Estate Planning

Estate planning is an opportunity for asset and debt holders to have control over how their assets will be distributed and debts will be paid off. Estate planning information regarding wills and trusts is particularly significant to seniors who have reached a certain age and would like to anticipate the way their finances will be handled before they pass away or become mentally incapacitated. Assets may include real estate properties, savings, financial investments, retirement accounts, pensions, life insurance, household goods and even vehicles.

When comparing wills and living trusts, many factors should be taken into consideration, such as designating beneficiaries, establishing benefits amounts and examining the consequences of dying without a will or trust. An estate planning attorney may be required to properly execute an estate plan, especially in an effort to minimize obstacles during the probate process.

What is estate planning?

Estate planning is the process of arranging a resident’s financial assets and debts to anticipate any issues or uncertainties that may arise after his or her death or mental incapacitation. Estate planning guidance is particularly beneficial to seniors who would like to have a say in how their assets will be distributed to designed beneficiaries. Because estate planning is typically conducted during a resident’s life and sound state of mind, he or she has control over who will be the designed beneficiaries, how the assets will be arranged and distributed and how estate taxes can be minimized during the process.

The estate of a deceased or incapacitated resident is typically arranged and transferred to beneficiaries through a will or trust, which have different benefits and requirements in regards to how assets and debts are handled and distributed. In the case of a will, it is important to know what to include on a testament and how to choose the right will executor. Estate planning information that concern what are the differences between wills and living trusts can be obtained through various resources. To learn about estate planning, what are the different ways an estate can be arranged and explore different resources, download our comprehensive guide today.

Why should I have an estate plan?

Estate planning may seem like a daunting and costly endeavor for low-income families and individuals, especially if an estate planning attorney is involved. However, estate planning guidance is meant to facilitate the distribution of assets and the liquidity of debts after the passing of a resident, thus being a cost-beneficial process that avoids uncertainty and potential conflict for families in the future. Among the various advantages of conducting a thorough estate administration plan, consider the following:

  • Management of debt. Residents can develop a strategy to pay off debts before death or leave appropriate resources for heirs to management any pending financial obligations.
  • Control over assets. Residents who write a will or testament can determine how their assets will be handled and distributed after their passing. These assets may include real estate properties, financial investments, retirement benefits or even vehicles.
  • Limiting of estate taxes. Residents are able to explore estate planning resources that minimize imminent estate taxes when assets are transferred to their beneficiaries.
  • Avoidance of probate court. Without a will, testament, trust or another form of an estate plan, assets and debts of a deceased resident may be subject to a probate process that can assert legal authority over an estate.

What happens if I die without a will?

You may not have considered the consequences of dying without a will due to several factors. Some of the most common reasons for postponing or avoiding estate planning are:

  • You are too young. You may believe that you are still too young to be arranging your assets, managing your debt and designating beneficiaries.
  • You are healthy. You may not be young, but you are healthy and still expect to live for many years to come.
  • You want to avoid drama. Estate planning involves finances, which can be a complicated topic in certain family units. You may eager to avoid or postpone conversations that regard assets and debts management.
  • You do not have much. You may only have very few assets and little to no debt, thus assuming that an estate plan is not necessary.

Residents who are estate planning must take into consideration the potentially harmful consequences of leaving it up to beneficiaries to handle the distribution of assets and management of debts after they have passed. When evaluating what happens if you die without a will or any other sort of estate plan, consider the following:

  • Estate taxes may apply. If you do not have an estate plan, your assets will be subject to estate taxes.
  • Debts will be transferred. Your financial obligations may weigh on others who cannot afford to pay off your debt.
  • A probate process will split your estate. Without an estate plan, a probate court will assert legal authority to designate your beneficiaries and distribute your assets and debts.

What are estate taxes?

Estate planning information regarding estate taxes was established by the Internal Revenue Service (IRS). An estate tax is a tax charged upon the transferring of properties, investments and/or accounts after a resident passes. The tax takes into consideration every owned asset or source of income that regard a resident upon his or her date of death. Among the assets that contribute to what the IRS considers a “gross estate,” the following assets may be taxed:

  • Real estate
  • Insurance policies
  • Financial investments
  • Business interests
  • Securities
  • Cash
  • Checking and savings accounts
  • Trusts
  • Annuities

After establishing a “gross estate,” the IRS evaluates debts such as estate planning expenses and mortgages and may classify them as deductions in order to arrive at a “taxable estate.” Filing an estate tax return is typically not required by the Internal Revenue Service as long as estate taxes are properly paid. However, as of 2018, gross assets that exceed the amount of $10,000,000 must be reported to the IRS through the filing of an estate tax return. Estate planning guidance may minimize or circumvent the payment of high estate taxes upon a resident’s death. By establishing a trust, beneficiaries are subject to a different taxation system, for instance.

Where can I find estate planning resources?

An estate planning attorney is typically the most common resource available to residents who would like to develop an estate plan. An attorney can provide tips for writing a last will and resources to manage debt before death as well as file all the necessary documentation with the appropriate agencies to ensure that the plan developed by an asset holder will be honored. However, an estate planning lawyer comes with a cost, like any other legal assistance.

Estate planning can be done in an effective and comprehensive way without the assistance of a lawyer through the use of additional estate planning resources available to residents. Some of these resources include learning how to write your own last will and testament and choosing the right will executor who will honor the terms put forth by an asset holder in the will. Comparing wills and living trusts can also be done without legal assistance, and despite the time-consuming nature of setting up a trust, it could be done by residents who feel strongly about not hiring an attorney. Various estate administration tools are also available online for residents who would like to organize their assets and document their personal information independently. Download our free comprehensive guide for more information.

What things should I consider during estate planning?

Estate planning is a complex process with legal ramifications that, if done incorrectly, may be subject to consequences such as high estate taxes and the involvement of a probate court. The following actions should be taken during the administration of an estate to avoid unwanted consequences:

  • Create an assets inventory. Make a comprehensive list of all physical (real estate, vehicles, jewelry, electronics, etc.) and non-physical (bank accounts, retirement plans, life insurance policies, etc.) assets.
  • List all pending debts. Carefully detail all types and amounts of pending debts that may concern an estate, such as credit cards, mortgages, lines of credit or auto loans.
  • Select an estate administrator. The person designated to administrate an estate should be a trusted individual that has knowledge of all assets and debts that regard a resident. Be mindful that the best estate planning guidance may or may not come from individuals who are emotionally invested in your death, such as spouses, children or relatives.
  • Establish an estate plan. An estate plan might be a will, trust or another legally binding document of choice. Comprehensive estate planning documentation must include all assets, debts and beneficiaries that pertain to a resident.
  • Talk to an estate planning attorney. Depending on the complexity of a resident’s estate, legal assistance may be desirable.

What is a will?

A will, also known as a testament, is a legal document where a resident expresses his or her wishes regarding how assets and debts should be distributed as well as who should be the beneficiaries of an estate. A will can cover several details, including:

  • Naming a will executor.
  • Defining the will executor duties.
  • Naming guardians for minor children, property and pets.
  • Defining how to manage debts.
  • Naming asset beneficiaries.
  • Defining when and how beneficiaries will receive assets
  • Serving as a backup document for a trust.

For a will to be legally binding, it must list all assets and debts that regard a resident and name all estate beneficiaries. A will must be signed not only by the asset holder, but also by two witnesses. Wills do not require notarization, but residents may notarize a will through an affidavit to avoid a probate process in the future. A will may be revoked due to any of the following:

  • The will was destroyed. This may have happened due to burning or tearing of the physical document.
  • The signature in a will was crossed out. A clearly visible signature is required in a will.
  • Part of the text in a will was crossed out. The terms in a will must be legible.
  • The will has disappeared. If the will cannot be located, it may not be valid.

What is a will executor?

A will executor is a person designated to execute and follow through with the duties and terms set forth by a resident in a will. The will executor role may be fulfilled by an individual with a personal connection to the asset holder or by establishments that offer professional executor services. The will executor duties include:

  • File the will with a local probate court. The executor is expected to make a copy of the will and file it with a local court able to perform the probate process. An inventory of the estate’s assets should also be included in the filing.
  • Notify institutions of the resident’s death. The will executor is responsible for notifying government agencies such as the Social Security Administration (SSA) and financial institutions such as banks and credit companies regarding the resident’s death.
  • Maintain properties temporarily. One of the most significant responsibilities of a will executor is to maintain a resident’s properties until they are sold by or distributed to beneficiaries.
  • Pay estate taxes. The executor manages an estate until it is properly distributed to beneficiaries, thus being responsible for paying any applicable estate taxes that regard the assets.
  • Represent the estate in court. Especially during a probate process, the will executor is responsible for representing the estate in any court-related activities.

What is a trust?

When evaluating what are the differences between wills and living trusts, you may opt to set up trusts in order to assert more control over their finances while they still live. A trust is a fiduciary arrangement in which a trustee is allowed to hold assets on behalf of beneficiaries. When comparing wills vs living trusts, be mindful of the following advantages regarding a trust:

  • You have more control over the estate. A trust allows residents to stipulate very specific terms and guidelines regarding when and how beneficiaries may access assets. This can protect an estate from beneficiaries who are not skilled in financial management.
  • You may avoid a probate process. Trusts typically avoid probate because they have clear guidelines already set up in place. Because probates are public records, avoiding this process yields a more private transferring of assets to beneficiaries.
  • You may be taxed less. If a trust is classified as “irrevocable,” it will not be considered part of a taxable estate, thus being subject to fewer estate taxes than a will.
  • Beneficiaries can access assets quickly. Unlike a will, which may undergo probate court and delay the distribution of assets, a trust allows beneficiaries to gain access to assets very quickly.

How do I manage my debts before I pass?

Estate planning involves not only the arrangement of assets, but also the management of debts. It may be to residents’ benefits to manage debts before death, and residents must account for how their accumulated debt will be handled and paid for after their passing. Debt assistance may be available through the following methods:

  • Debt consolidation. Debt consolidation is a process in which various different types and amounts of debts are combined into a single amount. This debt assistance resource typically offers lower interest rates and can be obtained from private institutions, government agencies and nonprofit organizations.
  • Debt counseling. Government agencies such as the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) offer credit counseling to residents who are struggling to pay off debts. These agencies may offer debt assistance through government programs or help residents to develop strategies to get out of debt incrementally.
  • Debt management plan (DMP). Certain residents may qualify to enroll in a debt management plan offered by a credit counseling agency. In a DMP, residents make payments directly to a credit counseling agency and allow the agency to manage the debt on their behalves. Thus, interest rate negotiations and debt payments are fulfilled by the credit agency itself.

What is an estate planning attorney?

An estate planning attorney is a lawyer that has specialized in estate planning guidance from a legal standpoint. An estate planning lawyer should provide you with the appropriate rules and insights regarding how to arrange assets, manage debt, designate beneficiaries and minimize obstacles such as a probate process and estate taxes. When evaluating how to choose a estate planning attorney, consider the following:

  • Avoid general practitioners. A general practitioner lawyer may not have the specialized training or a broad experience of estate administration to provide you with comprehensive estate planning guidance. Seeking out an estate planning lawyer may be more effective.
  • Pick a lawyer in your state. Certain states may have different laws and regulations concerning the transferring of assets and debts. It might make sense for you to opt for an estate planning attorney who practices law in your state and is familiar with state-specific rules.
  • Choose a person that you like. When it comes to discussing your estate with an estate planning lawyer, you will be sharing a lot of personal details regarding your finances and loved ones. Thus, it is important to pick an attorney that you trust to handle your assets and feel comfortable sharing information with.

What is a probate of an estate?

A probate process is a legal procedure that governs the assets and debts left behind after someone has passed. Probate is supervised by a probate court and may be required to verify the validity of a will if an estate planning was not done thoroughly. However, the probate of a will can be avoided if an estate is properly administrated and there are no uncertainties regarding designed beneficiaries, available assets and pending debts. Among the various responsibilities of a probate process, the following duties may be required depending on how an estate plan is set up:

  • Designating a will executor. If a will does not make clear what person should be designed as an executor or administrator, then a probate court must make a decision concerning that role.
  • Arranging all assets and/or debts. If a will does not exist, it is incumbent on a probate process to arrange all of the assets and debts of a deceased resident.
  • Detecting all heirs and/or beneficiaries. It is the responsibility of a probate do identify all heirs, beneficiaries or relatives who may be entitled to assets or held accountable for debts left by a deceased resident.
  • Proving the validity of a will. If a will exists but is deemed uncertain, the probate of a will must prove its validity and legal standing.

How do I choose a life insurance policy?

A life insurance policy may be significant to a resident whose salary significantly contributes to his or her family’s financial wellbeing. A family may not have the means to meet mortgage and utility bill payments upon the death of a loved one who did not have life insurance or did not have adequate coverage. To better understand how to choose a life insurance policy, consider the benefits and disadvantages concerning the two main types of life insurance, which are listed below.

  • Term Insurance is the most common type of life insurance. Payments are made upon the death of an insured resident within the term of a policy, which can vary from one to 30 years. The amount of benefits that are paid out to beneficiaries can vary in two ways: a level term insurance guarantees that a benefits amount will stay the same during the entire the life insurance policy period, whereas a decreasing term insurance incrementally reduces the benefits amount every year during the policy period.
  • Whole Life Insurance, also known as permanent insurance, does not stipulate a policy period for payments to be made. However, this is typically a much more expensive life insurance policy due to its lack of time restrictions. Besides a traditional whole life insurance, this policy is also offered as universal life insurance or variable universal life insurance, in which a benefits amount may be subject to changes.