Thinking about one’s own death or disability are topics most people avoid as long as possible. However, death and disability are two of the most important reasons for creating an estate plan. You want to protect yourself and your loved ones. With proper estate planning, you can safeguard your finances during your lifetime, as well as direct how your finances will be handled upon your death or disability. Comprehensive planning can give you much-needed peach of mind and spare your beneficiaries the anguish of dealing with the expense, delay, and frustration that come with wrapping up a loved one’s estate.
Yes, when the person who wrote the will or trust was forced, deceived, mentally incompetent, or unduly influenced.
The personal representative follows state law to wrap up the decedent’s affairs, including the following:
- Giving the proper notices to proper parties
- Collecting the decedent’s property
- Receiving claims against the estate
- Paying valid claims and disputing others
- Distributing estate property according to the will or state law
- Selling estate property to cover debts or allow for proper distribution if necessary
If you have minor children at the time of your estate planning, it is important to address issues regarding their upbringing in the event of your incapacity or death. If your children are young and your financial situation provides for advanced planning, you may want to implement a plan that will allow your surviving spouse to devote more attention to your young children without the burden of work obligations. You may also want to provide for financial counseling and resources for your spouse in the event he or she lacks the experience or ability to handle financial and legal matters.
If you and your spouse die simultaneously or within a short duration of time, you should have a contingency plan that validates your joint decisions regarding who will manage your assets, as well as a nomination of a guardian for the upbringing of your children. It is not necessary that your financial manager and the guardian of your children be the same person. However, if you do not make the decisions yourself via estate planning documents, a court will decide how your finances are managed and who will raise your children, often with the undue burdens of reporting to the court and other court-designated restrictions.
Proper estate planning gives you the opportunity to determine how your children receive your assets. You may designate that the assets be distributed directly or alternatively placed in a trust to be distributed based on a number of factors which you designate, such as age, need, education, behavior, and achievement.
Placing the assets in a trust avoids the problem of children receiving substantial assets prior to achieving the level of maturity they need to properly handle inherited wealth.
Normally, personal representatives or trustees of an estate administration are entitled to be reimbursed for any out-of-pocket expenses they may incur during the process of managing and distributing the decedent’s estate. Additionally, they may be entitled to statutory fees that may vary according to locale and size of the estate.
The personal representative or trustee is expected to fulfill his or her fiduciary duties with the utmost integrity. Failure to do so may result in his or her liability for mismanagement of estate assets. It is advisable that the personal representative or trustee retain an attorney and an accountant to guide him or her through the somewhat daunting process of administering an estate. Fees for attorneys and accountants are paid from the estate’s assets.
When you are mentally incapacitated, you are no longer able to manage your own financial affairs. Many people assume their spouse or children will be equipped to handle financial matters on their behalf. This can be an expensive and inaccurate assumption. Without proper documents in place, a person’s spouse or children must petition a court to have the person declared legally incompetent – a process that is long, costly, and stressful for all concerned. Once declared incompetent, the court will appoint someone to handle the person’s affairs, and it may not always be someone he or she would have chosen. The court may even require the appointed financial manager to return to court yearly to account for every penny being spent or invested. This can result in more costs and frustration for the incapacitated person’s loved ones.
Proper estate planning can eliminate these problems and confusion. If you want a certain member or members of your family to immediately assume the responsibility of managing your finances in the event you become incapacitated, incompetent, or deceased, you can make this designation in a variety of estate planning documents. Your fiduciaries should be people you trust, as they will have the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, and transfer property. Because a will does not take effect until you die, and a general power of attorney may not be sufficient, it is important to discuss your goals with an attorney.
In addition to establishing a plan for your financial well-being, it is equally important to establish a plan for your medical well-being. The law also allows you to appoint a trusted person to make decisions on your behalf regarding medical treatment options if you lose the ability to decide for yourself. Who will make decisions for you if you are unconscious as the result of an accident? With the proper documents in place, you can select this person or persons yourself and prepare them for that responsibility well in advance of the dilemma. Additionally, it is important to have a living will in place that informs others of your preferred medical treatment should you become permanently unconscious or terminally ill. The presence of a living will at such a time is a comfort to your medical representative, as they can rely on your stated wishes regarding how you should be cared for as the end of your life draws near.
The cost and duration of probate can vary substantially depending on several factors. Generally, the value of the estate and the complexity of the estate determine cost and time frame. If estate planning documents have been well-drafted, well-funded, and properly put in place, the time required to close the estate and distribute the assets is considerably shortened. If there are contests or disputes regarding the will among beneficiaries or creditors, it may take more time and cost more money to administer the estate.
Common costs involved in settling an estate include personal representative or trustee fees, attorney’s fees, court fees, accounting fees, and appraisal costs. It is difficult to estimate the total of these expenses, but a normal range is somewhere between two percent and seven percent of the total value of the estate. The length of time to settle an estate may also vary significantly, but generally most estates can be settled within a nine- to 18- month time frame assuming there is no litigation involved.
With the passing of a loved one, his or her estate will enter a court-managed process called probate or estate administration in which the assets of the deceased are managed and distributed. If the decedent owned his or her assets through a well-written and properly funded living trust, the heirs will likely be able to avoid the court-managed administration of the estate. The successor trustee appointed in the trust document will be able to administer the distribution of the decedent’s assets as directed by the living trust. The length of time to complete the estate administration is largely dependent on the size of the estate, the complexity of the estate, and the local rules of the court.
Although each estate administration is somewhat unique, most estate administrations involve the following steps:
- Filing of a petition with the probate court
- Notice to heirs under the will and/or trust or to statutory heirs if no will or trust exists
- Petition to appoint personal representative
- Inventory and appraisal of estate assets by personal representative
- Payment of estate debt to rightful creditors and sale of estate assets
- Payment of estate taxes, if applicable
- Final distribution of assets to heirs
For the most part, probate is a process through which title is passed from the decedent to the beneficiaries. There are certain types of assets that are considered non-probate assets, such as:
- Retirement accounts, such as IRAs and 401(k) accounts where the beneficiaries have already been designated
- Any properties held as joint tenants with right of survivorship; this type of ownership allows the asset to pass to the co-owner who has survived without having to go through the probate process
- Life insurance policies
- Bank accounts that have been established as POD (paid on death) accounts
- Properties owned by a living or revocable trust; title to those properties passes to the successor trustees without having to go through the probate process
Despite paying taxes and then more taxes throughout your life, Uncle Sam still wants to do business with you after you pass away. At the very least, Uncle Sam wants to review your estate to ensure you do not owe him one last time.
Since each state has a unique set of laws to govern estate and inheritance taxes, you should discuss your concerns with an attorney licensed to practice in your state of declared residency. With proper estate planning, you can implement many well-established strategies that will reduce or even eliminate death taxes. However, you must start your estate planning as early as possible to take advantage of the many tax-avoidance strategies.
In a trust, a party known as the trustee has legal ownership of property transferred to him by the person making the trust (the grantor). Trust assets are invested and or managed for the benefit of one or more beneficiaries. A trust can be living, that is, established during the grantor’s lifetime, or testamentary, established in a will. A trustee can be either an individual or an institution, such as a bank.
State law uses a default will for anyone who dies without a will. Typically, the spouse and children of the person who died take the property. If there is no spouse and no children, the decedent’s parents take the property, followed by siblings, grandparents, and children of the grandparents. If no close relation can be found, the property eventually belongs to the state. Note, though, that as part of the probate process, the decedent’s creditors lay claim to the property after certain allowances for spouse and children.
While it may seem straightforward for you to draft your will yourself, personally drafted wills tend to be incomplete and are, therefore, invalid under state law. An attorney familiar with specific state laws can legally draft a will that is valid under state law.
A will protects your property and can especially be helpful if you want to distribute your property to people other than your relatives. Without a will, state law dictates the distribution of your property. The default plan normally distributes property to relatives.
Estate planning is the accumulation and disposition of an estate, typically to minimize taxes and maximize the transfer of wealth to the intended beneficiary. Estate planning tools include a will, trust, power of appointment, power of attorney, medical power of attorney, and living will.