Imagine getting into a conversation with the person sitting next to you on a cross-country flight. She tells you that she is an estate planning lawyer, and she is willing to answer questions that you may have about the process.
This would be a great opportunity to walk away with some very useful knowledge, so we are going to share a fictional conversation of this nature in this post.
A will is the only estate planning document you really need, right?
This is probably the most common myth that people have about estate planning. A will is not the most effective asset transfer method, and your estate plan should have other components.
What’s wrong with a will?
There is nothing inherently “wrong” with a simple will, but there are drawbacks and limitations. A lot of people are not aware of the fact that a will is admitted to probate. The executor that is named in the will completes the necessary tasks, and the court provides supervision.
This is a public proceeding, so the records are available to anyone wants to access them. As a result, there is a loss of privacy. Probate will take nine months at minimum in most cases, and the inheritors do not receive anything while the estate is being probated.
Expenses start with the filing fee and the executor’s remuneration, and there can be legal and accounting fees. Appraisals and liquidation charges can be added to the ledger, so a relatively significant amount of money can be spent during probate.
The beneficiaries receive their inheritances in lump sums if you use a will. There would be no asset protection, and there would be no spending safeguards.
What is the best alternative?
A trust is the alternative to a will, and there are multiple different types of trusts. The trust that is ideal for a widest range of people is the revocable living trust.
You would act as the trustee if you establish a living trust, so you would maintain control of your assets. When you pass away, the trustee that you name to succeed you would distribute the assets to the beneficiaries, and probate would not be a factor.
With regard to asset protection, the trust would become irrevocable when you are gone, and the principal would be protected from creditors. You can limit the spending ability of the beneficiaries by instructing the trustee to distribute the inheritances incrementally over time.
In addition to monetary transfers, what are the other considerations?
You should prepare for end-of-life eventualities when you are planning your estate. When it comes to medical matters, your plan should include documents called advance directives for health care.
One of them is a living will, and you use this type of will to record your life support preferences, organ and tissue donation decisions, and comfort care medication choices.
To account for matters that are not related to life-support utilization, you can name a representative in a durable power of attorney for health care or health care proxy. A HIPAA release should be added to give your decision-maker the ability to access your medical records.
From a financial perspective, if you have a living trust, you can name a disability trustee to administer the trust if you become incapacitated. This can be the same individual or entity that will manage the trust after your death, but you could name someone else.
If you do not have a living trust, you can execute a durable power of attorney for property to empower someone to make financial decisions on your behalf.
Even if you have a living trust, you should have a durable power of attorney to account for the management of property that is not held by the trust.
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