No matter how old you are or what your status is in life, you should prepare yourself and your family for the chance that you become incapacitated in some way, as well as, for the eventuality of death. Estate planning is the best way to do that. Wills and trusts are two of the most common tools you can include in your estate plan. Your estate plan should be customized to fit your specific needs and to protect the future of your family.
Why is it so important to plan ahead?
Planning essentially means being proactive. Creating an estate plan gives you the opportunity to make important decisions now about who you want to inherit your property when you die. Also, through estate planning, you can employ different strategies to reduce estate taxes and probate fees as much as you possibly can. Finally, if the event you ever become incapacitated for any reason, even if it’s only temporary, your estate plan can give your family the authority to take over your financial and medical affairs for you.
Planning for incapacity
There is always a possibility that a serious injury or medical condition could leave you incapacitated, either physically, mentally or both. If that should happen, you will need someone that can care for you, manage your affairs, and make important decisions if you are unable to do so. The first part of an incapacity plan should address your personal and healthcare needs. The second part should address your financial affairs. If you do not have some type of incapacity plan, your family will most likely need to seek court intervention. It is also possible that a guardianship may need to be established in order for someone to have the authority to operate on your behalf. Guardianship is an expensive process that typically results in complete loss of autonomy and control over your own affairs. In order to avoid these drastic measures, it is important to plan ahead.
Planning for distributing your estate after death
A typical estate plan consists of two parts — payment of your debts and distribution of the remaining estate to your heirs or beneficiaries. Wills and trusts are the most common instruments used for this purpose. A will is a legal document that sets out your written instructions as to who should receive specific assets and who will be responsible for executing your instructions. Wills must comply with certain legal criteria in order to be valid. Trusts are also used to hold and manage assets on behalf of beneficiaries while providing special protections for you and your beneficiaries. Unlike wills, trusts can also prepare you for the possibility of incapacity, when you will need assistance with your affairs. For this reason, wills and trusts are often used together in estate planning.
The fundamentals of a simple will
The primary purpose of a will is to distribute your estate to the people you have chosen to receive your property upon your death. Wills need to be in writing, including your name, address, and marital status. The terms of the will need to include a statement of which property you want to be distributed to which beneficiaries. There should also be a provision that identifies the executor who will administer the estate and a guardian if you have children who could possibly be minors at the time of your death.
The fundamentals of a basic trust
Most people create a trust in order to reduce estate taxes and avoid probate. A trust is essentially a fiduciary agreement, meaning it is based on confidence and trust. The agreement is between the trustee and the grantor, or creator, of the trust. The trust document authorizes the trustee to hold and manage your trust assets for the benefit of your named beneficiaries. The trust agreement will also provide detailed instructions on how to manage and distribute your trust property.
The difference between revocable and irrevocable trusts
The major difference between these two types of trusts is the ability to modify them. A revocable trust allows the grantor to modify the terms of the trust, or to revoke the trust entirely, at any point while the grantor is still alive. An irrevocable trust is different in that its terms cannot be changed once it has been executed.
Join us for a free workshop! If you have questions regarding wills and trusts, or any other estate planning matters, contact Gaughan & Connealy for a consultation either online or by calling us at (913) 262-2000.