Generally, not even a single soul would want to spend time thinking about their death. I mean, there are a lot of things one has to get worried about without having to think about death. Actually, it would be a nice world if we just lived without thinking and worrying about what might happen if we die. However, death is inevitable. Each individual is tasked to plan for it. If you have a family, it is even a greater task. If you don’t have a family, there are close friends and loved ones who survive you. It is a very wise step to make your wishes known in advance so that your assets will go where you want after you are gone from the face of the earth.
Estate planning makes this possible
Estate planning is an act of planning for what happens to your assets when you die or when you become incapacitated. A good estate plan has three goals:
• To correctly place your assets where you want them after you die
• To ensure that your heirs do not have to pay heavy taxes on their inheritance
• To make sure that someone you trust takes care of your affairs even when you are alive and unable to take care of anything or make decisions.
An estate plan is wide. Most of the estate plans include:
• A will
• A trust
• Power of attorney
• Health care proxy
It is often referred to as the last will or testament.it is a legal document used to ensure that what you wish for concerning your possessions is carried out after your death. A will is a very important part of estate planning and it is always a wise decision to have one despite the number of assets you possess. Everyone possesses something valuable for something of great importance to their heirs. Therefore, a will ensures that all these are distributed fairly and without any delay. A will is not only about the distribution of possessions. If you have children, a will is the best plan to state who the guardians of your children will be.
Dying intestate means dying without a will. If you this happens to you, the state court is the one that makes a decision on who among your surviving relatives gets what regardless of what you wanted. Even in situations where you had made your wishes clear when still alive, unless you table them in a legally binding will, no one will observe the wishes. As a result, there can be extremely messy consequences especially regarding child custody, and distribution of assets. For example, if you wanted your best friend to become the guardian of your children and inherit most of the money if you die intestate, there is a high possibility that your children will have one of your blood relatives as a guardian and your possessions will be distributed among your family members. Thinking about this happening after you are dead should send you now to make a legally binding will.
This is a way of passing on of money and other assets to heirs. In numerous ways, trusts are known to be more hassle-free than wills. Trusts do not have to be processed in court. This saves one a lot of costs and delays. Trusts also evade the many taxes posed on inheritance. Depending on your financial position, setting up a trust can be a very wise decision towards handing down your assets. The trusts are not only for the wealthy but also for beneficial for anyone whose estate value is $100, 000 or more. The main reason for setting up a trust is to evade heavy tax rates as well as the costs and the delays associated with the court’s probate process. The probate court is a court that handles will. Therefore, you have an alternative to a will if you cannot be able to afford processing one.
No one wants the tiresome probate proceedings. For the estates whose value is more than $100, 000, they are subject to probate under state law. The sad part is that the probate process typically costs between 2-4 percent of the total value of the estate. This money is used for court proceedings and as legal fees. This is because the one who executes the will has to put down a catalog of the deceased property, cater for any debts and taxes, and then give a proof before the court that the will is valid and legal before he is given the mandate to distribute the property among heirs. To add salt to an injury, probate is always slow because most of the time the courts are busy and there can be delays of up to a year before the heirs get any of the inheritance.
The good news is that trusts avoid probate entirely. The moment you table a trust, all the assets you own and are listed in the trust are considered separate from you and the ownership goes to the trust. A trust consists of three parties:
• The grantor – the person setting up the trust
• The trustee – the person who is in charge of the trust’s assets
• The beneficiary – the heir who will benefit from the trust after the grantor dies
The grantor can be an individual or a couple. It is allowed that the grantor and the trustee be the same person. Most of the trusts are what we call living trusts because they are made when the grantor is alive. Trusts accommodate all sorts of assets including stocks, real estate, bonds, savings accounts, and personal property.
Trusts are known to be cost effective with the estates whose value is $1 million or more. If handled through probate, the taxes on such estates can be quite high. On estates whose value is more than $4 million, the taxes add up to 46%. This percentage is referred to as the gift tax and it increases if your money is willed to your grandchildren and not your children.
Power of attorney and health care proxy
Both the power of attorney and health care proxy go hand in hand. They both allow a trusted person to make decisions for your sake. Power of attorney is where someone else is granted the ability to manage your financial affairs and health care proxy also known as medical power of attorney is where someone is given the power to make decisions concerning your medical condition if you are not in a position to do so.
Making a decision concerning power of attorney is equally important as making a will. This is because it affects you while you are still alive. An agent is a person you choose to carry out your decisions. This person should be fully willing to carry out your decisions responsibly, he or she should be able to understand and support your decisions fully, the person should agree to carry out the decision and above all, they should be a trusted person. Note that you do not have to be incapacitated in order to grant someone power of attorney. For example, one can make their spouse their agent so that they can be able to make decisions and manage finances for them when they are out of town. If you want to have someone who makes decisions for you when you are incapacitated, you need to grant them durable power of attorney. Otherwise, this will go out of effect the moment you get incapacitated.
A medical power of attorney works like a financial one but this one involves medical issues. The person you choose as your agent in this needs to understand the wishes that you have and the philosophy concerning the means taken to make your life longer. For example, if you get into a coma and there are no hopes that you will get through it, your agent has the powers to make a decision on whether or not they should keep you out of life support. Note that it is very key to discuss such issues with your doctor just in case you fall ill.
Trusts are a good way of minimizing costs on estate planning as stated before. Another good way is by making gifts known as inter vivos to your heirs when you are still alive. An individual can give inter vivos worth $12, 000 maximum in a year while couples can give up to $24, 000. All of these are free of tax.
Changing a will or updating an estate plan is possible and it can be done anytime. For most estate planning, you may require the help of a good lawyer and this means there are costs incurred out of this. Making a basic Will may cost between $300 and $2000 while making a basic trust plan costs between $1,600 and $2, 300 for a single person while for couples it is between $1, 800 and $3, 000. Trust plans are inclusive of drafting a will.
Remember, you cannot avoid death. But if you plan carefully, you can prevent hazardous consequences from affecting your family due to financial repercussions.
Mistakes to avoid in estate planning
Every estate plan is made with unique features. But the same mistakes and problems recur across all the plans. However, each classic mistake is avoidable and what is needed is just the knowledge of your plan and creating enough time to work on your estate plan.
Failing to understand the plan
Most people, even the rich and the sophisticate tend to be passive in the presence of a planner. They depend on the planner to ensure that everything is done according to their wish. You should know that it is the work of the planner to ensure that you understand the basics of how the plan works. Do not overlook that. You should insist that the planner spends time taking you through the planning process and if possible, take important notes during the process. This is to avoid having hazy details on your plan and confusing your heirs on your possessions
Failing to update asset ownership
You might have ownership over assets on your own, others may be in a joint title with your spouse, and others may be with your children while others might be in partnerships, vehicles or trusts. These assets need to be reviewed. You should from time to time confirm whether the arrangement still meets your needs, if there are changes in the law that can make the ownership better. You should review your plans to check whether they are up to date or if they may incur unnecessary taxes or become complex. If there is need to update anything, go ahead and do it.
Failing to update powers of attorney
Every estate plan has a power of attorney. The financial power of attorney and the medical power of attorney. There is a high possibility of getting disabled and needing these documents before you need a will and the rest of estate planning. It is sad that some people do not have powers of attorney documents or the ones they have kept are obsolete. Ensure that you possess these documents and make sure that they have been reviewed and are up to date with any new terms
Failing to update the plan
There are different parts of an estate plan that become obsolete for a number of people. There are some parts which may vary from time to time. Ensure that you keep in touch with your plan in case there is a major change in your family so that you can alter the necessary details. These changes may include: birth, marriage, divorce or death.
Estate planning is very important for everyone. Whether you are wealthy or not, every possession that you have need to be accounted for and left in safe hands after your death. Since we are not immortal, we need to plan well for the family and friends we leave behind after our death. This is to avoid many family feuds and unnecessary costs of court proceedings to determine who the heir should be.
When people think of estate planning, they tend to focus on the distribution of an individual’s assets and other property when he or she passes away. Although that’s certainly a component of estate planning, there’s much more that a person can do to ensure that his or her intentions and wishes are honored in the case of mental incapacity or upon passing away. This section provides resources related to estate planning, including a discussion of estate laws, tips for creating an estate plan, and an explanation of how probate works. Estate planning allows a person to make decisions that include medical treatment care options and the distribution of property when he or she passes away. Planning ahead provides time to carefully consider and review estate decisions and to create tailored plans that preempt any disputes. As a side benefit, a person who plans ahead will become knowledgeable about important issues such as estate taxes. Keep in mind that estate plans can generally be amended, so you needn’t fear being locked into a rough draft plan that’s created early on in life.
A person who doesn’t plan his or her estate runs the risk of family members fighting over property and over difficult decisions such as end-of-life care. If a dispute over the estate goes to court, expenses can quickly add up, the process can be painfully slow, and in extreme cases, family relationships can be ruined. Land can be troublesome to divide, with the problem compounded if some family members want to sell, against the wishes of other family members.
Types of Estate Plans
As many people know, planning an estate involves the distribution of real property, bank accounts, insurance policies, investments, and/or other assets a person owns when he or she passes away. However, estate planning also includes trusts, school tuition accounts, and other plans that can take effect during a person’s lifetime, and remember that medical care and end-of-life decisions are also forms of estate planning. This section provides an overview of common estate plans, and an attorney can help you to fully understand the plan options available to you.
Factors to Consider
The various forms of estate plans have their unique features and benefits. For example, one type of plan may provide advantageous tax benefits compared to another plan, and certain requirements may apply to one type of plan but not to another. Along with the federal government, states have passed estate laws, and it’s important to understand the laws that apply as you begin planning. If you do so, you can minimize costs and tax payments while tailoring a plan that suits your needs and carries out your intentions. An attorney can help you to understand the basics of estate planning, and he or she can help you to create a plan that reflects your wishes.
Common Estate Planning Mistakes to Avoid
Contrary to popular belief, estate plans are not just for the rich and famous. Most people have at least one thing of value such as money in bank account, a car, a home. The reality is that many people could benefit from having an estate plan in place. Not only can it help maximize the actual value of the estate you’ll pass on to your heirs and beneficiaries, you’ll have an opportunity to make informed decisions concerning how your assets should be handled while you are still alive.
• Not having an estate plan at all. The most common estate planning mistake is not having an estate plan. Unfortunately, no one can escape death, but thoughtful planning for what may occur after your death is one of the most important things you can do to ensure your personal and financial affairs will be handled properly when the inevitable occurs.
• Not updating your will. There are many changes that can take place within a family or business structure, such as births, deaths, divorces, and new property acquisitions. Therefore, to ensure the assets you leave behind are given to those you intend, it is wise to perform a periodic update of your will when these changes take place.
• Not planning for disability. An unexpected or long term disability can often have greater consequences on your personal and financial affairs. Decisions such as who will handle your finances, raise your children, or make healthcare decisions on your behalf are extremely important. Therefore it may be necessary to appoint a power of attorney and/or create a living trust to work on your behalf if you’re unable to do for yourself.
• Not making gifts to reduce your estate tax. A common estate planning mistake is failing to make gifts under your estate plan to reduce your estate taxes. According to the Internal Revenue Code, gifts up to $14,000 a year per spouse may be excluded from estate tax. So gifts made to individuals, groups, or business, are subject to a $28,000 estate tax savings. Not only will this leave more money in your estate for distribution, you can positively impact a specific person or individual cause of your choosing.
• Putting your child’s name on the deed. When you put your child’s name on the deed to your home, you are essentially giving your child a hefty sized taxable gift. While gifts up to $14,000 are excluded from estate tax, gifts more than $14,000 per spouse are taxable. Instead, create an estate plan that passes on the home or value via an inheritance.
• Choosing the wrong person to handle your estate. Sometimes the person you think is the best choice for executor of your estate is not always the case. For example, while you may think your spouse or child may be best suited to handle the affairs of the estate when you are gone, there may be someone else who is not as personally invested to objectively handle the extensive duties and demands required of an executor, trustee, or guardian.
• Not transferring your life insurance policies to a life insurance trust. A life insurance policy is subject to a hefty estate tax when you die, resulting in most of the proceeds going to the IRS instead of your intended beneficiaries. One way to avoid this is to set up a life insurance trust to act as the owner of your life insurance policies. This way you avoid hefty estate taxes being placed on the insurance proceeds, and spare your spouse or beneficiary any undue hardship in waiting up to several months for a pay-out of the insurance proceeds.
• Not taking advantage of the federal exemption (per spouse). For married couples, one of the easiest ways to save on estate taxes is to fully use the federal exemption for each spouse.
• Procrastinating. Even for those who realize an estate plan can benefit them; this realization sometimes comes too late in time. To avoid the stress of not having a proper estate plan in place, it would be wise to meet with an estate planning lawyer to help you at least draw up a basic estate.
• Not meeting with an experienced legal, financial, or tax professional. Not meeting with an estate planning lawyer or other professional is probably the most common mistake a person might do, especially if you have complicated assets or if you have doubts about your own ability to draft an estate plan. An experienced attorney can provide you with tax-planning strategies based on the particular needs and demands of your estate.
Steps to Create an Estate Plan
• Gather your assets. Inventory everything you own, from cars to collectibles.
• Protect your family. Think about if you have adequate life insurance to leave your family in a position where they could maintain the life you currently lead.
• Determine the plan that’s best for you. Decide what type of Estate Plan you need.
• Choose who you would like to be guardian of your children/pets/self. If you have children or pets, or if you care for another loved one who cannot care for themselves, you want to choose a guardian. You can also name the person you would want to make medical and/or financial decisions on your behalf should you ever become unable to do so for yourself.
• Determine and establish the necessary directives. There are several directives you should include in your Estate Plan, including but not limited to; Durable Power of Attorney, Medical care directive and Limited Power of Attorney – LPOAs are less commonly used (Durable POAs are more frequently the norm), though an LPOA can be appropriate in some instances.
• Name your Beneficiaries. Some documents and accounts will have Beneficiaries already designated. These could include retirement plans and life insurance policies, to name a few. But there are other assets you should note in your Will or Trust if you’d like to leave them to a specific person. If there is an opportunity, you should name contingent Beneficiaries. Keep in mind that Beneficiary designations will only go into effect after you pass, so if you become incapacitated and unable to make decisions, you need to have prepared for more than simply naming Beneficiaries.
• Find a trusted partner. Explore your options for creating your Estate Plan. This can be face-to-face with an attorney or you may choose to use another service provider. You have options, but some are going to be much more expensive than others. If you don’t have an overly-complicated estate, working with a partner like Trust & Will could be the perfect solution to starting on the path of Estate Planning.
• Create your plan. If you’re using an online program to create your Estate Plan, be sure to go through all the steps and finalize everything.
• Sign and notarize your Estate Plan. Don’t forget to check how many witnesses your state requires.
• Notify your Executor. It’s a good idea to let the person you chose to be your Executor know of your intentions.
• Store your Estate Planning documents. Put your Estate Plan in a safe place where your loved ones can easily find it. A fireproof safe is a good idea.
• Update as needed over time. There isn’t a hard rule about when you should update your Estate Plan, but a good rule of thumb is try to update it whenever you have a major life event (birth of a child, death of someone important to your plan, marriage, divorce, etc.). And if you find you haven’t had any life events in recent years, try to review and update as needed every 3 – 5 years.
A trust is a document in which someone (the trustee) manages and distributes assets on behalf of the individual who creates the trust. To establish a trust, the individual (called the grantor or settlor) signs a legal document that creates the trust and specifies the terms under which it will operate. In the document, the grantor names a trustee to manage the trust assets and distribute the trust property to the beneficiary (or beneficiaries) named in the trust document. The trustee is obligated to administer the trust and distribute the property according to the terms specified in the trust document and in compliance with applicable laws. A substantial body of law governs trusts.
Types of Trusts
Trusts can be characterized in several different ways. An inter vivo or living trust is one that takes effect during the grantor’s lifetime. In contrast, a testamentary trust takes effect on the grantor’s death (although the grantor executes the trust document during his or her lifetime).
A trust also can be either revocable or irrevocable. A revocable trust can be changed or terminated by the grantor at any time. An irrevocable trust cannot be altered or terminated by the grantor after it is established, except by the terms of the trust or by a court. A revocable living trust is a special type of trust that is part of many estate plans. In most living trusts, the grantor is also the trustee and beneficiary of the trust during his or her lifetime.
On the grantor’s incapacity or death, the trust becomes irrevocable. A successor trustee then manages the property according to the terms of the trust document. Typically, the successor trustee ultimately distributes the assets to the named beneficiaries following the grantor’s death. A trust is a valuable and flexible estate planning tool. It can accomplish many different purposes. Every trust is uniquely designed to address the goals of the grantor who creates it. Some of the common reasons for using a trust in an estate plan include:
• Protecting a family legacy into the future, including preventing claims by future ex-spouses and creditors
• Addressing the special inheritance concerns that arise in a blended family
• Providing management of the inheritance of minor children
• Taking care of a child or adult with special needs
• Providing financial management for beneficiaries who are financially irresponsible or have substance abuse or other addiction issues (spendthrift trusts)
• Protecting assets as part of Medicaid planning for long term care needs
• Minimizing estate taxes and avoiding probate
While trusts are the right approach for many situations, they are not the best solution for all circumstances. If you establish a trust without assistance from an experienced estate planning attorney or use a form or online service to create a trust, you may not accomplish what you intend. A do-it-yourself approach also can create legal problems that are extremely difficult to resolve or discovered too late to fix.
Benefits of Including a Trust in Your Estate Plan
Including a trust in an estate plan provides a number of benefits. One important advantage is that a trust enables the grantor to control how property and assets are distributed to beneficiaries after the grantor’s death. That benefits contrasts with the lack of control over property distributed through a will, which goes immediately and entirely to named beneficiaries.
A trust has a number of other important benefits as well, such as:
• Avoiding probate for property and assets
• Maintaining privacy of individual and family financial information
• Protecting assets into the future, in the event of the grantor’s incapacity or death
• Taking care of family members with special needs, while preserving eligibility for public benefits
Estate Planning Lawyer Free Consultation
When you are ready to work on your estate plan, please 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