sometimes comes too late in time. To avoid the stress of not having a proper estate plan in place, it would be wise to meet with an estate planning lawyer to help you at least draw up a basic estate.
• Not meeting with an experienced legal, financial, or tax professional. Not meeting with an estate planning lawyer or other professional is probably the most common mistake a person might do, especially if you have complicated assets or if you have doubts about your own ability to draft an estate plan. An experienced attorney can provide you with tax-planning strategies based on the particular needs and demands of your estate.
Steps to Create an Estate Plan When Hiring An Attorney
• Gather your assets. Inventory everything you own, from cars to collectibles.
• Protect your family. Think about if you have adequate life insurance to leave your family in a position where they could maintain the life you currently lead.
• Determine the plan that’s best for you. Decide what type of Estate Plan you need.
• Choose who you would like to be guardian of your children/pets/self. If you have children or pets, or if you care for another loved one who cannot care for themselves, you want to choose a guardian. You can also name the person you would want to make medical and/or financial decisions on your behalf should you ever become unable to do so for yourself.
• Determine and establish the necessary directives. There are several directives you should include in your Estate Plan, including but not limited to; Durable Power of Attorney, Medical care directive and Limited Power of Attorney – LPOAs are less commonly used (Durable POAs are more frequently the norm), though an LPOA can be appropriate in some instances.
• Name your Beneficiaries. Some documents and accounts will have Beneficiaries already designated. These could include retirement plans and life insurance policies, to name a few. But there are other assets you should note in your Will or Trust if you’d like to leave them to a specific person. If there is an opportunity, you should name contingent Beneficiaries. Keep in mind that Beneficiary designations will only go into effect after you pass, so if you become incapacitated and unable to make decisions, you need to have prepared for more than simply naming Beneficiaries.
• Find a trusted partner. Explore your options for creating your Estate Plan. This can be face-to-face with an attorney or you may choose to use another service provider. You have options, but some are going to be much more expensive than others. If you don’t have an overly-complicated estate, working with a partner like Trust & Will could be the perfect solution to starting on the path of Estate Planning.
• Create your plan. If you’re using an online program to create your Estate Plan, be sure to go through all the steps and finalize everything.
• Sign and notarize your Estate Plan. Don’t forget to check how many witnesses your state requires.
• Notify your Executor. It’s a good idea to let the person you chose to be your Executor know of your intentions.
• Store your Estate Planning documents. Put your Estate Plan in a safe place where your loved ones can easily find it. A fireproof safe is a good idea.
• Update as needed over time. There isn’t a hard rule about when you should update your Estate Plan, but a good rule of thumb is try to update it whenever you have a major life event (birth of a child, death of someone important to your plan, marriage, divorce, etc.). And if you find you haven’t had any life events in recent years, try to review and update as needed every 3 – 5 years.
A trust is a document in which someone (the trustee) manages and distributes assets on behalf of the individual who creates the trust. To establish a trust, the individual (called the grantor or settlor) signs a legal document that creates the trust and specifies the terms under which it will operate. In the document, the grantor names a trustee to manage the trust assets and distribute the trust property to the beneficiary (or beneficiaries) named in the trust document. The trustee is obligated to administer the trust and distribute the property according to the terms specified in the trust document and in compliance with applicable laws. A substantial body of law governs trusts.
Types of Trusts For Estate Planning
Trusts can be characterized in several different ways. An inter vivo or living trust is one that takes effect during the grantor’s lifetime. In contrast, a testamentary trust takes effect on the grantor’s death (although the grantor executes the trust document during his or her lifetime).
A trust also can be either revocable or irrevocable. A revocable trust can be changed or terminated by the grantor at any time. An irrevocable trust cannot be altered or terminated by the grantor after it is established, except by the terms of the trust or by a court. A revocable living trust is a special type of trust that is part of many estate plans. In most living trusts, the grantor is also the trustee and beneficiary of the trust during his or her lifetime. On the grantor’s incapacity or death, the trust becomes irrevocable. A successor trustee then manages the property according to the terms of the trust document. Typically, the successor trustee ultimately distributes the assets to the named beneficiaries following the grantor’s death. A trust is a valuable and flexible estate planning tool. It can accomplish many different purposes. Every trust is uniquely designed to address the goals of the grantor who creates it. Some of the common reasons for using a trust in an estate plan include:
• Protecting a family legacy into the future, including preventing claims by future ex-spouses and creditors
• Addressing the special inheritance concerns that arise in a blended family
• Providing management of the inheritance of minor children
• Taking care of a child or adult with special needs
• Providing financial management for beneficiaries who are financially irresponsible or have substance abuse or other addiction issues (spendthrift trusts)
• Protecting assets as part of Medicaid planning for long term care needs
• Minimizing estate taxes and avoiding probate
While trusts are the right approach for many situations, they are not the best solution for all circumstances. If you establish a trust without assistance from an experienced estate planning attorney or use a form or online service to create a trust, you may not accomplish what you intend. A do-it-yourself approach also can create legal problems that are extremely difficult to resolve or discovered too late to fix.
Benefits of Including a Trust in Your Estate Plan
Including a trust in an estate plan provides a number of benefits. One important advantage is that a trust enables the grantor to control how property and assets are distributed to beneficiaries after the grantor’s death. That benefits contrasts with the lack of control over property distributed through a will, which goes immediately and entirely to named beneficiaries.
A trust has a number of other important benefits as well, such as:
• Avoiding probate for property and assets
• Maintaining privacy of individual and family financial information
• Protecting assets into the future, in the event of the grantor’s incapacity or death
• Taking care of family members with special needs, while preserving eligibility for public benefits
Free Initial Consultation with Estate Planning Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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