People often believe they do not need an estate plan because they do not think they are “wealthy” or that they have an “estate.” Everyone has an estate that needs to be planned – it is only a matter of how large it is. Creating an estate plan through a Will or trust allows you to decide what happens to your family and your assets at your death and gives you peace of mind.
What is Estate Planning?
Estate planning is the process of creating documents that legally determine how your assets will be distributed after your death, including who inherits, who controls the distribution of your assets, and when your beneficiaries receive your assets. While most of us do not like to think about dying, we all want to care for our families when the unpleasant inevitable occurs, and estate planning allows us to do just that.
The first step estate planning is to account for all of your property, such as real estate, personal property, life insurance, bank accounts, retirement plans, securities, and business interests. Once you have an accurate picture of what is in your estate, you can easily make decisions about who should inherit your assets and how.
Estate Planning Documents
To create your directions for distribution to whom you want and how you want, typically you work with an attorney to draft one of two types of documents – a Will or a Revocable Living Trust.
- A Will is the fundamental piece of any estate plan. A Will functions to provide your instructions for distributing the assets you own individually or share ownership as tenants in common when you pass away. Or, it can work in conjunction with a Revocable Living Trust at your death to “pour over” any assets that you did not transfer to the trust during your lifetime.
- A Revocable Living Trust is an alternative in many ways to a Will. A trust is a legal agreement where you transfer your assets to a trustee who holds title to the assets on behalf of someone else (your “beneficiary”). A beneficiary can be you, your spouse, your children, or others. A Revocable Living Trust allows you to transfer all (or part) of your assets during your lifetime into a trust to be held on behalf of your beneficiaries. You can name yourself or another person or institution to serve as Trustee, depending on who you want to manage your assets. As a revocable trust, you usually can change the terms of the trust and who the beneficiaries are at any time before you pass away.
Even when you have a revocable trust, it is recommended to have a pour over will so that any assets not previously transferred to the trust can be added to the trust at your death. Additionally, a Will can appoint a guardian for minor children, waive an accounting at probate, or appoint a personal representative to handle your probate estate, whereas a trust cannot.