Myth: estate planning is something only “the wealthy” need to do.
Truth: anyone who wants to pass their wealth to someone else when they die needs to do estate planning.
What is Estate Planning?
There are plenty of wordy and complex definitions of estate planning, like this one from Wikipedia:
“Estate planning is the process of anticipating and arranging for the management and disposal of a person’s estate during the person’s life in preparation for a person’s future incapacity or death.”
Translation: Estate planning is taking the time before you die to ensure that your loved ones inherit and receive everything you want them to legally through the use of a will, trust, or other estate planning strategies.
One article can’t possibly do the subject of estate planning justice, considering how complex a topic it is. Some attorneys spend eight years in college learning what estate planning is and how to help their clients’ final wishes and needs be met.
This article will address two of the most basic estate planning concepts and strategies that just about everyone needs: wills and trusts.
What is a will?
A will is a common estate planning tool and is the simplest tool for making sure your estate passes to your heirs as you wish. It’s important that your will is created and carried out in compliance with the laws of the state in which it was created.
For example, if you live in Texas and own a piece of property you want to leave to a child, you need to make sure Texas laws are followed, even if you’ve moved to another state since your will was created.
A will also creates an orderly distribution of your property. A will makes it very specific which piece of property goes to which heir.
For example, If you want your sister to inherit your pearl necklace when you die, you state that in your will. Then, if anyone’s unhappy she got the necklace; their beef will be with you, not her. And you won’t have to worry about dealing with their anger.
A will also can designate guardians of minor children and their estate. No parent wants to leave it to the courts to decide where their children will live when they die. A will makes it clear who you want to care for your children if you die when they’re minors. Of course, be sure to get the consent of the potential guardians before you put those instructions in your will.
Last, having a will can save your heirs a large amount of money. They won’t need to hire attorneys or pay court costs because there’s a dispute over property or guardianship, which will help keep family feuds to a minimum (you probably won’t make everyone happy).
What is a trust?
A trust is another estate planning tool that compliments your will to help direct the passing of your assets after you die or become unable to make decisions.
Trusts can be used to provide for the distribution of money for the benefit of a minor or developmentally disabled child.
For example, if you want your 17-year-old to spend their inheritance on college and not a Camaro, a spendthrift trust will specify those wishes and make sure the money you provided for them is used wisely.
Also, a trust ensures privacy for your family by having your estate bypass a complicated and costly legal process called probate, where everything you intended to have happen is confirmed or denied by a probate judge.
Where to get a will or trust created.
You may be tempted to buy cheap software to create your will or trust. Don’t try to save a few bucks by cutting corners and risk unnecessary expenses and delays for your heirs.
There’s too much at stake if you do it incorrectly. Instead, pay an attorney who specializes in drawing up wills and trusts and pay the extra money to have it done right. The last thing you want is for your family to go without their inheritance or to collect life insurance proceeds because you made mistakes using an estate planning software program.