We would like to take a moment and address the importance of a “living will”. Equally important is estate planning. Please know that you don’t have to be a millionaire to justify planning the distribution of your assets when you die.
What is estate planning? It is the process of arranging for what will happen to your property when you die. Everything you own at your death is considered your “estate”. It can also involve making arrangements for the care of your dependent children, planning for your own care in case someday you can’t make decisions on your own, (your “living will” is part of your estate planning), and taking the necessary steps to avoid probate court proceedings at the time of your death. If you have a large estate, it is wise to be concerned with the “share” that the federal estate tax can acquire at your death.
The most important reason to set up an estate plan is to have some control about who gets your property when you die. In order to accomplish this “control”, you need a will or a trust to ensure that your wishes are honored. Think about it. An average person works 40 plus years to accumulate all of their asset’s, spends ten years protecting these asset’s, and usually doesn’t spend two hours to plan for the distribution of their assets. Being in the funeral industry, we know to well the chaos that often occurs following the death of a loved one. Failure to plan your estate’s distribution only intensifies that chaos, adding unwarranted stress to an already devastating situation.
If you fail to create a will, living trust, or other legal methods to transfer your property in the event of your death, state law will determine what happens to your possessions. Your personal assets will be distributed to your spouse and children, or, if neither exist, to other relatives according to our state law. If no relatives can be found to inherit your estate, it will go into the states coffers, (treasury).
Both a will and a basic living trust will allow you to leave your property to the people you want to inherit it. You can change both documents, at any time, for any reason, prior to your death. The advantage of a trust is that assets left in trust don’t have to go through probate court proceedings. During your lifetime, you have the control over all of the property and assets in your living trust and are able to do what you want with it – sell, spend, or give it away. Upon your death, the person you named to take over as trusteedistributes the property according to your wishes contained in the trust.
If you would ask a family that has been through it, you would probably hear that, “Probate court is a waste of time and money.” It usually takes nine to 18 months to file a deceased person’s will with the court, gather the assets, pay off creditors and taxes and eventually distribute what is left as the will directs. Naturally there are attorney fees, appraisal fees, accounting fees and probate court fees. This usually reduces the amount of the estate by 50% or more. There are those special cases where it can take even longer.
Creating a living trust involves more paperwork than making a will because you must transfer ownership of the property to yourself as trustee and conduct future personal business in the name of the trust. Separate tax returns are not required on trusts as all transactions, such as the sale of a trust property where a profit is realized, are reported on your personal income tax return.
Should you become incapacitated, the person you appointed in your trust to take over after your death can step in and manage your trust property. Without a trust, family members may have to get that kind of authority through the court system.
One vital thing a will can accomplish that a living trust can’t is allow you to name someone, (referred to as a personal guardian), to raise your young children in the unlikely event that you or the other parent are unavailable. Another difference is that living trusts are not made public at your death whereas a will is. This may or may not matter to you.
To briefly recap, a “will”, 1) sets up management of property to minors and 2) appoints a guardian to raise young children if you can’t. A “basic living trust”, 1) avoids probate, 2) keeps your estate plan confidential, 3) sets up management of property for minors, and 4) arranges for management of some or all of your property if you become incapacitated.
For those that believe creating a living trust is sufficient you still want to create a will to handle property and assets you may not get around to transferring to your living trust.
If you’re married, you can create a bypass trust, which lets married couples avoid both probate and estate tax. With this type of trust, everything is left to the surviving spouse and passes tax-free. If the second spouse owns all of the couple’s property, and it’s worth more than the estate tax exemption, ($1,500,000) an estate tax will be due. If that’s the case, we encourage you to do some tax planning because the tax is steep, to say the very least, at 39%.
We hope that the information provided is not only helpful to you, but also helps to motivate many of you to get your affairs in order. As always, Bill and Ingried Lowman are available 24 hours a day, 7 days a week at (602) 276-3601, toll free (877) 267-3601, fax (602) 276-1889.