Estate Planning 101
Updated: Aug 4, 2020
Estate Planning 101
Despite what you may think, most everyone has an estate. It may not be the multi-million dollar estate celebrities have in the Hamptons or Beverly Hills, but your estate is all of the “stuff” you have. Regardless of the size, your estate includes everything you own: bank accounts, personal property, investments, cars, home, etc. The process of getting your estate in order is called estate planning, in which you establish a plan in advance of death to certify your wishes will be carried out.
Your wishes can include who will receive assets, what they will receive, and when they will receive these assets. Many times individuals or couples in their 20s or 30s do not believe they have a large enough estate to warrant estate planning. However, this could not be farther from the truth as estate planning also includes wishes regarding children. This can include naming a guardian who will raise any children and who will manage their assets.
Without proper estate planning, there no guarantee, at death, that your estate will pass entirely to whom you wish or that your children will be raised by whom you want. State laws require assets to be split and children to be raised by certain individuals in the absence of an estate plan.
Estate planning may also help to minimize taxes, court fees, and family squabbles about inheritance. The most popular legal documents are wills and living trusts.
A will is a legal document that spells out who will inherit assets, raises children, and who will manage money for children until they are of age. Assets can be left for one or multiple individuals. Children can be raised by whomever you wish, thus ensuring little Johnny and Sue are not raised by that crazy uncle. Lastly, a will allows a money manager to be chosen for any minor children. This provides some checks and balances against the guardians and also does not allow little Johnny to buy a sports car with his share of the estate.
A will is typically a low cost option for estate planning (usually $100 – $400 per will depending on the attorney). One of the downsides of having a will is that your estate still goes through probate and incurs delays and court fees.
A living trust, also just called a trust, is a legal document more comprehensive than a will. It’s usually one of a series of documents packaged to cover many estate planning contingencies (along with a living will, power of attorney documents, and a pour-over will – the unique type of will that accompanies a living trust). Trusts are able to accomplish everything a will can and more as they also avoid probate. By avoiding probate, attorney and court fees are minimal, possibly savings thousands or tens of thousands of dollars. However, trusts are more expensive than a will at $1,500 – $4,000 depending on the attorney.
At a minimum, every American should have a will, but only 50% to 60% of Americans do. This number is probably so high because for many people, the thought of sitting down with an attorney to discuss the issue ranks just below getting a root canal. Just like procrastinating having a root canal, delaying estate planning will only make it more difficult later in life.
This article is just about the basics of the importance of estate planning. Because of that, many of the specific workings within a will or trust were left out of this article, as are many details regarding wills, trust, and other types of planning. There are positives and negatives with both wills and trusts but the worse plan, is not having a plan at all.
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