Estate Planning Basics Proper Estate Planning Is More Than A Will

When asked the question, where you go when you die, for those with proper estate planning, the answer is probably something fanciful, like heaven. But for the majority of Americans, the actual answer is a little less romantic. They go to probate.

For the very wealthy, an estate going into probate for a period of time can possibly be tolerated. For those with smaller estates, or living paycheck to paycheck, the time needed to sort out an estate can be financially devastating.

It is important to take care of your finances as meticulously in death as you do in life. And merely making a will may not be enough. In addition to a will, there are other steps that need to be taken to ensure that your assets pass as quickly and seamlessly as possible.

More than 60% of Americans Don’t Have Wills

A survey performed in 2021 found most Americans did not have any type of estate planning or will in place. That’s bad news for families, but good news for Uncle Sam. If you were to die without a will (legally referred to as intestate), it is the courts that decide how to disburse your assets. These decisions are based solely on state law and without regard to what you may have verbally promised someone or who you felt deserved it the most. Intestacy laws vary from state to state. For married individuals that usually means surviving spouse and children. If you are single, it likely means direct blood relatives, which may not be the wishes of those who are removed from their birth families or have been in long term unmarried relationships.

Even with a will, if no other estate planning measures were taken, the estate is placed in “probate”, which is a period of time before the estate is divvied up. This can be time consuming and take away from the value of the estate in legal costs. However, it is possible to avoid probate if some very simple estate planning steps are taken.

Account Titling

Depending on whether your assets are in a bank or at brokerage firm, the proper way to title to avoid probate may be different. It is good to talk to the particular institution to see what verbiage they use to accomplish this goal. Some examples of ways that an account could be titled is POD (Pay on Death), TOD (Transfer on Death), as well as JTWROS (Joint Tenants with Right of Survivorship), or TBE (Tenants by Entirety). These types of titles are not just for investment accounts, but can also be applied to other assets, such as property or vehicles. By titling all property and accounts right, your assets will go directly to the intended heir.

Beneficiary Designations

Most accounts and life insurance policies allow for a beneficiary to be named at the time you open it. Beneficiary designations can be Primary, who you first name as a beneficiary, and Contingent, who you choose to inherit the account in the event that the primary beneficiary pre-deceases the owner. If you did not name beneficiaries at the time of initiation, you can ask for the information to be added. Be careful when naming minors as beneficiaries. Laws may prohibit anyone under the age of 18 from being able to directly inherit assets. When it comes to minors, it is often better to set up a trust that would allow for disbursement of assets to your child’s guardian for the benefit of your child. Finally, it is important to periodically review beneficiary designations. A simple rule of thumb is to revisit beneficiary designations after any major life event; such as marriage, divorce, birth of a child, or death in the family.

Revocable Living Trust

A revocable living Trust allows your heirs to avoid probate. It is best to have this set up by an estate attorney which can be bit pricey, but it will keep you in control of your finances while you are alive. You are free to make changes to what is in the trust, or change how it is managed or disbursed. Any asset you currently have can become part of the trust simply by changing the account title from an individual name, like John Doe, to the trust name, John Doe Revocable Living Trust. A Revocable Living Trusts covers you through three phases: While you are alive and well, if you become mentally incapacitated and after you die. If you have any assets that are outside the trust at the time of your death, they will need to be probated unless they have beneficiary designations or are owned with Right of Survivorship titling.

For anyone with a considerable amount of assets, or a young family depending on them, it is best to enlist the help of a financial advisor, tax specialist or estate attorney. By doing this you can ensure that assets are quickly passed to your loved ones left behind in order to help them financially bridge this difficult time. By addressing this today, you will also ensure your assets pass to your loved in accordance to your wishes, and not be determined by the state. You still may not be able to answer the question of where you go when you die, but at least you know it won’t be probate.

If you have questions and need help sorting through what you need in your unique circumstance, contact us to get started with your estate planning.

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