Ancient Egyptian pharaohs would bury their wealth with them so they could use it in the afterlife. However, a few things have changed since then. Today, if you want any control over your assets when you’re gone, you’ll need to think about writing up wills and estate planning.
The peace of mind that thorough and timely estate planning can provide is priceless. It’s how you can continue to look after your loved ones as far into the future as possible. Not only can you ensure that your family will be able to benefit from your legacy, but you’ll also be able to define just how they benefit.
Your estate is the collection of all of your assets, be it real estate, retirement accounts, collectibles, or your car. Everyone’s got one, and estate planning is almost always extremely beneficial.
Without proper estate planning and a will, you could subject your family members to a lengthy probate process that will cost them time and money.
One of the best ways to gain confidence in your estate plan is to hire a professional estate planning attorney, but knowledge is power. We’ll go over some of the basics of the process in this post to equip you with some useful information.
Do I Need a Will?
It’s not a legal requirement for anyone to have a will, but it’s a good idea.
The main benefits they provide are that they:
- enable your family to transfer property more easily
- create opportunities to avoid significant tax burdens
It’s surprising, given these facts, that more than 70% of Americans likely don’t have an up-to-date will. If this statistic represents your situation, read on to decide whether you’re doing enough.
What Is a Will?
A will is a legal document that states how a person’s assets will be distributed after they pass on. In addition to naming an executor and beneficiaries, you can select guardians for minor children. Plus, you can even decide what happens to your beloved pet!
What Does an Executor Do?
The executor is typically a friend or family member that you trust. Completely settling an estate can be a lengthy procedure; you’ll want someone that is up to the task. They’ll have to do things like maintain property until it is ready for sale and pay debts.
Without a will, the court will choose an executor. The same is true for guardians of your children that are minors. Most people would prefer to make these decisions themselves rather than leave them up to the court.
Will vs. Living Will
Where a will is concerned with what will happen to your assets after death, a living will deals with your preferences for healthcare while you’re still alive.
A living will outlines your preferences for the healthcare you receive should you lose the ability to communicate your wishes due to medical circumstances. This is an important part of estate planning that can make things a whole lot easier for your family if you become unable to communicate effectively.
An alternative to establishing a living will is to provide someone with health care power of attorney. This allows you to specify a person that has the authority to make medical decisions on your behalf should you become unable to do so. These include end-of-life decisions.
Trusts in Estate Planning
Trusts also make up a significant portion of what’s possible with estate planning. There are several different types of trusts that serve distinct purposes.
What is a trust?
A trust is an agreement that includes three parties, the grantor, trustee, and the beneficiary.
Grantor – The grantor is the person that sets up the trust in the interest of transferring assets to the beneficiary.
Trustee – The trustee is a third party who is responsible for holding the assets and carrying out the wishes of the grantor.
Beneficiary – This is the entity that benefits from the trust. Assets from the grantor, held by the trustee, eventually end up with the beneficiary.
It’s important to note that while assets are held in the trust by the trustee, they do not belong to the grantor or the beneficiary. This is important for some tax implications.
Trusts are beneficial because of their ability to:
- create favorable tax situations
- allow beneficiaries to avoid the probate process
- control how assets are used and distributed
How they function and what specific advantages they can afford you depends on the type of trust.
Examples of trusts
A life insurance trust, for example, is often used to avoid estate taxes by holding the grantor’s life insurance in the trust. Life insurance money will still be passed on to beneficiaries after you pass, but the value of your policy won’t contribute to your taxable assets.
A living trust, on the other hand, is similar to a living will in that it provides you with the ability to have some control over your assets even if you become unable to do so for medical reasons. It also allows you to become the trustee of your own trust.
This gives you the power to change the trust as your needs change, so long as it’s a revocable trust. While revocable trusts have the advantage of offering more flexibility, they also offer fewer tax advantages.
Irrevocable trusts cannot be changed once established, but they offer the best tax scenarios. Revocable trusts usually become irrevocable upon the death of the grantor.
The Importance of Staying Up-To-Date with Wills and Estate Planning
Like so many other things in life, truly effective estate planning requires continued attention. Life invariably brings about change over time, and reflecting any change in your estate plan is something that can anyone can easily overlook.
One of the most essential documents to keep current isn’t a will or trust, however. The financial components that you use for any kind of financial planning often include legal documents. This means that they can overrule anything in your will.
Retirement accounts and life insurance policies are two aspects of your financial life that you’ll need to inspect carefully. The beneficiary designations you made when you first filled out paperwork for either of these financial products are valid until changed. Even if you write something completely different in your will today, those designations will remain legally binding.
In the interest of staying on top of your estate planning, it’s smart to revise and update the beneficiaries on all of your legal documents at least once every five years.
It’s easy to put off estate planning for later — you’ve got your whole life to do it, right? It’s also tempting to never revisit the subject once you’ve developed an estate plan for yourself.
This is the outlook many Americans have, but it’s not necessarily the best-informed approach. There are plenty of reasons to get your estate planning in order as soon as possible. You can help your loved ones avoid lengthy and complex dealings in probate court. You can set up a life insurance trust to save on estate tax, or you can make sure that the right beneficiaries will receive what they’re supposed to.
If you’ve already done your due diligence and have an established estate plan, is it current? While it’s tempting to “set it and forget it,” it won’t do you much good if it isn’t up to date. This means reviewing the information in your will as well as your beneficiary designations on financial products like retirement accounts or life insurance policies.
Whether you just need a will or it’s time to set up a trust for your assets, proper estate planning is crucial. The better prepared you are now, the more you can do for your loved ones in the future.
And a trusted financial advisor can always help you prepare.
We Can Help
Choosing a financial advisor is no easy feat, and we know that it can feel risky, but that’s why we aim to be as open and available as possible. We hope that this post shed some light on an intimidating subject.
The Saddock Advisory team invites you to get in touch with us so you can learn more about our history, our services, and how we can help you! Fill out our contact form here and we’ll be in touch shortly!