Estate Planning, put simply, is the process of arranging one’s affairs for when they pass away. This can usually be accomplished through the use of living trusts and wills. To most, the concept of estate planning sounds relatively straightforward. You probably feel that you should dictate how and to whom your assets are distributed after you pass away, with little concern for any other issues that may arise. The reality of estate planning, however, is not always so simple. There are a number of factors to consider when preparing an estate plan, including, but by no means limited to, the following:
• The value and types of your assets
• Your current and future income
• Your distribution desires
• Your mental and physical condition
• Other objectives, such as leaving a legacy, providing for a charity, taking care of your children or grand-children, or proving for someone with special needs
The most common estate planning instruments are wills and living trusts. There is a common misconception about the need to have a living trust. Many assume that they only need a simple will to best take care of their affairs when they pass away, and that only the wealthy need to have a trust. While this may be true in some instances, it often also leads to unexpected results.
A will is a document that lists how you would like your estate and affairs handled upon your death. The process by which this is accomplished is called probate, which is when a will is submitted to a court for administration after your death. The executor of the will, usually a person named in the will, is responsible for managing the affairs of the estate as it progresses through probate. The court will oversee your estate, payment of your outstanding obligations, and distribution of your assets according to the terms of your will.
This process typically takes a number of months at a minimum to complete, usually involves your executor having to hire an attorney to handle the entire process, and is quite expensive for the estate. Further, since your will is submitted to the court, it becomes a public record for the entire world to see, which is problematic for those who desire a sense of privacy over their financial affairs.
A living trust is also a document that details how you would like your estate and affairs handled after your death. However, unlike a will, a living trust does not require your heirs to submit to the probate process.
The trustee of the trust, usually the person or company identified in the trust to handle the affairs of the trust, is responsible for managing the trust estate until the trust terminates pursuant to the terms of the trust. The terms of the living trust usually describe how one’s assets are to be distributed. Further, this distribution can occur over many years if you so desire, thereby allowing you to retain a measure of control over your assets even after your death. You may also be able to place other restrictions over your assets, which can help to protect the assets from the creditors of your heirs or to ensure that your goals and objectives are met. Moreover, since your living trust is not submitted to a court, the terms of your living trust are kept out of the public domain.
Which Do You Need?
The determination of whether to choose a living trust or a will depends on a number of factors. In general, in Nevada, the main factor to consider is the value of an estate. For persons who do not own any real property and have an estate worth less than $20,000.00, the entanglement of the probate process is minimal. In such a scenario, only an Affidavit of Entitlement is needed to transfer assets. For people in this category, it is usually recommended to have a simple will.
For those who own real property or have an estate worth more than $20,000.00, probate can get more complicated and costly. In these situations, it is usually advantageous to have a living trust. While it is usually less expensive to prepare a will than it is to create a living trust, this minimal savings is more than offset by the expense and burden of probate. However, as with most things that deal with your legal rights, your unique present and future state of affairs will dictate how you should best plan your estate.
In general, the main advantages of having a living trust instead of just a simple will are as follows:
1. Minimize Probate – If properly funded, probate can be minimized, if not entirely avoided, by using a living trust.
2. Tax Planning – There are limits on the exemptions one can claim from your estate having to pay Federal Estate Taxes. For married couples, proper use of certain clauses in your living trusts can maximize the benefits of these exemptions, thereby saving more money for your heirs.
3. Protect Assets – While the creator(s) of a living trust generally will not be able to protect their assets from their own creditors simply by placing their assets into a living trust, with proper drafting, you can protect the assets included in the living trust from the creditors of your heirs.
4. Special Circumstances – One of the better features of living trusts are their flexibility. You can prepare a living trust to accommodate all types of unique situations, such as the special needs of an heir, desire to regulate the manner in which distributions are made to an heir, etc. Lastly, in order to take full advantage of the benefits of a living trust, it is vitally important to make sure that the trust is properly funded. This ensures that all relevant assets are included in the trust. If not done properly, a situation can arise where one’s heirs may have to probate an estate even though there is a living trust, which completely circumvents one of the main advantages of having a living trust.
Tax and Legal Issues for Estate Planning
Estate planning refers to the process of transferring assets in anticipation of death. Typically, estate planning attempts to preserve a majority of an individual’s wealth for beneficiaries, while maintaining flexibility before the person dies. Tax and legal issues are major concerns of adequate estate planning. Generally, an estate is defined as real or personal property owned by an individual. Real property includes real estate such as a house or land. Personal property may include financial accounts, vehicles and household items. An individual’s beneficiaries receive the real and personal property through the estate plan.
Trusts and Wills
Trusts and wills have many similarities related to the distribution of a person’s wealth. However, there are distinct legal differences. A trust outlines a right to real and personal property. The assets are held by a trustee considered reliable and honest in administering the trust after a person’s death. A trust is not susceptible to probate court, which can become a costly legal battle over distribution of assets.
A will is a written, legal declaration by an individual for distribution of his or her wealth. A will also includes real and/or personal property. However, some wills are susceptible to legal opposition in probate court. Relatives of the deceased may contest a will if certain legal standards are not met.
Tax Issues for Estate Plans
In most cases, assets of a person’s estate are subject to an estate tax, a tax levied against real or personal property before transference occurs. Regardless of how property is distributed, an individual is subject to the estate tax. Another tax is an inheritance tax. This is paid by the beneficiaries who receive real or personal property from an individual. Typically, the taxes are higher after an individual dies. Therefore, many people choose to transfer the property before death. In an attempt to avoid lower taxes, transference before death is subject to gift tax laws. Gift tax laws attempt to prevent large estates from avoiding tax payments through lifetime giving. In addition to federal tax laws, some states may also have an estate tax.
Legal Issues for Estate Plans
Unless all beneficiaries agree to the distribution of a will, the estate plan is subject to probate court. This process can prove cumbersome and depending on the size of the estate, may cost more to contest than the estate’s value. Most probate cases are resolved within nine months; however, complicated taxes or other issues could prolong the process.
Working With the Probate Office Is Simplified With Estate Planning
The probate office is the place where people go when they need to settle a decedent’s estate; legally change their name; obtain a marriage license; or record adoption and guardianship. While many types of proceedings are performed here, one of the more prevalent is settling probate estates. Dealing with the probate office can be made easier by undertaking estate planning strategies. In fact, estate planning can help people avoid probate or at least minimize the assets that have to be reported.
It’s always best to talk with an estate planner or probate attorney to make certain assets are protected properly. However, most people find it helpful to spend time learning about the different kinds of strategies and available options before setting up consultations.
The probate process tends to be perceived as a negative issue by most people. With proper planning probate isn’t that difficult. It can be a lengthy process, especially if court dockets are full, or if relatives fight over inheritance property. Another thing that slows down probate is when people die without writing a Will.
Everyone of legal age can benefit from executing a last will and testament. This document provides a lot of helpful information about estate settlement procedures including appointing an estate agent and designating beneficiaries to receive inheritance gifts.
The last Will is used to provide written instructions, while estate planning is needed to safeguard financial assets and personal belongings. Transferring property to other people upon death involves filling out beneficiary forms.
Beneficiaries can be established for all types of financial accounts including checking, saving, retirement accounts, financial investments, and contents held in safety deposit boxes. Setting up beneficiaries to receive money in bank accounts is a very simple, but often overlooked estate planning strategy. Account holders only need to fill out a form to provide the name, address, birth date, social security number, of each beneficiary and the percentage of funds they are to receive.
Funds that are placed in financial investments and retirement accounts can be gifted to beneficiaries as well. People that receive inheritance cash from these types of accounts can choose to open a new account and transfer funds or take lump sum cash.
Titled property, such as real estate and cars, doesn’t have to endure probate if property owners establish joint titles. It’s always a good idea to speak with a lawyer when setting up beneficiaries for titled assets because required documents vary by state. In order for the estate to be legally closed, estate agents have to record the last Will and death certificate through the probate office, unless assets are protected by a trust.
The process normally takes 4 to 6 months, but has been known to extend for years when lawsuits are filed against the estate.
In most states, small estates receive exemption from the process as long as a Will is recorded through the probate office. Exempt estates typically are placed in a 45 day confirmation period before property is transferred to beneficiaries.
Estate Planning Mistakes That You Must Avoid
1. They have no estate plan at all. This is the worst mistake that people living in Snydervile Utah make and it is the most common mistake of all. It can also be the most expensive and lead to the worst results. Most people postpone preparing their estate plan until they reach an age where they realize that death is not so far off. Big mistake. The reasoning may be, “I’m young, no need to worry about that now” or, “My estate isn’t big enough”, or in many cases it probably never crosses their minds.
There are no guarantees in life. Every day, we read or hear stories about someone who dies young. Even if you are in the best of health, accidents happen.
What are the consequences of having no estate plan?
First, if you are young, and have a very small estate, you likely have children who are not yet grown. Who will care for them? Who will manage your estate and pay for your children’s education? Who will be responsible for their religious training and who will be encouraging them to go to college?
If you have no estate plan, a judge will decide all these issues. A judge will pick your children’s legal guardian (managing their inheritance), and will choose the guardian of their persons, (raising them). A judge may well select someone that doesn’t match your desires. He could even appoint a lawyer, bank or professional trustee to manage the estate. These people must be paid and they don’t come cheap. Your parents or your spouse’s parents may have a strong influence over a court. Godparents are not automatic choices. The personal guardian he appoints may not share your beliefs or religion. The whole process will be in court, will also be very expensive and could take years. Even if you have a very small estate, this is a major reason to have some estate plan. Do not leave these decisions to others.
Secondly, if you have your own business, having an estate plan is critical. With no estate plan, you will have no say as to what becomes of your business, who gets it, and all other decisions that would have to be made when you are no longer there. Also, without a living trust, every aspect of your business, including finances will become public and available to your competitors.
Thirdly, depending on your State of residence, with no estate plan the probate judge will award your estate according to the laws of distribution in your state. Normally this is a part to your spouse and the rest to your children in equal shares. Is that your desire? Or would you rather give it all to your spouse while he or she lives? If you leave no instructions behind, you will have no say in the distribution.
Finally, with no estate plan, you cannot avoid probate. The nightmare of probate should be avoided if at all possible. Probate is the court process for distribution of all estates except very small estates and those with Living Trusts. It is lengthy, public, expensive, and often devastating to families. For more information, review our website information. It’s really frightening.
2. Mistake 2 is trying to pass assets to heirs by using joint tenancy. Joint ownership is as bad as or worse than having no estate plan at all. Joint tenancy is most frequently used to pass on the family home. If you put your home into joint tenancy with others, your home becomes vulnerable to that person’s problems. If your joint tenant goes bankrupt, your property will be one of their assets. You could lose your home. If they get divorced, your home will be involved. If they have an auto accident without enough insurance, your home could be taken to satisfy a judgment. The biggest problem is that you lose control. You want to sell and move?
You will need your joint tenant’s signature. Want to refinance? Signatures needed again. What if you change your mind? You can’t change anything without the joint tenant’s signature. Then there is the loss of the step up in tax basis that would normally occur on your death. What that means is that after you are gone and your joint tenant owns the property free and clear, their tax basis in the property will be the same as your tax basis, (Normally what you paid for the property years ago). When they sell, their gain on the property (taxable as a capital gain) will be based on your purchase price instead of the value of the property at the time of your death. If you have owned the property for a long time, the consequences could be financially catastrophic.
3. Mistake 3 is having a Will. Most of our lives, we hear that all we need to disburse our estate is a Will. For most people, this is a bad idea. A Will is a one way ticket to probate court. There is no way to disburse an estate left by a Will without going through probate. Your executor will have to hire an attorney.
That attorney will likely charge a percentage of the estate as a fee, regardless of the time spent. Probate can drag on for years. Probate is public. That means that everyone who is interested can see your entire estate, including business competitors. Probate fees are expensive. Details must be published in the newspaper. A Will is easy to challenge, even if the challenger has no attorney. Selling real estate through probate is very difficult and nearly always results in the property being sold well below market prices. Lengthy probate often leads to resentment between heirs and your executor as heirs are usually anxious to get their share quickly. In probate court, your wishes are subject to a judges interpretation and a judges desire to consider the welfare of children over your written instructions. Your wishes may not always be followed.
People believe that Wills are cheaper than Living Trusts. This is a misconception. Yes, a simple Will is relatively inexpensive. Most people need much more than a simple Will. By the time you include all the provisions that you need, it is going to cost just as much as a Living Trust. It is true that you can do almost everything in a Will that you can do in a Living Trust. But, if your will is as complete as your Trust, it will be no bargain and will still subject your estate to probate. A Living Trust will be disbursed in weeks instead of years, is completely private, assures that your wishes will be followed, requires no courts or attorneys and the costs of each, will allow for a quick and effective sale of real estate assets, and will ease the stress on family members. It is virtually always better than a Will.
4. Leaving large gifts to heirs who are not mature enough to handle the responsibility is mistake. This is a hugely common mistake. People assume that they will live to an old age and that children will be mature enough to handle their inheritance. Just when you think you have everything in order, something happens to upset your best laid plans. An unexpected illness or accident can escalate the distribution of your estate to a child who is 18 or 19. (Some children don’t mature until much later.) Even a 25 to 30 year old may not be equipped to handle a large disbursement. There’s nothing much worse than having the estate you worked so hard for be wasted in a couple of years or less by an immature heir.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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