If you have children, assets, or children and assets, estate planning is a must. Avoiding estate planning is risky because it leaves the fate of your finances — and more importantly, the welfare of your minor children — up to others not of your choosing if you pass away (i.e. the courts). Even if your child-rearing days are behind you, it is so much easier on your loved ones if your last wishes are spelled out in a legal document.
But knowing that estate planning needs to be done doesn’t necessarily make it any easier to get it done, especially if you aren’t sure exactly what you need. Is drawing up a Last Will and Testament enough? How about a trust? What is a trust? Unless you’re an attorney, you might not know the answers to these questions.*
What Is a Will?
A will is a legal document that instructs how you want your assets (financial and material) distributed after your death. In it you can appoint your executor/executrix/personal representative, name your beneficiaries, designate guardians for your children, and leave specific instructions as to how and when your beneficiaries receive their inheritances. What people don’t always understand is that wills are submitted to the probate court governing where the decedent last lived (a trust lets you to avoid this, but we’ll get to that in a minute). While the idea of probate court might sound scary, it really isn’t. All the probate court judge will do is ensure the will is legal and valid. A valid will also gives the person you designate as your executor the legal right to administer your estate, allowing them to move forward with tasks like resolving outstanding financial liabilities and distributing assets to your beneficiaries.
Probate matters, however, can get dicey when you don’t have a will. It can take much longer to settle an estate and cost more money, especially if litigation becomes necessary. It can create strife among your loved ones, each of whom may have their own ideas about what your intentions were. In legal terms, dying without a will is called “dying intestate.” When you die intestate, your state’s intestacy succession laws determine who will inherit your assets. Let’s say, for example, you are unmarried but live with your longtime partner who has a child you love dearly, your parents have passed away, and you have no children of your own. However, you have three siblings, and you’re estranged from all of them. Without a will, in some states your estate would pass to the three of your siblings in equal shares, leaving your longtime partner and their child with no legal right to your assets. Having a valid will in place would ensure that your partner and their child could inherit the whole of your estate.
Bottom line: If you haven’t done so already, create a will. An estate attorney specializes in drafting wills, among other estate documents. If you have straightforward last wishes, an estate attorney can draw up a document quickly and probably for less money than you think, anywhere from $150 to $600, according to LegalZoom, with the average cost being around $375. Another benefit to hiring an attorney is that they can help you sort out all of the confusing details that can come up while getting your affairs in order. They will also be able to tell you whether you’re a good candidate for a trust (see below).
Can’t afford an attorney? Companies like Legal Zoom and Rocket Lawyer, as well as a software program like Quicken WillMaker Plus allow you to create your Last Will and Testament quickly and for a reasonable cost, or you can check if your employer offers the service as a benefit. If you’re a member of the military or a lawful military dependent, you have access to free legal counsel through a Judge advocate (JAG). Find the nearest legal assistance office near you:
- Air Force Legal Assistance Directory: https://aflegalassistance.law.af.mil
- Army: http://myarmybenefits.us.army.mil
- Navy/Marine Corps: http://www.jag.navy.mil/legal_services.htm
- Coast Guard: https://www.dcms.uscg.mil/ppc/legal/
- DoD Military Installation Directory
What Is a Trust?
A trust is a legal entity, existing for the sole purpose of protecting the assets in your estate. Typically, trusts are recommended for people with significant assets, in part because they can be expensive to create and administer, often upwards of $5,000. You might still need a will for things like appointing a guardian for your children, but a trust will cover your estate’s finances and allow the details of your finances to remain private, as a trust passes outside of probate.
While a will determines how your assets will be distributed after you die, a trust becomes the legal owner of your assets the moment the trust is created. There are numerous types of trusts out there, but an irrevocable trust is most relevant in the world of personal estate planning. As the name implies, an irrevocable trust cannot be revoked once it is created; in other words, if you put property in the trust, you cannot take it out. This is ideal for people who want to avoid probate and keep the details of their estates private. (Wills are public record.) An irrevocable trust also allows you to make more detailed provisions regarding the use of your estate, as well as offers you protection from creditors or potential litigants.
For many people, however, the number one reason for creating an irrevocable trust is the tax advantage. If you have a trust, the first $11.4 million in assets ($22.4 million for a married couple) are not subject to estate taxes. You can also gift an additional $11.4/$22.4 million tax free. If your estate is large, this setup creates an attractive tax savings.
Few people like to think about their eventual demise, but the fact is, whether we like it or not, we have an expiration date in the future. Think of it this way: deciding how you want your worldly belongings and assets distributed will make it easier for your loved ones to move forward with their own lives when you’re gone.
*This blog is not a substitute for professional legal advice — consult an attorney to discuss your individual estate planning requirements.
When you're ready to plan for the future, download our Savvy Guide to Estate Planning. Our free guide takes the fear and worry out of creating an estate plan and tells you what you need to know to get it done. Download your copy here.
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