Most people would never want to give up control over their personal finances or health care decisions. However, that's exactly what happens to those who fail to plan. The
distribution and management of assets after your lifetime is just a small part of the estate planning process, but most people would still prefer to decide how their property is
managed and distributed. Without an estate plan, you are handing these decisions over to a legal framework that does not work well in many family situations.
In general, there are four basic planning choices. Those options include: Taking no action, creating only a will, creating a will and powers of attorney or creating a comprehensive
estate plan. Each option has advantages and disadvantages. However, the best choice for almost everyone is to create a comprehensive estate plan.
You might have already considered which family members or friends you wish to receive certain assets or gifts through your estate. But have you determined when they should receive
those assets? Many people are unaware that the timing of when your beneficiaries receive their inheritance can be critical to ensure that your vision for your loved ones and your
assets is realized.
If the estate meets the qualifications for administrative probate, a small estate affidavit (the actual document title is state-specific) is prepared. This document is sufficient to
transfer the assets to the beneficiaries without opening an estate or appointing a personal representative. Administrative probate is inexpensive since the required form is usually
available from the court clerk's office and an attorney is not needed. It's typically used for bank accounts with nominal balances.
Generally, a will that was validly drafted and executed in one state is valid in another state under the "full faith and credit" clause of the U.S. Constitution. However, the states
have very different requirements for a valid will and different approaches to interpreting wills. As a result, a probate judge may decline to admit an out-of-state will to probate or
interpret a will differently than it would have been interpreted in the state where it was signed.
The trust is formed through the signing of a trust agreement that contains all of the needed provisions detailing how the trust's property is to be managed and distributed both
during and after your lifetime. A revocable living trust includes three parties: the grantor, the trustee and the beneficiaries.
Funding is the process of transferring property to a trust. Ownership of assets is transferred from your individual name into the name of your trust. An asset that is not transferred
to the trust is not owned by the trust. Assets titled in the name of the trust can avoid probate and be managed by your successor trustee if you become incapacitated.
The first step in estate planning is selecting the principal document for your plan. The two main choices are a will or a trust (otherwise known as a revocable living trust).
Determining which document is best for you depends on your situation and your goals.
The most common kind of trust used in estate planning is a revocable living trust. You should, however, also consider another option that might be better suited for your needs and
goals called an irrevocable trust. While these two kinds of trusts have some similarities in how they function, there are critical differences that determine which one would be best
for you and your needs.
An irrevocable life insurance trust (ILIT) is an irrevocable trust that owns a life insurance policy (usually on the life of the grantor or the grantor and their spouse) that allows
the death benefit to pass outside of their taxable estate. It both owns the policy and is the policy's beneficiary. The trust is structured so that its creation and funding do not
create an estate tax issue.
An intentionally defective grantor trust (IDGT) is a type of irrevocable trust used to transfer property (often the ownership interest in a business) to a subsequent generation while
minimizing gift and estate taxes. As an irrevocable trust, the IDGT's grantor losses control of the assets, does not retain the right to revoke the trust, cannot be the trustee,
cannot control the trust and is not a beneficiary. They are considered “defective” because any income generated by the trust's assets is taxed to the grantor.
Cryptocurrency is a form of digital currency used as both a medium of exchange and an investment. It is also considered personal property that is subject to probate. A person's
crypto assets can be a substantial portion of the value their estate. It has the same types of access and distribution issues as more traditional digital assets. Cryptocurrency is
held in a “digital wallet” secured by an extensive password. If your family is not aware that you own cryptocurrency and how to access it, its value will be lost upon your incapacity
A pay-on-death (PoD) designation names the person to receive the balance in an account on the account owner's passing. They are used to transfer the balance of a bank or credit union
account or certificate of deposit. Transfer-on-death (ToD) designations transfer the ownership of an account or asset at the death of the owner to the listed beneficiary. Unlike a
PoD designation, the account is not automatically liquidated.
Many people mistakenly believe that you cannot change your estate plan during the legal proceedings. Both separation and divorce require action to update your estate planning. The
need to revise your estate planning starts as the relationship ends, not when the marriage is formally ended. Separated spouses do not have to notify the other spouse of changes to
their estate planning. Developing a new plan is especially important in these circumstances since spouses usually name each other as both their agent and beneficiary.