Estate Plan Essentials Legal Guide
There is no single universal estate plan that is right for everyone, and this is why you should work with an attorney to develop a strategy. This being stated, there is a general framework, and we will explain it in this legal guide.
Asset Transfers and Simple Will AlternativesA lot of people equate estate planning to the creation of a simple will, and this is certainly an option. However, there are trusts that can be much more effective, and people harbor some misconceptions about them.
First, you have to understand the fact that a will is admitted to probate after the passing of the testator. The executor that is named in the document will handle the estate administration tasks under the supervision of the court.
This process will take eight or nine months at minimum in most jurisdictions, and no inheritances are distributed while the estate is being probated. It is a public proceeding, so the records are available to anyone that is interested, and expenses accumulate during probate.
These procedural hassles are definitely a negative, and there are limitations when you use a will. The inheritors will receive lump sum bequests, and there would be no asset protection or spending safeguards going forward, and this can be a source of concern.
If you use a revocable living trust instead of a will as your primary asset transfer vehicle, these obstacles vanish.
One of the misconceptions about trusts is the idea that you lose control of assets you convey into a trust. In reality, when you have a living trust, you would act as the trustee while you are alive and well, so you would always have access to the resources.
In the trust declaration, you would name a successor trustee to assume the role after your passing. When the time comes, the trustee would distribute assets to the beneficiaries outside of probate, so the drawbacks would be avoided.
You can include a spendthrift provision if you have concerns about the money management capabilities of the beneficiaries. The principal would be protected from their creditors, and you can instruct the trustee to provide limited incremental distributions over time.
A revocable living trust is the ideal solution for many people, and there are other types of trusts that can satisfy certain specific objectives. You should discuss your goals with an estate planning attorney so you can make fully informed decisions.
Minor ChildrenIf you are the parent of minor children, you have to take certain steps to protect their interests. From a financial perspective, you should carry the appropriate level of life insurance, and term life is quite affordable if you are on a budget.
A living trust can be the beneficiary of a life insurance policy, and another option is a testamentary trust. This is a trust that is contained within a will, and it would be created after your passing.
When you have a trust, the trustee would be able to manage assets on behalf of minors until they reach the age of majority (or longer if this is your choice).
Incapacity PlanningIn addition to the monetary part of the equation, you should address eventualities that you may face toward the end of your life. A living will should be executed to record your preferences with regard to the use of life-support, and you can add organ and tissue donation choices.
This is an advance directive, and another directive that should be part of the plan is a durable power of attorney for health care. You name an agent in this document that would make medical decisions on your behalf that are not related to the use of life-support.
For financial matters, if you have a living trust, you can name a disability trustee when you establish the trust. A durable power of attorney for property can be used to empower someone to manage assets that are not held by a trust if you ever become unable to handle your own affairs.