Estate planning? What do those words even mean?
I tell everyone that I do "estate planning" and everyone shakes their head and changes the subject. Fortunately, most people know what those two words mean independent of each other, but here is a brief list of terms that may help you understand what is involved in an estate plan:
This is a word that has several meanings and is used in a variety of contexts. For example: “taxable estate”, “bankruptcy estate”, “estate sale”, “probate estate”, and others. For the purposes of our interaction, I will ensure that you know which “estate” we are planning for and the pros and cons of having assets in different estates.
This is a very broad term that I interpret as planning and preparing for the future. This generally includes discussing what should happen if you become incapacitated or disabled, and what your desires and wishes are when you pass away. Estate planning also requires looking at your assets and debts and creating a plan to distribute your assets to your loved ones and the charities you care about.
Probate is a court process that basically provides a way to re-title assets and settle claims by creditors against a person after they have passed away. Probate is a public process and therefore everything submitted to the court is visible to the public. This includes your will, who your executor is, your family information, creditor information, and any other filings submitted to the court. Clients generally prefer to avoid probate.
There are several types of trusts. The most common trust in estate planning is called a “revocable living trust”. A properly executed revocable living trust removes property from your probate estate. The revocable living trust creates a separate entity that is capable of holding title to assets. While you are alive, you can revoke the living trust at any time. You can move assets in and out of the trust at your discretion. You can appoint and remove trustees without cause. Because you created the trust, you can do with it as you please. Having a revocable living trust does not require you to file any additional tax forms or register it with the government until after you pass away.
A will is a document that directs the court and your executor on what you want to happen after you pass away. A will is principally used to:
- determine who receives your assets;
- determine who you want to act as the executor in distributing your assets and handling your estate;
- and nominate who you would like to care for your minor children.
The primary issue with a will is that it does not avoid probate. In order for a will to be effective, it requires that it be presented to the court and go through the probate process. A will, without having gone through probate, has no power to transfer assets nor carry out the wishes of the testator (the person who made the will).
If you are interested in creating your estate plan, want to make changes or additions to an existing plan, or want to know if your trust has been properly funded contact me for a free initial consultation!