Budget Planning
Financial Planning
Estate Planning
Wills and Trusts and Estate Planning: Facts You Should Know
What Makes Up Your Estate?
Your “estate” consists of everything you own – all your property and property rights, including assets that have loans against them. You do not stop owning property when you die. It must pass to a living beneficiary, as the deceased cannot own property.
Statistics on Who Has A Will
The number of people with wills has been steadily declining in the new millennium, according to a 2020 survey by Caring.com. The number of American adults who have wills dropped by nearly 25% in 2020 compared to 2017. Even seniors are less likely to have wills. Their numbers declined by 20% in 2019, and the number of middle-aged adults with wills dropped by 25% during that timeframe.
When You Die With A Will
A will ensures that your wishes are carried out, if possible, and that your property is distributed the way you choose. It can also make the legal documentation process for your estate much easier.
Will vs. No Will
Not having a will at death does not mean your loved ones will avoid probate. Estates without a will still require the legal documentation process, but state law steps in to determine who receives your property because you have not specified your wishes in a will.
Managing the Legal Documentation of Estates Without a Will
Each state has a system that outlines the steps for managing the legal documentation of estates without a will, but the typical process goes as follows:
- Someone initiates a case in probate court.
- The court determines there is no will and appoints an administrator instead of an executor, usually a family member or heir.
- The administrator gathers the deceased’s assets, identifies the heirs, and notifies the deceased’s creditors.
- The administrator sells estate assets to pay the deceased’s debts, taxes, and estate management costs, such as attorney and accounting fees.
- The administrator distributes the remaining proceeds and assets according to the intestate succession schedule outlined in state law.
Untitled Assets
Some assets may pass directly to an heir if there is no need to transfer the legal title to the property. For example, furniture and jewelry are unlikely to have documentation proving ownership.
Assets That Pass Outside of Probate
Some assets will pass directly to your heirs outside of probate even if you left a will. Your spouse will have exclusive ownership of their share in community property if you are married and live in one of the community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Washington. Some assets pass automatically because they are deemed contractual in nature – you have designated a beneficiary who will receive ownership upon your death. This includes life insurance proceeds, retirement accounts, and many savings accounts. Bank accounts often have “payable on death” provisions that allow you to designate a successor.
The Role of Trusts in Estate Planning
A trust is an entity or agreement that allows you, as the grantor or trustor, to transfer property to a person known as the trustee for the benefit of a third party known as the beneficiary.
Trusts are often used in estate planning to take advantage of favorable tax treatment, to impose restrictions on the use or distribution of assets, or to allow heirs to hold assets without the probate process.
The trustee holds the assets in a fiduciary capacity. They have a significant responsibility to ensure that the assets are preserved for the benefit of the beneficiaries.
Revocable vs. Irrevocable Trusts
Revocable trusts can be changed after assets are transferred into them during your lifetime. This type of trust can provide significant flexibility during your lifetime, including the ability to revoke or dissolve the trust as your needs change. You can designate a successor trustee to take over responsibilities upon your incapacity or death.
Irrevocable trusts
Irrevocable trusts cannot be changed once assets are transferred into them. Irrevocable wills cannot be revoked or undone – asset transfer is permanent. However, irrevocable wills often provide the best estate tax consequences.
Revocable wills will become irrevocable after your death, as you are no longer available to modify or revoke them.
Wills for Specific Purposes
There are many different types of wills, and state law will determine which are recognized in your state. Wills are also subject to certain federal laws, particularly regarding how they are treated for estate tax purposes. Federal estate taxes may apply if the value of the estate exceeds a certain minimum threshold.
Restricted wills can be used to protect your assets, allocate grants gradually under certain conditions, to heirs who are not fully responsible for money. Special needs trusts ensure that a beneficiary with special needs has sufficient assets to meet those needs without affecting their government benefits. Life insurance wills gather life insurance on the grantor and manage it for the beneficiaries. It is irrevocable and can be used to avoid estate taxes. QTIP wills provide income to the spouse and then pass the remaining assets to other heirs.
Be Prepared
Wills and trusts can be used to achieve many goals and can be flexible based on your needs and wishes. Ensuring that those needs and wishes are carried out requires careful planning in selecting the best wills or best provisions for your estate.
Source: https://www.thebalancemoney.com/wills-estate-planning-4842123
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