- Every person has an estate plan automatically; it is designated by the state you reside in.
- Estate plans can consist of wills, durable powers of attorney, trusts and designation of beneficiary type assets.
- There is will-based and trust-based planning. There are very big differences in terms of dealing with probate and whether they are public versus private.
Death. Not a word most people like to hear or talk about. However, as we move further in to life and accumulate assets or have children, death becomes something we think about in terms of who will be our children’s guardians, or who we give our assets to upon death.
You have an estate plan. Really, you do! If you die intestate – meaning, you die without a will – the state you reside in says what will happen to all your property at death. Not necessarily what you want to do!
So, what’s an estate plan? An estate plan is a series of documents you decide upon that will determine what happens with all your assets during life and upon your death. The documents can consist of:
- A will – this is a legal document that contains instructions on how to handle you, your assets, and your personal property.
- A durable power of attorney – this document gives another person, your agent, the power to make decisions on your behalf in terms of your healthcare and your property, specifically if you become incapacitated.
- Trusts – this document holds assets and directs how those assets are handled during life and after death. You may be the trustee during your life with successor trustees taking over after your death.
- Designation of beneficiary type assets – 401ks, life insurance, IRAs, etc.
The two types of estate planning are will-based or trust-based.
In a will-based plan:
- Designate an executor – a personal representative that takes care of your final arrangements and distributing all your property to whom and when.
- Designate a guardian to take care of any minor children
- A will is Everyone can see what your assets are, how they get distributed and assets may go through formal probate, which can be expensive, frustrating and time consuming.
In a trust-based plan:
- A trust is an extension of you that owns your assets, just like you own something personally. You’re the trustee.
- Designate a successor trustee – this is like the executor of a will, but for your trust
- The trust can say who, where, when and how
- A trust can handle issues while you are alive if you are incapacitated, kind of like the durable power of attorney
- A trust is private – no one knows what happens to your assets
- A trust largely avoids probate, so you avoid that frustrating, costly process
Finally, you have designation of beneficiary type assets. These are things like life insurance, 401ks, IRAs and so forth. With these types of assets, you designate a beneficiary and that’s who it goes to, no other way. Neither your will or trust alter where these assets go.The bottom line is that the state you reside in does have an estate plan, but be proactive. Put your own estate plan together to ensure your affairs are in order.
Until next time, enjoy. Gary