No one likes to think about their mortality or the potential for being unable to make decisions for themselves. However, putting off estate planning, including drafting a living will, catches many families off-guard and unprepared when incapacity or death strikes.
Never wait to take these steps.
You should also remember that just because you put something in place now doesn't mean you can't change it later. In reality, you should regularly update your estate plan.
Estate Planning 101
Estate planning is a process that determines how others should manage your money and other property if you die or can no longer do so yourself. Estate planning often includes your wishes about the type of medical care you want to receive if, at some point, you cannot communicate those wishes yourself.
This process typically also addresses specific desires for your final arrangements—for instance, whether you want to be buried or cremated. More complex estate plans may include deferring or decreasing estate taxes, shutting down, or transferring a business.
Estate planning isn't a rigid procedure. It's drafting and finalizing one or more documents that give legal authority to your desires for your medical care and property management after you die.
Your estate can include:
- Bank accounts
- Real estate
- Stocks and bonds
- Retirement accounts
- Interest and monies to which you are later entitled (such as securities dividends and insurance proceeds)
Estate planning requires that you consider and answer several questions.
When you begin the process of estate planning, ask yourself:
- What are my assets? What is their current approximate worth?
- What individuals or organizations do I want to give my assets to when I am no longer alive? Do I want to give them away while I am still alive or wait until after my death?
- Are there people I trust to manage these assets during my lifetime if I can't or if management is necessary after my death?
- Who do I want to take care of my minor or dependent children if I can't (whether by death or incapacitation)?
- Who should make decisions about my finances and medical care if I can't?
- Upon my death, what do I desire for my physical remains (donated, cremated, scattered, or buried)?
Your First Step: A Will or Living Trust
Estate planning begins with a will or living trust. A will directs how others should distribute your assets when you are gone. However, it only applies to assets titled in your name and don't otherwise have a beneficiary or another governing contract, such as a life insurance policy.
Even if you have made a legal designation for these assets, they must still go through the probate court process before being distributed to the appointed parties.
Your will does not control jointly-owned property and assets you can designate a beneficiary for (for example, IRAs, 401(k)s, life insurance, annuities, and certain other accounts).
As such, they typically transfer to the surviving owners or beneficiaries without going through probate court. Your lawyer will ensure your beneficiary accounts are all up to date.
Many families and estate planning professionals prefer a revocable living trust in combination with a pour-over will.
With this option, you can:
- Avoid probate court in every state in which you own assets
- Prevent court control of your assets if you ever become incapacitated
- Have all of your assets, including those that require and have beneficiaries, together
- Increase your privacy
- Decrease costs for your trustee since it circumvents court proceedings
Since the trust is revocable, you can change the governing instructions at any point. A pour-over will is a safety net in case you have any assets not funded into your trust. It makes it possible for those assets to be poured over into your trust when you die. Another benefit of a trust is that it can continue when you are no longer around.
Your selected trustee will manage the trust:
- Until your beneficiaries reach the age you want them to inherit the trust
- To provide for a family member with special needs
- To protect the assets from spouses, irresponsible spending, and beneficiaries' creditors
- To provide for future generations
What Is a Living Trust?
A living trust, also known as an intervivos trust, is a legal arrangement that you can use to manage and distribute your assets during your lifetime and after your death.
This estate planning tool provides a comprehensive and flexible way to control your wealth, streamline the probate process, and ensure the efficient transfer of assets to your beneficiaries.
Roles in a Living Trust
A living trust involves three primary roles: the grantor, the trustee, and the beneficiaries. The grantor, often the person creating the trust, transfers ownership of their assets into the trust.
The trustee, who can be the grantor during their lifetime, manages and administers the trust according to the specified terms. The beneficiaries are individuals or entities designated to receive the assets held in the trust at the grantor's chosen time—such as upon the grantor's death or after the beneficiary turns a specific age.
Living Trusts Avoid Probate
One of the significant advantages of a living trust is its ability to bypass the probate process. Probate is the legal procedure that validates a person's will and distributes their assets under court supervision.
Individuals can avoid probate entirely by placing assets in a living trust, ensuring a more private, faster, and cost-effective distribution of their estate. This can be particularly advantageous for those seeking to maintain the confidentiality of their financial affairs and minimize legal expenses.
Two Types of Living Trusts: Revocable and Irrevocable
Living trusts come in two main types: revocable and irrevocable.
A revocable living trust allows the grantor to make changes, amendments, or even revoke the trust entirely during their lifetime. Some individuals want to retain control over their assets and make adjustments as their circumstances change.
On the other hand, altering an irrevocable living trust requires the beneficiaries' consent. While it offers less flexibility, an irrevocable trust provides potential tax benefits and asset protection.
Other Benefits of Living Trusts
Asset protection is another notable advantage of living trusts, especially irrevocable ones. An irrevocable trust shields assets from creditors and legal claims, providing an added layer of security for the grantor's intended beneficiaries. This can help individuals in professions or situations with higher risk of lawsuits.
Living trusts also offer seamless incapacity planning. After a grantor's mental or physical incapacitation, the successor trustee, often a trusted family member or friend, can manage the trust without needing court intervention. This ensures the smooth continuation of financial affairs and the care of the grantor according to their wishes.
Furthermore, living trusts can be instrumental in minimizing estate taxes, especially for larger estates. Properly structured trusts may take advantage of available tax exemptions and deductions, ultimately reducing the tax burden on the estate and maximizing the assets available for distribution to beneficiaries.
While living trusts provide numerous benefits, they require careful consideration and professional guidance during their creation. Consulting an experienced estate planning attorney or financial advisor ensures the trust aligns with the individual's goals, family dynamics, and overall financial strategy.
With careful planning and thoughtful execution, a living trust can manage and preserve wealth for future generations.
What Happens if You Don't Plan Your Estate?
Unfortunately, failing to plan your estate can lead to many consequences for those you love. Suppose you become incapacitated. In that case, only someone appointed by a court can sign for you.
The court will also oversee and control what happens to your assets with a conservatorship or guardianship (the terms used vary by state). This situation frequently becomes time-consuming and expensive. It also goes on public record and may even be challenging to end if you recover from your condition.
If you pass away without a legally binding estate plan, a court-supervised probate proceeding will distribute any assets owned solely in your name per your state's intestacy laws.
Many states provide that your spouse and children each receive a share, even if your children are from a prior marriage or are adults. In this situation, your spouse might only get a small portion of your estate, which might not support them.
If your children are still minors, the court controls their inheritance. If both parents die, the court will appoint a guardian since it's unknown who you wanted as their guardian.
Is Estate Planning Expensive?
Some people shy away from estate planning because they believe it will cost them money. However, attempting to do your own estate planning to save money now can cost your family more later. It may also have consequences that you didn't realize or understand.
An experienced estate planning attorney can provide crucial guidance and peace of mind that your documents are correctly prepared to meet your objectives.
Why You Need an Attorney to Help You Create a Living Trust
Timely Document Updates
Estate planning documents, such as wills and trusts, are not static; they require regular updates to align with life events, changes in financial circumstances, and sometimes even changes in the law.
Your attorney can anticipate the need for amendments during the initial document preparation to accommodate these changes.
Updating a living trust involves more than just making edits; it entails legal considerations that necessitate knowledge of the law. An experienced attorney facilitates a seamless process, aligning your estate plans with current desires, achieving your estate planning goals, and minimizing the potential for family disputes after your passing.
Their commitment to following the necessary steps ensures accuracy and prevents errors that can impact the equitable distribution of your estate.
Trustee Selection Assistance
Appointing a trustee is a vital step in creating a living trust, as this individual manages and monitors trust assets and funds and handles tax filings. Selecting a trustworthy, responsible, and organized trustee can be challenging, especially for those new to the process.
A reputable living trust attorney simplifies this task by explaining trustee responsibilities and providing recommendations. Choosing a trustee you know and trust, preferably someone you have a longstanding relationship with, contributes to your comfort and peace of mind.
Additionally, attorneys can guide you in establishing a successor trustee in case of your incapacity.
Achievement of Estate Planning Goals
A living trust can accomplish specific estate planning goals, such as minimizing tax liabilities, protecting beneficiaries, and planning for disability. Without guidance from an experienced attorney, ensuring these goals are effectively reflected in the trust can be challenging.
Attorneys play a crucial role in determining asset distribution, filing tax returns, and adhering to your wishes. They gather and assess the value of trust assets and maintain accurate records. A qualified estate planning attorney considers all your goals, seeks clarifications, and consults you before devising an effective strategy to achieve them.
Estate Planning Experience
Seasoned living trust attorneys bring a wealth of experience to the table, having handled numerous cases similar to yours. You want their familiarity with potential complications and ability to identify and address emerging issues during trust discussions.
For individuals of advanced age, selecting an attorney highly experienced in elder law ensures that the trust does not hinder future eligibility for government benefits.
Experienced attorneys streamline the trust setup process, ensuring legal compliance, offering objective advice on family-specific strategies, and minimizing both time and costs.
Their precision in trust handling reduces the likelihood of errors that can compromise the validity of your estate plan.
Collaborating with an experienced living trust attorney ensures the creation of a well-crafted estate plan tailored to your state's rules and regulations, enhancing its overall validity and effectiveness.
Your Next Steps
Knowing you have a correctly prepared plan in place—one that includes your instructions, can protect your family, and includes a living trust—will provide your family peace of mind.
Estate planning is one of the most considerate and thoughtful things you can do for those you love. Contact an estate planning attorney in your state today to get started with your estate plan.