Your estate is everything you own at your death, including both real estate and personal property. You could also include intangible property as well. So what happens to your estate when you die? Anything in your estate that has a named beneficiary will go to that person/people. Everything else gets sorted out in probate. This means that things like investment accounts where you have named the contingent beneficiary of the account upon your death do not have to go through the probate process. This is also true for life insurance policies and any bank accounts that are payable on death or have named beneficiaries. Real estate, on the other hand, depends on what type of title you hold. If there is a transfer on death deed, the real estate does not go through probate. If the title is held in trust, it also does not go through probate; otherwise there is a good chance the real estate will go through probate in the county it is located (yes, that means if you own property in different locations, there will be probate in multiple locations if you do not plan appropriately).
If you do not plan accordingly, the probate court will get to decide what happens to your estate, and it may not end up how you desire.
The reason an estate plan is so important is that without it, your assets can wind up in legal limbo for years. This can put an unnecessary burden on your heirs and other family members who are left to deal with sorting out your finances. Besides making sure your assets get to the people you choose, planning can help minimize income, gift, and estate taxes, too.
Perhaps the biggest benefit is if you don’t properly prepare for the future while you are of sound mind, you will have no say in how your affairs are managed when you are not, nor how your estate will be distributed to your loved ones when you are gone. Without an estate plan, and specifically a will, the laws in your state will determine what happens to your possessions, and the courts will decide who takes custody of your children.
A proper estate plan can and should do the following for you:
- Tax planning for yourself and your beneficiaries
- Planning for minor children
- Prepare for emergencies
- Minimize family strife and expensive legal battles
Tax planning
Without proper estate planning, your heirs could potentially be left with a large tax burden are not prepared for. Additionally, you can use your estate plan to help ease your own income tax burden as you plan for retirement. This is a very complex topic, but should not be overlooked at the risk of saddling yourself or your heirs with a large, potentially unnecessary, tax burden. Proper planning for taxes includes planning for income taxes, gift taxes, as well as estate taxers.
Planning for minor children
There are several reasons it is important to include minor children in estate planning. One big reason is to make your wishes known about who you would like to raise your children if they are still minors when you pass away. If a proper plan is not made, custody will be determined by the court based on their guidelines for deciding the best interests of your children, which may or may not match up with your wishes.
Another important reason to include minor children in estate planning is that they cannot inherit until they are 18 years old. This means that without the proper planning, a court will step in and setup accounts managed by a person the court appoints, which could have implications on the intended goal of the inheritance. Proper planning can ensure that minors are financially cared for in the long term.
Prepare for emergencies
A full estate plan includes planning for emergencies while you are still alive. Appointing someone to manage your affairs for you and make your medical decisions requires you to be of sound mind; therefore, this must be planned for. Giving the appropriate people authority to make financial and medical decisions on your behalf when necessary is important so that someone you do not want making those decisions for you is not able to swoop in and get that power. Additionally, putting in writing your end of life wishes helps to eliminate family infighting and potential court battles.
Minimize family strife and expensive legal battles
As mentioned above, planning for end-of-life decisions is an important part of an estate plan that helps avoid expensive legal battles. Having a will, or even better a living trust, in place can further assist in minimizing fighting in the family once you are no longer here. The will should clearly state your wishes to the probate court. If there is a chance of anyone fighting the will, having a revocable living trust is a good option, as that can even further reduce the chances of fighting in court. If properly maintained, there will be no need to go through the expensive probate process and give the family the opportunity to fight over your wishes in court.As you can see, an estate plan is a very important part of proper planning for the future and leaving a legacy. An attorney for wills and trusts can help you get started in the right direction.