People often misunderstand estate planning. Many believe that estate planning is only for the wealthy, and that average people don't need it. That belief is wrong – estate planning offers everyone benefits (even people who are not married or have children). Putting a plan in place to dispose of your assets is beneficial regardless of the amount of assets you have. The greatest benefit might be that your wishes regarding your property will be respected. You will be able to name your heirs, instead of a court doing so.
Besides naming heirs, estate planning lets you create financial vehicles, such as trusts, to help protect your assets. In this way, you can ensure your assets go to your heirs rather than to the government. Additionally, if you become incapacitated in any way, good estate planning will allow the people you designate to help care for you and your property. Estate plans use instruments such as a power of attorney to deal with unexpected events such as a medical disability. Another document you are able to create is a living will. A living will is a way you can make sure that your wishes regarding life-saving measures are known.
Your Will - The Basic Estate Planning Instrument
Any estate plan, regardless of its complexity, will include a will. A will is best drawn up by a professional who will be able to ask you questions you would not have considered on your own, and that must be considered in a thorough will. Things you might need to consider when drawing up a will are what to do with your estate in case of your untimely death, a change in your grown children's families, and the divorce or death of your beneficiaries.
The Advantages of Creating a Will
While writing a will does not encompass all of your estate planning needs, it does confer certain advantages:
- You can name executors and trustees.
- You can empower executors/trustees to invest property.
- You can bequeath property to the heirs you wish.
- You can make donations to the charities of your choice.
- You can make sure that there are enough liquid assets to cover debts, administrative costs, and taxes.
- You can set aside assets as income for survivors during the lengthy probate process.
- You can name guardians and custodians to look after minor children.
In some states a child cannot be disinherited through a will. But in most states, if you expressly state that you want to disinherit a child, your wishes will be honored. As far as charitable donations go, most states limit the amount of the estate that you can leave to charity to 25% if there are surviving spouses, children, grandchildren, parents, or any other heirs. And keep in mind that a will cannot take precedence over the beneficiary(ies) designation on a life insurance policy. All wills should be in writing and signed by two or three able adult witnesses.
Types of Wills
- Attested: Signed by witnesses.
- Holographic: Handwritten — valid in some states with signatures of witnesses.
- Noncupative (nuncupative): Oral will spoken in the company of a specific number of adult witnesses (typically used in cases of terminally ill individuals and written down by someone else).
- Joint wills: Outline the wishes of two or more individuals and is signed by each one. Generally used by married couples. (Considered irrevocable in some states).
An Executor and Your Beneficiaries First, you must name an executor for your estate. Next, you will need to name beneficiaries for your insurance policies, retirement accounts, pensions, and other assets held in accounts. Retirement assets are always passed directly to the beneficiaries you named when setting up accounts, therefore bypassing probate court. Do you Need a Trust? Trusts are flexible legal arrangements that can be utilized as an integral part of your estate plan. They provide:
- Professional asset management.
- Avoid probate.
- Lower taxes.
- Conserve and organize assets.
- Provide an ease and effective way to transfer property to beneficiaries.
You may consider setting up a Trust if your estate's assets are worth more than the applicable exclusion amount of $1,000,000 in 2002 (The new Tax Relief Act will raise this amount to $3.5 million in 2009). You can set up a trust for other reasons, but the reduction of estate taxes is usually a primary motivator. An irrevocable living trust is often used to help reduce estate taxes. A simple irrevocable living trust may allow the assets transferred to its beneficiaries to be treated as gifts, helping to avoid probate. To read more about Trust and Fiduciary Services click here.
Objectives-Estate Planning