Many people believe that their net worth is not high enough or that they do not have sufficient property or assets to consider going through the process of proper estate planning. This is one of the reasons many people do not consider proper estate planning a viable option.
The reality is that effective estate planning tools are available to everyone, enabling people to manage their financial affairs to make it easier for surviving family members to inherit property and assets when the time comes. An estate planning tool ensures a seamless transfer of an individual’s assets, regardless of the size of an individual’s estate, in the desired way defined by the estate holder.
Planning one’s estate is an important responsibility since it specifies in minute detail the method in which an individual intends to have their property divided after death. If there are no predetermined estate arrangements, any of the deceased person’s property and assets will be subject to probate and distributed by an appointed individual who will not have any prior knowledge of the preferences of the person who held the estate.
Having an estate plan that is proportionate to your property will bring you to ease, regardless of the size of your estate. Let’s go through the most common estate planning tools and explain what each can accomplish for you.
Will and Trust
Your attorney will draft a will for you, a legal document specifying who will manage your estate after your passing. You can name a guardian for your little children to take care of them in your will if you want them to be taken care of if you pass away.
A trust is a legal tool that, in contrast to a will, which does not take effect until after the testator’s death, can be established such that it takes effect while the testator is still alive. Assets included in a trust are taken care of and managed by a trustee, who is someone you pick. This is done to benefit the beneficiaries you select to receive the income from the trust. The trustee will keep the assets in their custody until the period you choose, which will be distributed to the beneficiaries.
Even though you already have a trust, your lawyer may advise you to additionally create a pour-over will, which is a specific kind of will that takes precedence over other wills. Pour-over will provide that when the testator passes away, any assets that are not held in trust but still belong to the testator should be transferred to the trust and then dispersed under the terms of the trust. One example of this would be a piece of property that you bought after the trust was signed but didn’t end up transferring into the trust until much later.
A living trust is a great option for people who have significant property and assets and need an estate planning tool that offers the highest assurances that their estate will not be subject to probate court. These people typically opt for trust because it allows them to avoid probate. It’s a legal arrangement in which a person transfers their property and assets into the trust and nominates a benefit. As long as they are still alive, trust creators have complete access to their properties and assets and complete authority over the trust.
After the trust creator has passed away, a successor trustee is appointed to carry out the trust maker’s instructions for the administration of the living trust. The trust creator decides how the beneficiary will get the assets and property, and the designated trustee is responsible for ensuring that this happens under the terms of the trust.
Beneficiaries may be able to save significant amounts of time, money, and aggravation by establishing a living trust. This is because the trust virtually prevents any possibility of real estate or other assets becoming involved in the probate process.
Unlike a last will, a living will is an advance directive to healthcare professionals that provides them with direction on your medical desires if you cannot communicate those requests yourself. Not all the estate planning paperwork you create will be utilized solely after you pass away.
It’s a legal document stating whether you agree to or refuse specified medical procedures if you cannot communicate your wishes. It is of utmost significance for people who have health conditions that worsen over time or are chronic since it gives them the ability to decide what they will and will not consent to.
Power of Attorney
The delegation of decision-making authority to another person is accomplished through a power of attorney. A document granting power of attorney places significant restrictions on the authority of an agent, such as limiting their position to that of your proxy in a transaction in which the principal cannot be present.
However, durable powers of attorney can be utilized to establish a more comprehensive representation even after an individual has lost capacity.
In the context of an estate plan, a durable financial power of attorney allows you to hire someone of your choice to take care of your financial duties if you are incapacitated or unable to communicate. A healthcare power of attorney makes it very apparent who your physicians should speak to if you’re incapable of making decisions for yourself.
Whether or whether you create a will, your heirs may be able to inherit several different sorts of assets from you, such as 401(k) plans and insurance policies. The beneficiaries you name on these accounts precede your will if you have one.
Review the titling of your property to ensure that your real estate investments are protected. You should ensure that the beneficiaries listed on your accounts, particularly those you set up many years ago, are brought up to date. If you want to avoid having your choice challenged in court, choose heirs who are mentally capable and not minor children (those under the age of 21). Additionally, you should think about choosing dependent beneficiaries for added protection.
The Bottom Line
Working with a specialist may give you a much clearer picture of the factors you should consider in light of the particular conditions and demands that apply to your situation. Every individual’s estate requires a one-of-a-kind strategy customized to their assets and wishes.