What’s in an estate?
Your estate is, simply, everything that you own. An estate consists of
your investments such as stocks, bonds, mutual funds, annuities, bank
accounts, and certificates of deposit; your retirement accounts such as
individual retirement accounts and 401(k) plans; real estate; and life
insurance policies. It also consists of your “stuff”-furniture,
appliances, jewelry, collectives, and all the other items of personal
property. The value of your estate is the value of all of these assets,
less mortgages and any other debt.
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What is estate planning?
In its most basic form, estate planning is the process of planning for
the management and disposition of your assets and resources when you are
deceased or no longer able to manage your own affairs. Most people think
estate planning is just worrying about assets or minimizing income and
estate taxes, it is really much more. Estate planning is really about
accomplishing your goals during your life and beyond.
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Isn’t estate planning just for rich people?
Estate planning is not about how much wealth you have accumulated, it’s
about who and what are important to you. Take as an example a widow with
two grown children who has only a house and $200,000 from a life
insurance policy on her late husband. Does she need estate planning to
protect herself and her two children? To some people, $200,000 isn’t a
lot of money. Even so, the widow wants to be assured that she can live
in comfort in her own home. What if her son has an alcohol problem?
Wouldn’t she worry that he will just drink up whatever amount she leaves
him at her death? Wouldn’t she feel better leaving money to him in such
a way that it could be used for his rehabilitation? It's not whether you
have an estate that requires planning, it's whether planning will
provide you with a sense of comfort and well-being about your and your
family's future.
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What is a Will?
A last will and testament is a legal document designed to tell the
probate court what to do with your assets at your death. To be valid, a
will must comply with the laws of the state where you live. For example
all states require a will be in writing and that there be a certain
number of people who witness the signing of your will. The requirements
vary from state to state. If you fail to meet your state's requirements,
your will will be invalid.
A will only governs the distribution of property that is left in the
deceased person’s name at death. If property passes to a new owner at
death, for example by a beneficiary designation or by joint tenancy with
right of survivorship, than that property is not in the deceased
person’s name at his or her death. It is therefore not part of the
probate estate and is not governed by the provisions of the will.
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If I have a will, does there need to be a probate?
A will guarantees probate. A will generally has no validity until after
your death and after it has been submitted to, and accepted by, the
probate court. A judge will decide whether the will conforms to state
law, and if the judge decides the will is valid, then the judge will
order that it be admitted into probate.
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What happens if I die without a will?
In a sense, no person can die without a will. Even if you have not
created one for yourself, the laws of your state specify how your
property is distributed on your death. The state essentially writes a
will for you. These laws are referred to as the intestate succession
statues, and a person who dies without a written will is said to have
died intestate. These laws distribute your property to your family based
on their relationship to you. The process of distributing your property
is supervised by the probate court, much the same as with a will. It is
poor practice to rely on these statutes for your estate planning needs.
With a will, even though it will go through probate, you control to
whom, when, and in what portions your estate is distributed.
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What is a living will?
A living will, or medical directive or physician's directive, depending
on what your state calls it, is a directive to your physician that
states that you do not want "extraordinary means" employed to keep you
alive should you be in a terminal condition or in a permanently
unconscious state. This will not only relieve your family of the burden
of applying to the courts to authorize stopping artificial life support
but will also relieve your family from having to make this decision at
all.
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Why do I need a living will? Can't my husband make those decisions
for me?
In many cases, the answer is "no." Without written instructions from you
to your physician to prohibit the prolonged use of artificial life
support, your husband may not have the right to act on your behalf. A
living will contains specific instructions from you as to what action
you want take or not taken if you are permanently unconscious or when
death is imminent. It gives direction and purpose to your loved ones,
instead of placing the entire burden on them to make these
life-and-death decisions. A living will goes a long way to ease the
burden and the guilt that a spouse or other family may bear as a result
of having to make this decision without any direction or instruction
from you.
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I own some property as tenants in common with my brother. Is that the
same as joint tenancy?
Tenancy in common is similar to joint tenancy in that it is a form of
ownership between two or more individuals who each own an undivided
interest in the property. Their interests may or may not be equal.
However, tenancy-in-common ownership differs from joint tenancy in that
the deceased tenant’s interest does not automatically pass to the
surviving tenant, as it would with joint tenancy. Each tenant in common
has the ability while living to sell, give away, or in any other dispose
of his or her interest without the consent of the other tenant in
common. Each tenant in common also controls who receives his or her
interest at death through instructions in a will or a trust. For
example, with the property you and your brother own as tenants in
common, at your death your undivided interest in the property will be
distributed pursuant to the terms of your will or trust. The ability to
direct the property at death is the major distinction between this form
of ownership and joint tenancy.
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Are there any estate planning benefits for owning assets as tenants
in common?
From an estate planning perspective, owning an asset as a tenant in
common is much like owning an asset by yourself. You can direct the
disposition of your interest in the asset at death in a will or trust.
If you become disabled, your guardian or other person you have appointed
controls your interest, and the other tenant remains in control of his
or her respective interest. In other words, tenancy in common does not
avoid probate, but it does not prevent you from doing proper estate
planning either.
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What is a revocable living trust?
A trust ownership is a form of ownership where the legal title to assets
is held by the trustee of the trust for the beneficial enjoyment or use
by the beneficiary or beneficiaries of the trust. A revocable living
trust is a trust created during the trustmaker’s life. and the
trustmaker retains the right to amend or revoke the trust while alive.
While the trust maker is alive and competent he or she can serve as the
trustee and is the primary beneficiary of the trust. A living trust
contains the maker’s instructions for what is to happen to the trust
property when he or she dies. Unlike a will, a living trust also
contains instructions for what is to happen if the maker becomes
disabled or incapacitated.
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What are the benefits of a revocable living trust?
In relation to the common goals we mentioned earlier in this chapter, a
revocable living trust can provide the following benefits:
Avoid probate. As long as all of the trustmaker’s assets are
funded to the trust, a revocable living trust avoids a death probate,
which, among other benefits, results in privacy and lower administration
costs.
Plan for disability. If the trustmaker becomes disabled, the
successor trustee takes care of the trustmaker’s affairs according to
the instructions in the trust. There is no need for guardianship
proceedings.
Control property during life. Because the trustmaker is both the
trustee and the beneficiary of the trust, the trustmaker retains the
same control over the property as he or she had before transferring the
property to the trust. The trustmaker is free to do as he or she wishes
with the property, and there are no worries about a co-owner’s creditors
or whether the property will end up in the hands of the wrong heirs.
Control property at death. The trust controls the property at the
death of the trustmaker, and the trust contains the trustmaker’s
instructions for what is to happen to that property-whom it goes to, how
much, and when. It can also provide creditor protection for
beneficiaries.
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