Estate planning is looking at your asset and debt situation in conjunction with your family or other people you want to leave your estate to upon death. I think there are a couple of different tiers of estate planning. On the upper-end of estate planning, it can involve financial planning, succession planning for businesses, or asset protection, which is usually applied to individuals with many considerations they wish to protect
The other tier of estate planning would be basic planning with a will or a trust, powers of attorney to cover legal, financial, and healthcare matters. So our firm focuses on this tier.
What Are The Most Important Documents That Should Be A Part Of Everyone’s Estate Planning?
We start with the centerpiece when starting an estate plan. If somebody does not have a will or a trust and they pass away, they die intestate, which is not a good thing because then, the law kicks in and decides where your assets are going, typically a spouse, otherwise children and it can get very complicated. So, first of all, that may not be what you want, but it can also get complex when you have blended families, and that’s very common these days. Also, considering who will raise any minor children is a critical component.
For those reasons, we highly recommend that people have, at a minimum, a will so that you can say where you want things to go, including special gifts of personal property, of money, of real property, and then what we call the residue, everything else that you didn’t give away specifically, where you want that to go. And in addition to or beyond a will is the concept of a living trust. Many people are confused about the nature of a living trust, thinking it is only for wealthy people. Today, people get a living trust to avoid the probate process because if you die intestate or die with a will, the overwhelming odds are that your estate will go through the probate process. So having a correctly set up living trust that is funded and making sure your assets are in the trust is the easiest way to ensure your estate does not go through probate and the headaches involved with it.
In addition to those, we always like to ensure that our clients have three powers of attorney. One is a legal, financial power of attorney. If you are declared mentally incompetent, but of course you’re still alive, then you want to name people and contingent people too that would handle legal and financial matters for you. Then there’s a physical healthcare power of attorney. If you cannot communicate your healthcare wishes, you appoint people to do that for you. And then accompanied with that is a living will saying what your end-of-life wishes are. Then, the third power of attorney is a more recent one, but crucial is a mental healthcare power of attorney.
What Exactly Is A Trust And What Are The Most Common Types Of Trusts And Their Benefits Or Uses?
The basic revocable living trust is what we focus on, and it’s a trust you’re setting up during your lifetime instead of a trust that might be set up upon death. That’s called the testamentary trust. So you set it up during your lifetime, it’s a legal entity almost akin to maybe setting up an LLC, for example. So it’s a legal entity that can continue to exist after you’re deceased.
So a revocable living trust, just as it says, means that you are allowed to amend it during your lifetime, and you are allowed to revoke it. It is also vital in avoiding probate, and many people misunderstand a basic revocable living trust. It does not provide any asset protection from creditors. That’s a different kind of trust altogether. But a revocable living trust, beyond providing avoidance of probate, is also a great vehicle if you want to control things after death in terms of how your assets are handled and managed and distributed.
Examples of other trusts include an asset protection trust. We are affiliated with another firm that does asset protection trusts. So why do people set those up? One reason would be if you’re a high net-worth person and you want immediate tax benefits. You can create an irrevocable trust, which can have different names; an irrevocable life insurance trust, for example. You would get an immediate tax benefit now. And another benefit of it is protection from creditors. So if you put a million dollars into an irrevocable trust, that’s typically going to put that beyond the reach of creditors because you no longer legally own it.
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