Many hold the widespread misconception that estate planning is a subject of interest only to the wealthy. The reality is that estate planning is a larger process consisting of the use of legal tools like wills, trusts, and directives to determine what happens to you, who gets your assets, and how they get them during your life in the event you’re unable to decide for yourself and after your death.
In fact, an estate plan provides a legal mechanism for disposing of property upon death and with proper planning it will recognize your wishes and the needs of your survivors. It can and should also include planning for the handling of affairs in case of disability, and the deeply personal medical choices that may need to be made as life nears its end.
You might be asking yourself, “What happens if I don’t do any estate planning?” The simple answer is that an estate plan has already been put in place for you by the government. The governments plan consists of a legal mechanism called “probate” – let’s take a look at the government system and a few alternatives that you may find more agreeable.
Probate
For those who haven’t done any type of estate planning, your heirs still have a legal method for distributing your assets at your death. Called Probate, it is the state’s method for determining how your assets should be dispersed and who they should be dispersed to in the event that you don’t leave any specific legal instructions. In the event you die without a will or trust in place, your estate is said to be “intestate.”
So what’s included in someone’s probate estate? All solely owned property, plus any and all other property interests that do not pass to somebody else by “operation of state law “– that means anything and everything that doesn’t have a specific beneficiary or joint owner at the time of death.
What Is a Probate? — powered by eHow.com
For example, if a house is held jointly with right of survivorship, your spouse under the rights of survivorship gets 100% ownership at the very moment of your death. The house would not be included in any probate proceedings because of the predetermined legal ownership change.
In instances where there aren’t any predetermined beneficiary or ownership privileges – most common with stocks, bonds, and other investments, including property, cars, and business interests held solely by the deceased are included in and subject to probate.
It is important to note that most states will charge a fee (basically a tax) to help your heirs determine where your assets should go.
Wills
A “Will” or “testament” is a legal declaration by which a person, the testator, names one or more persons to manage his estate and provides for the transfer of his property at death. In the strictest sense, a “Will” has historically been limited to real property, while “testament” applies only to dispositions of personal property, though this distinction is seldom observed today.
Wills come in many different styles, but they all provide a legal method of informing your heirs and your states probate systems of your wishes regarding the distribution of your assets. With a Will, distribution of your property is normally ordered under the terms of your Will and the probate process is significantly streamlined.
Even with a Will it is important to remember that your state will most likely charge you a fee (tax) to finalize the distribution of your assets.
Trust
Think of a trust as a holding facility, a place where you put your assets before they are released to the people or organizations that you designate to eventually receive them. Trusts work because they are considered a separate legal entity just like you. Because you and the trust are separate legal entities, anything you transfer from you to the trust becomes property of the trust – this key difference is what allows trust held assets to bypass probate.
A trust and the property that it holds are governed by the terms of the trust document, which is usually written and occasionally set out in deed form. Normally, the trust then holds the property for your benefit, or for the benefit of those whom you designate – this means that you or your designated beneficiaries can use the trust assets and benefit from them under the terms of the trust document.
There are two main types of trusts – Revocable and Irrevocable. Revocable trusts can be changed or revoked by the grantor (you) after they are established. Irrevocable trusts cannot be changed after they are created.
Trusts also go by many different names, depending on the characteristics or the purpose of the trust. Trusts often have multiple purposes, allowing a single trust might accurately be described in several ways. For example, a living trust is often an express trust, which is also a revocable trust, and might include an incentive trust, and so forth.
It is important to note that trusts can be set up while you are alive or they can be established upon your death by your Will. One final note – trusts may subject to and governed by local, state, and federal laws.
Directives
More commonly referred to as “Advance” or “Medical” Directives, the term refers to treatment preferences and the designation of a surrogate decision- maker in the event that a person should become unable to make medical decisions on her or his own behalf.
Advance directives generally fall into three categories: living will, power of attorney, and health care proxy.
- Living Will: This is a written document that specifies what types of medical treatment are desired should the individual become incapacitated. A living will can be general or very specific. The most common statement in a living will is to the effect that:
If I suffer an incurable, irreversible illness, disease, or condition and my attending physician determines that my condition is terminal, I direct that life-sustaining measures that would serve only to prolong my dying be withheld or discontinued.
More specific living wills may include information regarding an individual’s desire for such services such as analgesia (pain relief), antibiotics, hydration, feeding, CPR (cardiopulmonary resuscitation) and the use of life-support equipment including ventilators.
- Health Care Proxy: This is a legal document in which an individual designates another person to make health care decisions if he or she is rendered incapable of making their wishes known. The health care proxy has, in essence, the same rights to request or refuse treatment that the individual would have if capable of making and communicating decisions.
- Durable Power of Attorney: Through this type of advance directive, an individual executes legal documents which provide the power of attorney to others in the case of an incapacitating medical condition. The durable power of attorney allows an individual to make bank transactions, sign Social Security checks, apply for disability, or simply write checks to pay the utility bill while an individual is medically incapacitated.
Obviously this is only a broad overview of some of the different options available. With a clear idea of what you want to happen with you assets and a little assistance from a “Financial Professional,” in this case a qualified attorney – you can make sure that your family and personal wishes are protected.
Remember, estate planning is not just for rich people – it is for everyone. And as always – Don’t delay; there is never a good reason to wait on improving your financial future.
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