IT’S ALL ABOUT THE BASICS – ESTATE PLANNING Series
WHO NEEDS ESTATE PLANNING?
The short answer: you do.
Whether your estate is large or small, you should designate someone to manage your assets and make health care and personal care decisions for you, just in case you become unable to do so for yourself.
If your estate is small, you may simply focus on how your assets are titled, who will receive your assets after your death and who should manage your estate, pay your last debts and handle the distribution of your assets. If your estate is large, your estate planning lawyer will also discuss various ways of preserving your assets for your beneficiaries and of reducing or postponing the amount of estate tax which otherwise might be payable after your death.
If you fail to plan ahead, a judge will simply appoint a special representative, at a high fee or percentage of your asset value, to handle your assets and personal care. Then, your assets will be distributed to your heirs according to a set of your state’s laws and rules for distribution known as intestate succession. Contrary to popular myth, everything does not automatically go to the state if you die without a will. Your relatives, no matter how distant, and, in some cases, the relatives of your spouse will have priority in inheritance ahead of the state. Still, they may not be your choice of heirs; an estate plan gives you much greater control over who will inherit your assets after your death.
WHAT IS INCLUDED IN MY ESTATE?
All of your assets are included in your estate. This could include assets held in your name alone or jointly with others, assets such as bank accounts, real estate, stocks and bonds, and furniture, cars and jewelry. Your assets may also include life insurance proceeds, retirement accounts and payments that are due to you; such as a tax refund, outstanding loan or inheritance. The value of your estate is equal to the “fair market value”, at the time of your death or six (6) months after the date of your death, of all of your different types of property after deducting your debts, such as your car loan, for example, and any mortgage on your home.
The value of your estate is important in determining whether your estate will be subject to estate taxes after your death and whether your beneficiaries could later be subject to capital gains taxes. Ensuring that there will be sufficient resources to pay such taxes is another important part of the estate planning process.
WHAT IS A WILL?
A will is a traditional legal document which:
• Names individuals and/or charitable organizations who will receive your assets after your death, either by outright gift or in a trust.
• Nominates an executor who will be appointed and supervised by the probate court to manage your estate; value your estate, pay your debts, expenses and taxes, file a final accounting or waives said accounting and distribute your estate according to the instructions in your will.
• Nominates guardians for your minor children.
Most assets in your name alone at your death will be inclusive to your will. Some exceptions include securities accounts and bank accounts that have designated beneficiaries, life insurance policies, IRAs and other tax-deferred retirement plans, and some annuities. Such assets would pass directly to the beneficiaries and would not be included in your will. Therefore, how an asset is held, where it is held and the titling of the asset will determine whether the asset is put into your estate. Some assets that are located in other states within the United States must be probated in these other states which is time-consuming, expensive, and involves yet another probate court proceeding which can easily exceed two years of expensive and distant probate court.
Remember, certain co-owned assets will pass directly to the surviving co-owner regardless of any instructions in your will. And assets that have been transferred to a revocable living trust would be distributed through the trust and not your will. This concept of asset transfer outside of the will is a highly prized procedure when done properly to each specific asset which I will discuss in depth on later series.
For some, such as California’s Statutory Will (a fill-in-the-blanks form) may be sufficient, but I have never seen a successful Statutory Will. Keep in mind, however, that you must execute your will in the manner required by California law. Failure to do so could invalidate the entire will. You should discuss such requirements with a qualified estate planning lawyer.
If you are indeed lazy and do not want to concern yourself as to who will get what assets as well as a great probability that the simple will or Statutory Will will be deeply litigated by your family members after your death which will result in permanent family separation and hatred; then a simple will or no will is your answer. If you are studious and seeking to acknowledge that there will be an ultimate demise of yourself; then titling assets for transfer before or at death and establishing a trust is worthy of your time and effort. The next series will discuss this issue of a need to have a will and who that may work with a trust.