With the New Year approaching, it is often the time when people make plans for the future. No matter what age you are, you should still have an estate plan. Something unexpected could happen to you at any time. Losing your life is rarely planned, but eventually it is going to happen as none of us are immortal. It saves a lot of trouble if an estate plan is drawn up and you have included how you want your assets to be distributed.
An estate plan is a plan that you draw up regarding the distribution of your assets. With an estate plan in place you can guarantee that what you own will go to the beneficiaries you have chosen. If you do not have an estate plan, your loved ones may argue endlessly over your estate and they may need to hire an attorney to solve its distribution. This is not only expensive, but completely unnecessary if you plan in advance.
There are many features of an estate plan; it is not just a question of drawing up a will concerning the distribution of your wealth. You also need to consider health directives and may wish to appoint a durable power of attorney to manage your affairs when the state of your health deteriorates and you become incapacitated. If you are a partner in a business, it is important to tell your partners what to do about your share when you are no longer able to control it for some reason or another.
In your will, you can indicate who you would like to inherit your assets. You can also appoint a guardian in the event you and your children’s other parent dies. This will give you a sense of relief in advance that they will be cared for.
If you keep your assets in a living trust, it will not be necessary for your beneficiaries to go through the expensive and lengthy process of attending a probate court.
This can also be called a ‘living will.’ By indicating how you would like to be treated if you become incapacitated, it will help your relatives to make healthcare decisions on your behalf. You will need to include the name of the power of attorney in your healthcare living will.
Once you have drawn up a financial durable power of attorney, you will need to appoint someone to look after your property and finances if you are unable to do so. The person you nominate to take charge of your finances is typically referred to as your attorney-in-fact or agent. It is essential to appoint an attorney-in-fact just in case you become unexpectedly incapacitated and need someone reliable to handle your financial and personal affairs. If you still own a home, bills will need to be paid; and on a personal level you will need someone to handle the paperwork in relation to any benefit entitlements. Sometimes, a durable power of attorney may not be preferable, especially if you do not think you have anyone suitable to look after your finances.
At all costs, guardianship or conservatorship should be avoided, and this can arise if you have not appointed a durable power of attorney and can no longer handle your own affairs. If there is no durable power of attorney in place, your relatives will have to approach a judge to appoint someone to handle your affairs. Depending on the state where you reside, this person is called either a conservator, committee, guardian of the estate, or curator.
Your relatives, if forced to go through this process, will have to pay a large sum of money which could have been avoided if you had appointed a financial power of attorney at an earlier date. This appointment often reaches the announcement section of the local paper which your relatives may find embarrassing.
Sometimes this type of appointment causes disagreements between relatives that become difficult to resolve. It may even be necessary to pay for an attorney to sort out all the mess.
If you become incapacitated and you are married, your spouse will have some control over jointly-owned property. However, if there are assets in the marriage that are solely yours, like a car in your name, then your spouse’s hands are tied when it comes to selling it, unless he or she has been appointed as a durable power of attorney. For example, even if it comes to stocks or shares that are not technically under shared ownership but have individual names attached, your spouse will not be able to sell your portion to pay for your medical treatment. He or she will have to go to court to get a conservator or guardian appointed so that this move can be made. If you have joint ownership of property, called joint tenancy, and one of the owners dies, then the other owner will inherit the property automatically.
If you have minor children, you should appoint and name a guardian who can ensure that the children will get their inheritance. Also, if it is property and they are minors, this will need to be managed until they are old enough to make their own decisions about it.
You should have already appointed and named someone as a personal guardian for your children in your will. Often, of course, parents assume that if something unexpected happens to one of them, the other person will ensure all the finances regarding the children are taken care of. However, there are times when you could both lose your lives at the same time, like in an airplane accident for example.
One way of controlling any assets you may have is by setting up a trust for each of your children. Through this you can use your living trust or your will to appoint a trustee. A trustee is typically a trusted friend or relative who will oversee the property or money the children inherit until reaching an age specified by you. If the beneficiary has exceeded this age when you die, then the property will be transferred straight to the beneficiary. The trustee is required to act in the best interests of the beneficiary as specified in any written instructions. Usually the trustee is able to spend the trust money to pay for the children's education, health, and living expenses. Once the children attain the age you specify, the trustee has to dissolve the trust and give the remains of it to the beneficiaries.
To start with, a trustee is required to file an annual income tax return on behalf of the trust. As the trustee’s powers are limited, depending on what has been stated in the will or trust document, the trustee might be required to take and show the will to any banks and other authorities he or she may have to deal with.
If you have young children, you could set up a single trust to cover them all. This is commonly referred to as a family or pot trust. In your living trust or will you can authorize the trust to appoint a trustee who will be given the responsibility to hand out any trust money to the children. The trustee is not forced to spend exactly the same amount on all eligible children, but instead, the trustee can decide how much to spend based on each child’s needs. Once the youngest child attains a certain age (commonly 18 years old), the trust comes to an end.
A pot trust offers greater flexibility (and added responsibility) to the appointed trustee. Its major disadvantage is that any older children are unable to receive their individual shares of the trust property until the youngest child turns 18.
In order to avoid probate you can name a beneficiary for any of your bank accounts, which means that when you die, the account is automatically transferred to your beneficiary, therefore avoiding probate. Additionally, in most states, you are able to register your bonds, stocks, or brokerage accounts so they can be transferred to your beneficiary following your death.
As part of your estate plan, you should consider buying life insurance. This is typically useful if you have children who are minors or if you own a house, have debts, or are liable for estate taxes. The majority of estates do not owe any federal estate taxes unless your taxable estate has a value of $5.45 million or more (as of 2016). This amount usually increases every year in relation to inflation rates.
Instead of using a potentially unreliable funeral prepayment plan, you can open an account with your bank which is payable only at death. Any money deposited into this account can be used for funeral expenses.
Ensure your relatives understand your choice as to what should be done about body or organ donation and how your body should be disposed of, i.e. burial or cremation.
If you are the sole proprietor of a business or even a partner in a partnership, you should have an organized succession plan. If you share ownership of a business, you should have a buyout agreement in place as part of the partnership agreement. If buyout provisions are created in advance, then there will be less disruption if one of the partners chooses to leave the business for whatever reason.
Setting up a buyout agreement ensures that you and your partners know what will happen if one person’s circumstances change. In the absence of a buyout agreement there is the potential for an argument about the distribution of an absent partner’s share. It could get to the point of going to court, which could be such an expensive exercise that you risk losing your business.
A buyout agreement determines:
Some of the events that could trigger a buyout agreement include:
If you have not made any arrangements for property management for children under 18 years old and something happens to you, it will be the responsibility of the probate court to appoint someone called a property guardian who may not always be the children’s other parent. If there is only a small amount of property involved, some states permit an executor to choose a custodian under the Uniform Transfers to Minors Act who will be responsible for managing the property. In the case of children aged over 18, they have total control over anything they have inherited unless otherwise stated in your living trust or will.
It is quite easy to avoid the complexities of a guardianship appointed by the court. All you need to do is select someone right away.
Naming a property guardian to manage your child’s affairs means that this person, if need be, can name a guardian for your minor children. As far as your child’s property inheritance is concerned, the property guardian will take care of it unless, of course, a trust has been set up.
It does not matter who you are or how much you own, it is important to make a will so that others know how to distribute your property after you die. Most of us know we should have a will drawn up, but many of us do not bother to take the step, which often leads to the courts making a decision about the distribution of your assets.
Intestacy is the name given when a person dies without a will. Most states have laws which outline what happens in this situation. How your property would be apportioned will depend largely on if you are married, single, and whether you have children. If you die single and without a will, your property will, without question, go to your parents. If they are no longer alive, the property would be divided between your siblings.
The situation becomes tricky if a single person with two adult children dies and would really prefer one of the children to get more of the property because he or she has children to bring up while the other adult child does not. This will not happen unless the parent has made a will stating his or her wishes in this respect. The property, according to state law, will be divided equally between the two children.
If you are married and you die without a will, in some states the surviving spouse will inherit everything; in other states, only a third to a half of the estate is given to the spouse who is still alive while the remainder will go to the parents of the deceased. If there are no surviving parents, the deceased's siblings may receive a share. Additionally, for anyone who is married with children, the remaining spouse will inherit a third to a half of the property while what remains will be divided between the children.
If you do not agree with the way your state determines who will inherit your estate, then you should draw up a will now before it is too late.
LegalNature can help you with all of your personal legal form needs such as a living trust or a durable power of attorney. Let us help you get started today. Click here to create your estate planning documents now.