Question: What is an estate plan? Do I need an estate plan?
Answer: When you know what an estate is, then it’s easy to understand estate planning. (If you’re unsure what an estate is, read my post about estates.) For the most part, estate planning is literally the planning for the transfer of one’s estate (their property and other assets) after death. At death, a person’s assets can be transferred in one of three ways:
1. If a person dies and leaves no Last Will and Testament or Trust, a probate proceeding will likely be required to effectuate the transfer of the deceased’s assets to his or her heirs as defined by law. This can be expensive and time consuming and lead to potential family fighting about who gets what. A nasty probate proceeding could turn into a full blown litigation with pleadings, court hearings, discovery, deposition, trial and very expensive attorneys. The only exception to having a probate is if the deceased’s estate qualifies as a “small estate” thereby allowing their assets to be transferred without probate. For personal property, the deceased’s assets must total $50,000 or less, for real property the value of the property must be $75,000 or less, minus any money owed on the property.
2. A person may die leaving a valid Last Will and Testament. With a Will, a probate is still necessary (unless the deceased’s estate qualifies for the small estate exemptions from probate above). However, when the deceased’s wishes are spelled out in a Will, his or her wishes are known thereby greatly reducing the potential fighting over who gets what. Also, because the deceased left a Will, the probate process can be a lot easier – more like an administrative process than having a full blown litigation. The deceased’s assets are transferred pursuant to the terms of the Will. NOTE: if any property is to be transferred to a young person, a conservator will be appointed (either by the court or as named in the Will) to manage the young person’s assets until they turn 18. Once they turn 18 they will get all of the assets, outright.
3. A person could create a Trust before they pass away. One of the big benefits of a Trust is that if the Trust is properly funded no probate is required to transfer the deceased’s assets. Trust funding is the process of transferring assets out of a person’s name and into the name of the Trust. The goal is that when a person dies they don’t own anything in their name but instead own everything in the name of their Trust. Since a) a Trust survives even after the trustmaker has died and b) the deceased didn’t own any assets in their own name, no probate is required. Instead, the deceased’s estate (now owned by the Trust) is distributed pursuant to the terms of the Trust. Another benefit of a Trust is that the trustmaker can stage the distribution of the assets to a young beneficiary (example: 1/4 at age 20, 1/4 at age 25, 1/4 at age 30, balance at age 35). Also, a conservator will not need to be appointed to manage the young person’s assets since the assets left in Trust are managed by the person the trustmaker named as his or her successor trustee.
Comprehensive estate plans also include documents relating to a person’s health care and finances should they become ill or incapacitated and unable to care for themselves. This includes creating documents like powers of attorney and health care directives.
Everyone one should have an estate plan. Whether your estate is made up of $10 or $100 million, you can benefit from an estate plan. And, it’s best not to procrastinate because by the time you need an estate plan, it’s already to late to make one. Call Abigail Neal today at (480) 699-7992 to get started on a low cost, flat fee estate plan today. Or, read more about our estate plans here.