What Is Estate Planning And How Does It Work?

You have an estate, believe it or not. Almost everyone does, in fact. Your estate includes everything you own, including your automobile, home, other real properties, bank accounts, investments, life insurance, furnishings, and personal belongings. Everyone has an estate, no matter how great or little, and they all have one thing in common: they can't take it with them when they die.

When that happens (and it will), you'll probably want to have a say in how those items are distributed to the individuals or organizations you care about the most. You must offer instructions describing who you want to get something from you, what you want them to receive, and when you want them to receive it to guarantee that your desires are followed out. Of course, you'll want to pay the least amount of taxes, legal fees, and court charges possible.

That is estate planning: establishing a plan ahead of time, designating the individuals or organizations who will inherit your belongings when you die, and taking efforts now to make carrying out your plan as simple as possible afterwards. However, proper estate planning entails much more. It should also include the following features:

• Include instructions for your care and financial affairs if you become incapacitated before you die, such as disability income insurance to replace your income if you are unable to work due to illness or injury, long-term care insurance to help pay for your care if you are unable to work due to an extended illness or injury, and life insurance to provide for your family in the event of your death.
• Provide for the transfer of your business at your retirement, disability, incapacity, or death.
• Cater for special needs family members without disqualifying them from government assistance
  minimize taxes, court costs, and unnecessary legal fees by funding assets into a living trust, completing or updating beneficiary designations, or otherwise aligning your assets with your estate plan, which may include funding assets into a living trust, completing or updating beneficiary designations, or otherwise aligning your assets with your estate plan.

Importantly, estate planning is a continuous process rather than a single event. As your family and financial circumstances (as well as the applicable laws) change over time, you should examine and update your plan.

 

Everyone Should Plan Their Estate

It isn't only for retirees, though as individuals become older, they tend to worry about it more. Unfortunately, we can't foresee how long we'll live, because accidents and illnesses strike individuals of all ages.

People who have earned money may think more about how to protect it, but estate planning is not only for the rich. Because the loss of time and money as a result of inadequate estate planning is more damaging, good estate planning is generally more significant for families with modest holdings.

 

Too Many People Do Not Plan Ahead Of Time

People put off estate planning because they believe they do not own enough, they are too old, it will be too expensive or complex, they will have enough time later, they do not know where to begin or who can assist them, or they simply do not want to think about it. When anything bad occurs to them, their loved ones are left to pick up the pieces.

If you don't have one, your state will make one for you—but you might not like it. Only someone designated by a court can sign for you if your name is on the title of your assets and you are unable to conduct business due to mental or physical disability. Through a conservatorship or guardianship, the court will oversee and ultimately regulate how your assets are utilized for your care (depending on the term used in your state). It may be costly and time-consuming, it is public record to some extent, and even if you recover, it might be tough to terminate.

If you die without a proper estate plan, any assets you possess in your name that don't have a beneficiary designation or other controlling contract will be divided according to your state's intestacy rules, which is usually done through a court-supervised probate process. Even if your children are from a previous marriage or are no longer minors, in many states, if you are married and have children, your spouse and children will each receive a portion. That implies your spouse may only receive a portion of your wealth, which may be insufficient to support you. If you have minor children, the court will decide how their inheritance will be distributed. If both parents die (for example, in a car accident), the court will appoint a guardian without your knowledge.

Wouldn't you prefer that these concerns be addressed privately by your family, rather than through the courts, if you had the option? Wouldn't it be nice to have complete control over who gets what and when? And, if you have small children, wouldn't it be nice to have a voice in who would care for them if you are unable to?

 

A Will Or Living Trust Is The Foundation Of Any Estate Plan

A will specifies your wishes, but it does not prevent probate. A will only specifies how assets titled in your name are dispersed if there is no beneficiary designate or other controlling instrument. Before the assets may be given to your designated beneficiaries, they must still go through the probate court in your state. (If you possess property in other states—usually real estate—you may need numerous probates, each according to the rules of that state.) Although the procedure differs widely from state to state, it can be costly due to attorney's fees, executor commissions, and court costs. It might take anywhere from a few months to two years or more to complete. Probate procedures are open to the public, with few limitations, and your creditors and any excluded heirs are advised of their right to submit a claim for payment of a debt or a piece of your assets. In other words, the method and timing of payouts to your beneficiaries are controlled by the court system, not your family.

You won't have to go through probate for everything you own. Jointly-owned property and assets that allow you to name a beneficiary (for example, life insurance, IRAs, 401(k)s, annuities, and some other accounts) are not governed by your will and will normally pass to the remaining owners or beneficiaries without going through probate. However, there are several issues with joint ownership and estate planning utilizing these arrangements. Furthermore, avoiding probate is not assured. If no legitimate beneficiary is nominated, for example, the assets must go through probate and will be dispersed together with the rest of your estate. If you identify a juvenile as a beneficiary, the court will almost certainly order a guardianship until the kid reaches the state's legal age of majority, which is usually between the ages of eighteen and twenty-one.

Many families and estate planning specialists favor a revocable living trust (coupled with a pour-over will) for these reasons. Establishing and funding a revocable living trust can help you avoid probate at death (including multiple probates if you own property in multiple states), avoid court control of your assets if you become incapacitated during your lifetime, bring all of your assets (including those with beneficiary designations) into one plan, and increase your privacy. Because the trust is revocable, you can amend the instructions regulating it at any moment. In the event that any assets are not financed into your trust during your lifetime, the accompanying pour-over will allows for such assets to be poured over into your trust after your death.

Unlike a probate, which must come to an end at some point, a trust can last indefinitely. Assets can remain in your trust, managed by the trustee you choose, until your beneficiaries reach the age at which you want them to inherit, or longer to provide for a loved one with special needs, protect the assets from creditors, spouses, and irresponsible spending, or provide for future generations.

Because a funded trust can prevent court participation at incapacity and death, an estate plan that contains both a living trust and a pour-over will is more likely to avoid fees and costs later than an estate plan that simply includes a will.

Planning your estate will assist you in organizing your records and ensuring that your titles and beneficiary designations are correct.

If something occurred to you, would your family know where to look for your financial records, titles, and insurance policies? Now is the time to start planning your estate so you can collect and arrange your information and papers, as well as detect and remedy errors.

The majority of individuals don't pay much care to the language they use in titles and beneficiary designations. Even if you have the best of intentions, an unintentional blunder might cause complications for your family if you become incapacitated or die. Beneficiary designations are frequently out-of-date or incorrect. Inadvertently naming the wrong beneficiary on a tax-deferred plan might result in severe tax implications. Correcting titles and beneficiary designations now can save your family time, money, and taxes in the future.

 

It Isn't Always Expensive To Plan Your Estate

It's critical to realize that attempting to perform your own estate planning to save money today may wind up costing your family more in the long run and may have unintended repercussions. An competent estate planning attorney can offer crucial advice and give you piece of mind that your paperwork are appropriately arranged to suit your goals.

 

Now Is The Best Time To Start Planning Your Estate

We don't like to think about our own death or the thought of not being able to make our own judgments. This is precisely why, when disability or death occurs, so many families are caught off guard and unprepared. Don't put it off. You can put something in place now and adjust it later, which is how estate planning should be approached.

 

The Most Important Advantage Is Peace Of Mind

It will offer you and your family peace of mind to know that you have a well-prepared plan in place, one that contains your instructions and will safeguard your family. One of the most kind and courteous things you can do for your loved ones is to create an estate.