- What is “estate planning”?
- What is in my “estate”?
- What estate property passes under my will?
- But aren’t wills just required when you get older?
- What if I haven’t gotten around to doing a will when I die?
- So I need to do a will?
- What is a living trust?
- Are there any other things to think about in estate planning?
1. What is “estate planning”?
Estate planning, in its simplest form, is planning for what will occur when an individual or a couple pass away. Unfortunately, many people don’t like to think about what will happen when they are gone, and consequently, what the individual thought would happen when he or she passed away does not occur. Perhaps the estate was diminished unduly by estate taxes. Or perhaps litigation costs and fees were unduly charged to the estate because of squabbling over who should get what portion of the estate. Or perhaps someone received the estate assets, even though the deceased individual thought for sure it would go to someone else. These and many other unforeseen results can be avoided or minimized with proper estate planning. The objective of estate planning is to carry out your wishes for your estate.
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2. What is in my “estate”?
Your estate consists of all your property, including:
- your home and other real estate,
- tangible personal property such as cars and furniture, and
- intangible property like insurance, bank accounts, stocks and bonds, and pension and social security benefits.
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3. What estate property passes under my will?
Much of your property will pass under your will. Land, houses, and personal property often pass under a person’s will. Some property, however, is governed by contractual arrangements that determine who receives it when you die. Some examples of this type of property are life insurance policies, IRA’s and pension plans. Other property may be set up to avoid probate by employing a form of ownership that passes it to a co-owner upon your death. Any form of property that does not end up being passed under your will is called a “non-probate asset.” When you die, these forms of property do not go through probate, the process of distributing the property governed by your will.
4. But aren’t wills just required when you get older?
Only if you can guarantee you won’t die until “you get older.” Common sense tells us that anyone can die at any age. Far too many young and middle age people die suddenly, often leaving behind minor children who need care and direction. Estate planning will not only address who is to receive your property, it will direct who is to administer it if you have minor children, who should care for those minor children until they are grown, when your children should receive your property, how children or other heirs with disabilities should be cared for, and many other considerations.
Most people also plan for mental or physical incapacity resulting from an accident, illness or the natural aging process. Through living wills, health-care powers of attorney, and other documents, they control beforehand how they and their property are to be cared for if disaster strikes. These are all issues that know no age limitations.
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5. What if I haven’t gotten around to doing a will when I die?
If you die without a will that you prepared, it is called dying intestate. Your property still must be distributed. But by not leaving a valid will or trust, or transferring your property in some other way, such as through insurance or pension benefits, you've in effect left it to state law to write your will for you. This doesn't mean that your money necessarily will go to the state. But it does mean that the state will make certain assumptions about where you'd like your money to go--assumptions with which you might not agree.
Intestate descent laws prefer "blood" over "marriage," assuming--perhaps wrongly--that the more closely related you are to someone, the more likely you'd want your property to go to him or her. Some of your hard-earned money might end up with people who don't need it--for example, your grown child who already has more than you do. Meanwhile, others who might need the money more, or who are more deserving, could be shortchanged, such as that favorite niece of yours, or your other child, who has had trouble finding steady work. And surviving relatives may squabble over who gets particular items of your property, since you didn't make these decisions before you died.
Unfortunately, intestacy laws might also fail to provide adequate support for your spouse. For example, if you leave a spouse and no children, Texas will split real property that is your separate property between your spouse and your parents, or if only one parent survives you, between your spouse and the surviving parent and your siblings. Most people want their spouse to get all their property, but if they don't leave a will that probably won't happen.
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6. So I need to do a will?
Yes, probably. If your entire estate (not counting exempt property such as your homestead, furnishings and certain other items) is valued at less than $50,000, you may be better off without a will, but even then you should discuss with an attorney where your property will go when you die. If your estate is greater than $50,000, you would most likely be better off with a will or some other form of estate planning.
And if you are married, both you and your spouse should have a will. But estate planning is more than just a will. In some instances you might want to put your property into a living trust.
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7. What is a living trust?
A living trust is a form of ownership for your assets. It is a written legal document that partially substitutes for a will. With a living trust, your assets (your home, bank accounts and stocks, for example) are put into the trust, administered by a trustee for your benefit during your lifetime, and then transferred to your beneficiaries when you die. Most of the distribution terms that you might include in a will can all be included in a trust.
A living trust can help ensure that your assets will be managed according to your wishes-even if you become unable to manage them yourself. During your lifetime, you may serve as the initial trustee of your living trust or you may choose someone else to do so. You can name a trustee to take over the trust's management for your benefit if you ever become unable or unwilling to manage it yourself. At your death, the trustee-similar to the executor of a will-would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions. Unlike a will, however, this is normally all done without court supervision or approval. That can be a good thing, but it also may expose your estate to the vagaries of a trustee who is not acting in your best interest or those of your living trust’s beneficiaries.
Living trusts can have many benefits including, among others, providing for the management of your estate while you are unable to handle it yourself, avoiding probate, and maintaining a certain degree of privacy to your affairs. Disadvantages of a living trust are, among other things, that to obtain maximum benefit from the trust you must transfer all of your assets that would be subject to probate into the trust (“fund the trust”) and maintain them within the trust, the initial cost to create and fund the trust may be higher than the cost of creating a will, and a living trust may result in more paperwork than if you held the assets yourself. Deciding whether you should have a will or a living trust is something you should decide with the advice of your estate planning attorney.
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8. Are there any other things to think about in estate planning?
You also should think about whether you would like someone designated to make medical decisions for you if you are unable to do so. Similarly, you may wish to designate someone to make financial decisions for you (like paying your bills) if you are incapacitated. And you should think about whether you want life sustaining measures taken in certain circumstances.
Once you complete the initial phase of your estate planning (preparing wills, trusts and related documents), you will need to review your non-probate property to be sure it follows your wishes and fits well with your estate planning documents.
These and other issues can be discussed and planned for at the time you meet with your estate planning attorney. The attorney can provide you information about the law and what choices you have, and you can decide what action you need to take.
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