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Estate Planning is the creation of a defined, specific, personalized and legal plan for managing your assets while you are alive and distributing those assets after death to your loved ones. A sound estate plan includes provisions to keep assets and health care decisions within the control of your responsible family members should you become mentally or physically incapacitated. The plan should also avoid probate at death and protect assets should you become disabled and need long-term nursing care either at home or in a skilled nursing facility.
When people consider if an estate plan is right for them, questions arise. The following are frequently asked questions (FAQs) about estate planning. If you have a question that is not addressed below, we welcome you to contact Cornerstone to get your question answered.
What Is An Estate Plan?
An estate plan is an assortment of legal documents created to help you accomplish specific goals. These goals may be to avoid probate at death, transfer assets to loved ones without outside interference or delays, reduce expenses, maintain estate privacy, maintain control of assets during a disability and more. The foundation to a good estate plan almost always contains some type of living trust, a pout-over will, power of attorney documents for finances and health, a living will, plus other supporting documents that will organize and spell out your wishes to your family in the event of your death or disability.
Should I create an Estate Plan?
Almost anyone who owns a house or property or has a family should create an estate plan. Your age or the amount of your wealth should have little to do with your decision to plan. A good estate plan ensures that your hard-earned assets will pass intact to those you list as your beneficiaries instead of government bureaucrats or to individuals outside of your immediate family who may unintentionally receive your assets. It should also provide asset protection during your lifetime and not just when you die. Losing assets to a nursing home or to law suits during your life are clearly unwanted events that a properly planned estate plan will avoid.
What Happens if I don’t create a Will or an Estate Plan?
For anyone who dies intestate (meaning having died without a Will or Estate Plan), each state has written laws that will distribute assets for you. The dilemma is, your family will rarely like the results. Intestate distributions guarantee government involvement and the loss of control of your property until distribution is made to the heirs that government chooses. Considering the number of divorces and with children from previous marriages living in other households and with second and third marriages being a common event, property distributed through intestate laws will often not be given to the individual(s) you wanted to receive your assets.
What’s the difference between a Will and a Living Trust?
A Will is a legal document which describes how you want your assets distributed at death. The will is created during the life of the individual who creates the document (a testator) but it does not become active until the testator dies. At death the actual distribution of assets to beneficiaries, however, is controlled by a legal process call probate. Probate is necessary since the executor to the will has no authority to transfer assets or proceed with the steps of probate unless the probate judge provides the authorization to proceed. Upon your death, the Will becomes a public document and is available to be seen by anyone. When your Will is probated by the probate court, your family will lose control because all control now shifts to the court and probate attorneys. Probate is almost always time consuming and expensive, and common opinions are that it should be avoided at all costs.
A living trust is also a legal document that is created during the lifetime of the creator (who is called a Trustor). Just like a Will, a trust will also specify how you want your assets to be distributed upon your death. Unlike a will however, a living trust is active and provides many living benefits during the life of the creator. In the event of a disability a trust allows you or a responsible family member that you have appointed to remain in control of your assets. When a trust is created, some or all the assets you own are re-titled in the name of the trust (call funding) and are managed by a person called a trustee. The trustee is appointed by the Trustor and in most cases, the Trustor appoints himself/herself to act as trustee so they can continue to manage the assets of the trust.
When death occurs, the assets held in a trust avoid probate because those assets are owned by the trust and a successor trustee takes over the management of the assets from the original trustees. The successor trustee does have the authority to settle the estate and transfer assets without going through the probate process. After all debts and obligations are settled, the successor trustee will distribute assets to the heirs based on the instructions written in the trust document.
The process of finalizing an estate through a trust is almost immediate. Finalizing an estate through probate can commonly take 12 to 18 months according to a study completed by AARP. AARP also stated the cost of Probate and legal representation can commonly cost 8% to 10% of the value of the estate. Since the probate process and the need for legal assistance is unnecessary when using a trust, the cost to settle an estate is close to nothing. In the end, there is a significant financial advantage to the individual when they own a trust vs. owning a will.