So after a lot of pressure from family, friends, and loved ones, you’ve finally decided to plan your estate. But, you don’t seem to know how to kick off the process, nor do you have a good insight into what estate planning is.
Planning an estate without prior knowledge of what it involves is like driving a car without proper knowledge of driving. In light of the growing cases of estate planning ignorance, we have decided to put together a brief guide about the important things to note when putting those estate plans in place.
Let’s start with what estate planning is.
What is Estate Planning?
As the name implies, estate planning is a plan aimed to manage and distribute an individual’s assets upon his death or incapacitation. An estate plan usually consists of a series of arrangements and legal documents put together to ensure that an estate owner is well catered to during incapacitation.
Furthermore, an estate plan contains directives put in place to facilitate the smooth transfer of the deceased assets and ensure that the estate beneficiaries are well taken care of.
What happens if you fail to plan your estate?
Based on reliable statistics from a survey, only 42% of U.S. adults have the necessary estate planning documents, such as a will or living trust. Judging from that concise statistics, one can easily deduce that more than half of the U.S population, which comprises 328.2 million people, are yet to plan their respective estate.
That said, should you be worried if you are an adult and you are yet to plan your estate? Of course, you should because if you die without planning your estate, you’ll be making things hard for those you claim you care about.
In a nutshell, if you die without creating an estate plan, the state will step in and share your assets based on the intestate law of Texas. If you reside in a different state, your assets will be shared based on the intestate law of the state.
Parties involved in estate planning
Estate planning is one big process that involves a few parties, and having a good understanding of the parties involved is key to understanding what estate planning is. The various parties involved in estate planning are:
A trustee is usually an individual designated by the grantor (estate owner) to monitor assets placed in a trust. They are usually paid for their services with proceeds from the trust funds. The trust is usually operated like a profit-seeking business, where the trustee can make decisions that would generate revenue to grow the trust. However, he must ensure that such decisions are done wisely.
2. Settlor/ Grantor
A settler is an estate owner and the owner of the assets in the estate planning. With the help of an estate planning attorney, they create trust, which usually serves as a legal vehicle to facilitate the transfer of assets to designated beneficiaries. The beneficiary of an estate can be a lone person or a group of persons.
One of the major reasons why settlers create trust is to bypass the probate process. However, if you are an estate executor faced with the possibility of probate, it makes sense to contact a competent Probate Lawyer. This professional will ensure that the probate process is completed without any difficulty.
3. Beneficiaries/ Heirs
Beneficiaries are designated individuals selected by the estate owner to inherit a portion of his assets. The names of an estate beneficiary are usually contained in a will, along with the name of the estate executor. An estate beneficiary can be a close friend of the deceased or family members like children, spouse, siblings, parents, etc.
Why is estate planning Important?
A good lawyer will tell you that estate planning is one of the most important plans you can make while alive. This plan is so powerful that it speaks on your behalf even after your death. For those who have refused to create an estate plan. Or for those who are yet to understand the importance of this plan, here is a brief highlight of the importance of estate planning.
1. Helps in the smooth transfer of your assets
A will, an important component of an estate plan, consists of information regarding how you want your assets to be shared and to whom you want them to be transferred. Without an estate plan, there wouldn't be a will. And when there is no will, sharing your assets becomes a complicated and stressful process.
2. Helps in avoiding the complicated probate process
Probate is a process done to determine the authenticity of a will. In a situation whereby there is no will, probate is often done to administer the deceased estate. The probate process, as you might have heard, is usually complicated and must be avoided.
One of the best ways to bypass the probate process is by creating a trust, a component of an estate plan. However, if you fail to avoid the process, your loved ones will have to suffer the consequences. So, ensure you make an effort to set up a trust for escaping probate.
3. Plan how you wish to be catered to in the event of incapacitation
When incapacitated, probably due to a severe illness or an accident, your power of attorney, another estate planning document, will ensure that you are catered to according to your wish. The attorney-in-fact, an individual authorized to act on your behalf, will be the one to make important health care, financial, and legal decisions on your behalf.
4. Slash fees and taxes
Creating an estate plan is the best way to reduce fees and taxes. A trust is usually effective for this purpose and can be set up by an estate planning attorney. As an estate owner, you wouldn't want your beneficiaries to use up a huge chunk of what you left behind to settle estate taxes and other related fees.
Types of estate planning trust?
Simply put, a trust is a legal vehicle used to transfer assets from a guarantor to the beneficiary via a third party known as a trustee. Below are the types of trust:
1. Revocable trust
A revocable trust is a trust with terms that can be canceled, modified, or changed without the consent of the trust beneficiaries.
2. Irrevocable trust
An irrevocable trust is a trust with terms that cannot be canceled, modified, or changed without the consent of the trust beneficiaries.
Estate planning is a very important plan, one that shouldn’t be taken lightly. A good estate plan has the potential to cater to your needs while incapacitated, secure your assets after your death, and ensure that your loved ones are well taken care of. If you are yet to plan your estate, make an effort to do so before it is too late.