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Guide to Setting Up Estate Planning

Estate planning statistics from the American Association of Retired Persons (AARP) reveal that over 50% of adults in the United States have not engaged in estate planning. One of the greatest gifts you can give your successors is a blueprint estate plan they can use if you pass away or become incapacitated.

If you die without an estate plan, your assets will pass to your closest relatives based on your state’s laws. In addition to property distribution, estate plans should contain legal instruments. Living wills (advanced directives) are crucial documents that help your loved ones feel confident about their decisions about how you live and how you want to pass through.

Modern estate planning is no longer reserved for the super wealthy and is becoming the norm for middle class people. There are even online Will Maker programs that are free, making it accessible to everyone.

What Should Estate Planning Accomplish?

Estate plans can vary significantly depending on your assets and beneficiaries, but these are the important items that should be included in any good estate plan:

  • Name beneficiaries for assets
  • Assign a guardian for children under 18
  • Name an executor
  • Name or update beneficiaries for retirement accounts, life insurance policies, and bank accounts
  • Set up funeral arrangements
  • Power of Attorney for healthcare and finances
  • Provide wishes for end-of-life care

Having a solid estate plan in place will greatly ease the burden on your family when you pass or become incapacitated.

Writing and Executing a Will

The most critical form of estate planning is the writing of a Will. A Will is a document that specifies who will receive your assets and be the guardians for your minor children. It requires the appointment of an executor that’s in charge of carrying out the terms specified in the Will.

Probate is the court that proves the validity of Wills and monitors how their provisions are carried out. When you assign assets (anything you own of personal, sentimental or monetary value) in a Will, you’re not limited to relatives. You may choose friends and charities as beneficiaries. It’s even possible to assign a person to take care of your pets and a fund to pay for their care. If you have minor children, it is essential that you name a guardian for your children in a Will.

Each state has its own specific requirements for executing wills, such as how many witnesses must be present and how they are signed. It is always best to verify your state requirements prior to having your will witnessed. A will that is not properly witnessed, is invalid.

Non-Testamentary Assets

Assets that are passed through a Will are called “testamentary assets”.  Those that pass in other ways are called non-testamentary assets.

There are many types of non-testamentary assets, including a wide range of estate planning trusts, but the most simple and straightforward non-testamentary assets are self-directed assets such as:

There are two ways to pass a bank account to a family member that can avoid probate. The easiest way is to set up a joint bank account with rights of survivorship. If you don’t trust anybody enough to allow them access to your bank account while you are alive and competent, you can name somebody as a beneficiary of the account.

Brokerage accounts with stocks and bonds can pass in this same fashion. Real estate can be a self-directed asset if it’s designated as joint property or as tenants in the entirety for married couples. Retirement accounts with designated beneficiaries can also be passed down as self-directed assets that don’t have to go through probate.

Estate Planning Trusts

Trusts are a more sophisticated solution for passing assets to beneficiaries, but they aren’t always necessary. These are some criteria to consider to evaluate whether a trust should be included as part of your estate plan:

  • If you own more than one home, especially if the second home is located in another state;
  • Have more than $250,000 in assets;
  • Desire a strong preference for financial privacy;
  • Would like to spare your loved ones a long drawn out probate process;
  • You would like to reduce estate taxes;
  • Need to provide for beneficiaries with special needs.

There are many different types of trusts, each suitable for specific purposes and customizable to include a wide variety of assets and circumstances. The most popular type of trust for estate planning purposes is the revocable living trust.

It’s attractive because you don’t lose control of your assets and you can revoke the trust at any time while you’re alive. When you structure these trusts properly, you can avoid probate for the lion’s share of your assets. There are many types of irrevocable trusts available that can be valuable tools for special circumstances. The downside is that you lose control of your assets, but provisions in the trust document that allow the trustee to provide funds for your benefit can mitigate this.

Common Types of Irrevocable Trusts Used in Estate Planning

Here are the 3 most common types of irrevocable trusts used in estate planning:

Medicaid Trust

It doesn’t take long for people with substantial assets to be penniless if they require long term care. When you put your assets in a trust for your benefit, the funds are no longer legally yours, allowing you to qualify for Medicaid in some states. If your state allows it, you must carefully adhere to its law and regulations.

Special Needs Trust

The purpose of this type of trust is to improve the lives of adult offspring with severe special needs who rely on government benefits for their survival. The trust can provide for medical treatments, home modifications, computers, etc without increasing the beneficiary’s income and assets, so they can retain their benefits.

Spendthrift Trust

If your intended beneficiaries are young and inexperienced with financial matters or have a track record for money burning a hole in their pocket, a spendthrift trust might be a good solution. The trust can provide a specified amount of income, while protecting the principal.

Trusts are time consuming and frustrating to set up, but they provide many benefits.

When Should I Start My Estate Plan?

Anyone who has any assets or family should set up an estate plan. Too often families become disconnected over the lack of Last Will. Many families never speak again due to fighting over sentimental jewelry, a condo, even a special serving platter.

Having a Last Will in place will avoid those lifelong conflicts. Making sure your Last Will is registered, avoids your will being lost or misplaced.

Sadly, young healthy people can become critically ill or lose capacity in accidents every day. This puts a tremendous strain on their family members. If you don’t have an estate plan, you should start working on it today.

There are free online Last Will programs that are available for everyone with simple estates. If you have a complicated estate or many assets, it is wise to see an Estate Attorney. They can create a Last Will that meets all your needs.

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