By Linda Amato
Estate planning is an essential part of life and death. In planning for our future and our family’s future, we must take stock of who we are, what our goals are, and how we want our estate distributed. Putting your affairs in order is one of the most important things you can do for your loved ones. But creating an estate plan isn’t actually as easy as making a list of your treasured items and deciding who should receive what. Because the decisions you make when creating an estate plan will affect your decedents long after you’re gone you may want to first decide what your goals are. For example, if you have minor children, have you given thought to who would be a good candidate to serve as a Guardian? Do you have a loved one with special needs that may require a Trust to protect their inheritance? What is the size of your estate and do you need to consider tax planning strategies that can reduce the burden of estate tax liability?
Although it may seem obvious that it is important to create an estate plan it is not uncommon for people to procrastinate. Writing a Will or creating a Trust is an involved and time-consuming process, and it might seem tempting to put it off. But if you die without an estate plan your estate will be distributed in accordance with the Intestate Law of your state. The risk is you might wish for a particular relative to receive a large portion of your estate—or conversely, none of your estate—but without a formally executed estate plan, the courts have no way of legally upholding your wishes.
One of the most effective ways to put together an estate plan and protect against dying intestate is to create either a Will or a Revocable Trust during your lifetime. Let’s take a look at some guidelines to ensure that you have a solid framework to get started.
A will is a legal document that addresses property distribution and appoints a guardian for minors.
In most states, a will is a public document that is filed in court.
If the estate includes probate assets (assets in your name with no named beneficiary), the will is subject to probate.
The person charged with distributing assets named in the will is an “executor“. If a will doesn’t name an executor, the court will appoint one.
A trust has a similar purpose to a will but does not involve the probate process
A trust is flexible: an individual can keep control of your assets until the time of their death and change the terms of the trust over the course of a lifetime.
To avoid the probate process, all of the assets named in the trust must be retitled to the trust or to a beneficiary.
A trust can be crafted to avoid a guardianship petition in the event of incapacity in the event of disability. In that situation, a successor trustee steps in to manage the assets in accordance to the instructions set in the trust.
Estate Planning With A Will
A Will is a legal document that addresses your wishes with respect to the distribution of your property and the appointment of a Guardian for minor children upon your death. It is not an instrument that addresses issues related to disability or incompetency during your lifetime. In most states, a Will is considered a public document and available for public inspection. The lack of privacy is an important consideration if you have estranged relationships or if you have a large estate.
A Will is always subject to probate when the estate includes probate assets. Probate assets are assets that are owned in your name alone and do not have a named beneficiary. For example, bank accounts, real estate or stock titled in your name alone. However, if your estate consists of non-probate assets including but not limited to: jointly owned bank accounts, jointly owned real property or accounts that have a designated beneficiary then those assets transfer automatically by operation of law and will not necessitate probate.
The probate process is governed by the local Surrogate’s Court in your state. The court must determine that your Will is valid before granting your executor legal authority to marshal your assets and settle claims against your estate before distributing the remaining assets to the beneficiaries of your Will.
Having a court authorized executor to deal with income and estate tax issues is often very helpful. The probate process can be a straightforward process but that is not always the case. The time frame can range from 7 months to several years depending upon the type of assets in the estate and whether there are any creditor claims and whether there is sufficient liquidity to cover expenses.
In addition, it is important to be mindful that if you own real estate property in another state or country it will be necessary to probate your Will in that particular state or country before your estate is considered settled. The process is referred to as an “ancillary probate” which can impose additional cost and delay.
Estate Planning With A Trust
There are many different types of Trust, but a Revocable Trust is the one that most commonly used for estate planning purposes. It is considered a Will substitute but it avoids probate. You retain complete control over your assets and can change the terms of the Trust at any time during your lifetime. It’s not until your death that it becomes irrevocable and distributes your assets to your beneficiaries in accordance with your expressed wishes. Thus, unlike a Will it provides a layer of privacy because it is not required to be filed in court.
The key to avoiding probate is that you must retitle all of your assets to your Trust or designate a beneficiary for those accounts that are not retitled to your Trust. For example, Mary lives in Florida and owns property in California and South Carolina, she has 3 bank accounts, 2 IRAs and a life insurance policy. If Mary retitles her property in California and South Carolina and her bank accounts to her Revocable Trust and names beneficiaries for her life insurance policy and her IRAs her family will avoid in Florida, California and South Carolina. In contrast, if Mary had a Will instead of a Revocable Trust her family would need to probate her Will in Florida and file ancillary probate petitions in California and South Carolina – likely to impose additional expense and delay in the settling her estate.
In addition, to providing privacy and avoiding probate another advantage of a Revocable Trust is that it can be crafted to avoid a guardianship petition in the event of incapacity during your lifetime. A Revocable Trust prevents the need for this process because it provides for a Successor Trustee to step in and manage your Trust assets according to your written instructions in the event of your disability. This process is handled privately, without the need for a judge’s approval.
As with any estate planning tool, a Revocable Trust does have some disadvantages. For example, a Trust requires maintenance. You have to transfer all the necessary property to the Trust. Formal transfers are required even if you serve as your own trustee. Without the transfers, the assets would still be in your individual name, necessitating a public probate.
The initial cost of a Revocable Trust may be more than the cost of a Will, although a Trust generally saves you significant money later on because it allows you to avoid probate expenses.
Finally, not everyone needs a Revocable Trust. That’s why it is important to discuss the advantages and disadvantages of a Revocable Trust with an experienced estate planning attorney. He or she can help you choose an estate plan tailored to meet your needs and goals.
About the Author
Linda Amato is a New York-based attorney whose private practice, Amato Law, PLLC, is exclusively devoted to Trusts & Estates. For additional information, visit the Amato Estate Planning website.