Three Critical Estate Planning Options

Death is not something we enjoy talking about, but something we know we all have to face. For many there is no preparation. It's sudden, unexplainable and without mercy. However for some, there is at least the favor of a little preparation. As much as the reality is all around you, talking about it is always easier when it's not looking at you in the face.

There are so many articles and websites geared towards avoiding probate and reducing or eliminating estate taxes, but in all reality, who cares about that stuff? Even though there are the few who really hate the government, more than that, there are those who don't want to see their loved ones’ lives tormented and torn up for a year or more because of bad or no planning.

So, the point to all this planning is really this...  We don't want our families to be left with a nightmare after we're gone. So, what are your main options? After all, estate planning, financial planning and retirement planning issues are easy to procrastinate because many of the options feel overwhelming and when we're bombarded with too many decisions the easiest decision to make is to make no decision at all.

Unfortunately, I hear from children who had parents who actually realized the importance of estate planning but died prematurely, leaving their kids in probate, without direction and the a tangled mess to deal with. The bottom line is the consequences of procrastination can be financially devastating. Remember that estate planning is vital for everyone. It does not matter what your level of income is or your net worth or other family circumstances. Without a proper plan for the future, you could be leaving your children or loved ones with complications, and none of us wants to do that. These complications could add up to unnecessary fees and possibly a delayed distribution of your estate.

But the question I see the most is "what do I do? What are the options?"

The first step to a solid estate plan is understanding the basics, and today we will take a look at the most common tools people use to prepare an estate plan. We will discuss the three main options:

Option 1: Doing Nothing

Unfortunately, we're all bombarded with many decisions in our daily lives and when it comes to making decisions about death the common habit is to make no decision at all. We all know it as procrastination.

1) Are you too busy?

2) Do you think you do not own enough?

3) Are you confused about your options?

If you never get around to creating an estate plan, the distribution of the estate falls under our state's intestate succession statutes. These are the rules the state uses when you die without any type of Trust or will. Remember, 70% of Americans do not even have a simple will. While these guidelines attempt to be fair, they may not necessarily distribute the estate according to your wishes. But that’s what happens when you leave it up to the state to decide.

For example, in some states the estate could be split between the spouse and the children, allowing only a share of the estate to go to the spouse. Furthermore, the laws in some states only allow for the inheritance of property to blood relatives and not to partners and friends. In addition, if you have minor children, the courts may control their inheritance and appoint a guardian. If you procrastinate and never make a documented decision, your decision could be left up to the courts and the state government.

So, the takeaway is this: Doing nothing is your worst plan.  

Option 2: A Will

Your second basic option is a Last Will and Testament. A Will is a legally binding document that addresses how your named assets will be distributed at your death and also names an executor who will assist with the administration of your estate. Settlement of your estate is supervised by the probate court. This process, depending on the nature of your estate, can last from several months to much longer. I've even heard from those who spent years settling their parents' estates in probate court.

A Will is a flexible tool that can be changed at any time as long as you are mentally competent. In addition to naming distribution of the estate, your Will can:

• Designate a Trust to be established for family members after assets go through probate. (This type of Trust is known as a testamentary Trust)
• Nominate a guardian (although some attorneys, like me, may use a separate document for this).
• Direct how debts, taxes and expenses are to be paid.

Disadvantages of a Will:

• Lack of privacy: your estate files can be accessed through publicly available court records.
• Time: probate can take a few months to a couple years until final distribution is administered.
• Probate may need to be held in each state, if you own property in more than one state.
• Probate and legal fees can become very expensive.
• A Will does not make any provisions if you should become incapacitated. A separate conservatorship proceeding would be held.

Advantages of a Will:

• Distribution can be settled through the probate court. (If you do not mind the time and cost factor)
• A Will is initially cheaper to prepare than a Trust
• The probate process can lessen the time allowed for creditors to make claims against your estate.
• A court is involved if someone contests your plans… while this means more delays and expenses, some people feel more comfortable with a court overseeing their estate if a family member decides to make trouble.

Now that we've briefly discussed doing nothing and a Last Will and testament, there is one more option...

Option 3: Living Trust

The Revocable Living Trust, or just known as the Living Trust, has become a very common estate planning tool in recent years. The name revocable is used to identify its flexibility to be changed or canceled by you as long as you are alive and competent. Once you pass away, the Trust becomes irrevocable. That means your wishes cannot be changed after your death.

A Living Trust is a legal agreement in which you place your assets into the name of the Trust for the benefit of you, your spouse, and your heirs. The Trust holds title to your assets and gives control to the trustee. The title of the assets will look something like this:

“The Johnson Family Trust dated month/day/year, Bill John and Mary Johnson, Trustors and/or Trustees”

The good news is that you do not lose control of the assets you put into the name of your Trust. Technically, if prepared correctly almost every asset (not all - more on that later) will be put in the name of the Trust. As a result of being your Trust's trustee, you maintain complete control. You can still buy, sell, borrow or transfer your assets.

Upon the incapacitation or death of you and your spouse, the control will be transferred to the successor trustee. At that point, the successor trustee will manage the assets in line with the terms you have established within the Trust. As a result, your estate will not need to go through probate court because ownership has been assigned and control has been given to the successor trustee through your living Trust.

Note: In order for assets to avoid probate, they have to be properly titled in the Trust's name... not a problem with the right instructions, and we have a specific online course for this at www.TrustFundingCourse.com.

So, what can a living Trust give you? The Living Trust can give you a great amount of flexibility. With it you can:

• Name anyone over the age of 18 to act as trustee.
• Maintain full control of the assets in your Trust.
• Manage your taxes the same way you currently do.
• Change or modify the terms of your Trust at any time.

Disadvantages of a Trust:

• The initial cost of a Trust can be more expensive than a simple Will.
• More time and effort is needed when preparing a Trust over that of a Will.
• Property may need to be taken out of the Trust's name if you desire to refinance. Once the refinancing is finalized, the property can be placed back into the Trust.
• Like a Will, a Trust provides no protection from your creditors.

Advantages of a Trust:

• A Trust can avoid the probate process, thus passing the assets and avoiding the time and expense usually occurring with probate.
• Unlike a Will, a Trust is a private document and is not generally public record.
• A Trust can provide uninterrupted management of the estate should you and your spouse become incapacitated.
• A Living Trust is valid in every state.

Creating a proper estate plan can sometimes be frustrating. Many individuals are not always aware of their options or the questions that they need to think about.

Now, what are your questions? We may have some webinars to help.

• Do you have a child receiving SSI? (www.SpecialNeedsPlanningWebinar.com) 
• Are you and your spouse are on your second marriage and have children from previous marriages? (www.blendedfamilyestateplanningwebinar.com) 
• Is the majority of your estate in your IRA? 
• Do you have property in more than one state?

These are all important factors. If you have any questions, now is a good time to get answers.

We have a lot more free information on planning with a Will versus a Trust at www.FreeTrustCourse.com. If you are a North Carolina resident, you can email us or simply call the law office at 919-844-7993 to set up a free 30 minute Discovery Call.