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If you have children, elderly parents, a savings, or a home, estate planning is needed to protect your family. This includes the creation of wills, trusts, power of attorney, do-not-resuscitate, and advance directive (for health care or mental health), and defines a plan for your property/assets while you are alive and distributing it after your death.
Estate Planning: Your Need-To-KnowFrom Forbes.com
Have children or elderly parents? What about savings or a home?
If you answered yes to any of these, here’s another question for you: Do you have an estate plan in place?
While you may think that estate planning only applies to wealthy individuals with millions in assets who live on, well, estates … think again.
Plain and simple, estate planning helps protect your family in the event that something bad happens to you. And, yet, 55% of Americans don’t even have a last will, leaving them vulnerable to costly court fees and legal battles.
But even though it’s predicated on incapacitation or death, estate planning doesn’t have to be morbid. In fact, it can actually be life-affirming, because the process will allow you to take a closer look at the people you most care about in life—and ensure their future happiness.
We sat down with Kelly C. Gill, a partner at Friedler Law Group in Massachusetts, one of Super Lawyer’s best firms, to walk us through the most important questions you should think about now.
LearnVest: Wills, trusts, estate plans …. How do you determine what an individual needs?
Kelly C. Gill: The first thing I ask about is the family situation. Are you married? Do you have children? If so, how old are they? Family setup directs a whole portion of the estate-planning process.
The second part is to look at the level of assets to minimize the estate taxes that you’ll pay both federally and in your state. You may not have enough assets to be subject to estate taxes, but without looking at these pieces, we can’t do sound planning. Most states assess their own estate taxes, but some don’t, like Florida. That’s why it’s a great place to retire!
What happens if someone doesn’t do proper estate planning?
You end up in probate court—which can be extremely time-consuming and expensive. The court takes a look at your will (if you have one), as well as any heirs or potential creditors, and then oversees the distribution of your assets and payments to creditors. (LearnVest Note: LegalZoom estimates that probate costs American families $2 billion a year—$1.5 billion of which goes to attorney’s fees.)
How can you avoid the probate process?
First off, if you can assign a beneficiary designation to certain assets—like a life insurance policy or a tax-deferred account—you can avoid probate. In the event of your death, the asset will go to the person who you named as the beneficiary. With other assets, like a home or a regular bank account, you can’t designate a beneficiary. If you have these listed in a last will, you’re on the right track—but a last will still has to go through the court.
One way to avoid probate altogether is to create a revocable trust, which lets you transfer ownership of all assets to a trust that lists exactly what happens if you become incapacitated or pass away. You avoid probate because it’s all contained within one document.
What else is involved in setting up a trust?
The most important thing you need to remember is to actually transfer the ownership of your assets to the trust, so nothing is left out and sent to probate. It may seem weird to change the ownership of a bank account from your personal name to a trust, but the revocable trust uses your Social Security number as the tax ID—so it’s basically an extension of you. And it won’t change anything for income tax purposes.