Estate planning basics

Estate planning basics

People spend a lifetime accumulating assets and building an estate with the intention of passing it on to their heirs or charitable beneficiaries. Without proper planning, a person’s death can create significant hardships on the people for which the estate was created. 

For an estate to be passed onto heirs, there could be settlement costs, such as probate fees and estate taxes (sometimes called "death taxes").  In some cases, where the death taxes are substantial, assets may have to be liquidated in order to pay them. Also, probate proceedings can delay settlement of the estate if there are any contestable assets. 

A sound estate plan can eliminate many of the problems that arise during the settlement of an estate and help you accomplish the following:

- ensure that your wishes are honored when you are unable to manage your own affairs

- communicate your wishes and expectations precisely to your family and heirs

- provide for your family’s financial security

- provide capital to meet immediate liquidity needs for settlement costs

- facilitate the timely distribution of assets by avoiding probate proceedings

- maximize the estate for transfer by minimizing  taxes and expenses 

- ensure that all beneficiaries are named in accordance with the most recent will

- avoid publicity by keeping the proceedings out of the public record

- conserve the estate so later generations can benefit

- leave a charitable legacy with a gift of assets or a trust

One of the primary objectives of an estate plan is to ensure that your assets are transferred in accordance with your wishes.  A qualified attorney can help you determine which estate planning arrangement will work best for you.

Wills vs Trusts

A will is a legal document drafted in accordance with state laws wherein the estate beneficiaries are named. A will is subject to probate which means that all assets are distributed under the supervision of the court. An executor is named in the will and is responsible for carrying out the provisions of the will. Absent a will, the state becomes the executor of the estate and will name guardians and beneficiaries according to its laws.

A trust is a form of ownership that is set up by the estate owner to receive and hold title of the assets prior to their distribution to the heirs.  A trustee is designated to manage the trust in accordance with its provisions.  There are several different kinds of trusts, each designed to serve a specific purpose, such as avoiding probate, minimizing estate taxes, and/or managing the assets of the estate.

Titling Assets

There are several ways to title assets that will result in different methods of asset transfer.  A common form of asset title is Joint Tenancy which allows the asset to transfer, automatically and without probate, to the person named jointly in the title. 

Assets such as life insurance and qualified retirement plans transfer by contract to named beneficiaries outside of probate.

Estate Planning Guidance

In many cases, a simple will can suffice as a way to ensure the desired transfer of assets and guardianship of children. Estates of a larger size or those that contain illiquid assets such as real estate may require the guidance of a qualified attorney to structure the most appropriate planning arrangement.  An estate planning attorney can also arrange your estate to minimize or eliminate any potential friction among heirs. If the estate is of a significant size that might subject it to estate taxes, an attorney can suggest arrangements that will minimize them. 

Estate tax laws change periodically as do the individual’s financial situation. It is important to review your estate plan periodically to ensure it is up to date with current laws and your distribution wishes. A good estate planning team, consisting of an attorney, accountant, and investment advisor, can provide the necessary guidance to ensure that your estate plan is current and operable. While we are not able to offer estate or general legal advice, we can point you in the direction of a qualified attorney who can help. 

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