Estate planning is an important topic that too many people put off. Although no one wants to think about what happens at the end of our lives, thinking about estate planning issues in advance can save loved ones time, money, and stress. Additionally, estate planning helps ensure that your resources are distributed according to your wishes, and helps manage your tax liability, instead of leaving the matter to a probate court.
A will is a document that arranges the distribution of all of your assets after you die, and arranges for the payment of outstanding debts or taxes. A will might also assign the guardianship of minor children. It can even provide arrangements for the care of a beloved pet. A will names an executor, one person who is responsible for handling your estate and managing the distribution of your assets.
There are a few legal requirements all wills must meet. Any person who drafts a will must have the capacity to do so; in other words, the person must be able to understand the document they are creating. A will must name beneficiaries for some or all of your assets. It must be signed by the testator (the owner of the assets and the writer of the will) as well as by two witnesses. Generally, the witnesses cannot also be beneficiaries in the will.
After a person’s death, their assets go through a legal process called probate before they are distributed to the beneficiaries. If there is no will, a probate judge will appoint an executor. If a will has been produced, the executor will present it to the probate court, which then notifies the creditors of the deceased person, handles the conversion of any assets (from hard assets to cash, for example) and then distributes the proceeds of the will. Without a will, the probate process takes much longer, and more of the estate is diverted to taxes and attorney’s fees.
Some people may choose to include a trust as part of their estate planning strategy. A trust is an arrangement in which a trustee holds the legal title to certain property for a beneficiary. You can place restrictions on the trust that require the beneficiary to meet certain conditions before they can access the assets; for example, a beneficiary might be required to reach a certain age, or enroll in college. Trusts can be either living trusts, which are set up while the asset holder is still living, or testamentary trusts, established in a person’s will. There are many different types of trusts, some of which allow the asset holder to retain control of the trust, and some of which place control in the hands of the beneficiary. One of the major benefits of a living trust is that the assets in trust generally are left outside the probate process. Trusts can also help minimize estate and gift taxes.
The scope and complexity of wills and trusts will be determined by the amount of your assets, as well as whether you have property or investments to deal with. The tax consequences of wills and trusts can be serious and hard for someone who is not a professional to evaluate. Hiring an estate planner, usually an attorney, can help minimize these risks and ensure that your efforts to manage your assets do not trigger any unintended consequences that will trouble your beneficiaries.
Successful estate planning involves starting early, evaluating your assets, deciding on your priorities, talking candidly with your family, and seeking the advice of an estate planning expert. With careful thought and advance planning, you can ensure that your final wishes are respected.