Estate planning is very important and only a few people make an effort to understand the basic concept and the importance of estate planning. Some basic facts and tips regarding the same are as follows:
- • If a person dies without making his will, that is, if he dies ‘intestate’, the court gets the authority to take all important decisions like bringing up of his children, the administration of his estate, the inheritance of real and personal property, etc.
- Make sure that your will is made as in the majority of cases, the family of the deceased is left with no option but to agree to a court appointed administrator. Besides, in case there are minors or someone who is mentally challenged among your family members, problems can increase manifold. Children from previous marriages, if any, further add to these complications.
- If proper estate planning is not done, irrespective of the wish of the deceased, the children from the first spouse generally end up with nothing.
- At times, the children get all the assets whereas the surviving spouse is left in a state where it might not be quite possible to maintain the current standards of living.
- In case the husband and the wife die together without leaving behind a will, the State is required to decide who died first in order to adjudicate upon the issues of inheritance and administration of the estate. As per the rule, the heirs of the one who die first are left high and dry. In short, failure to have an estate plan can cause a lot of problems to your family after you die. Your hard work over so many years will go wasted and your spouse and children will be deprived of the benefits of your labor.
Types of Estate Planning Documents
You may have heard some of the terms, Last Will and Testament, Living Will, Power of Attorney, but are not exactly sure what they are or whether you need them. From an Estate Planning perspective, these documents are essential to ensure that your assets are distributed properly and your legal interests are protected.
A Last Will and Testament is a document that sets forth the distribution of your assets at the time of your passing. A common misnomer that people have about Wills is that you have to divulge all of your bank accounts and financial information to the Attorney who is drafting the Will. This is simply not true. Usually, the Testator (the person with the Will) just sets forth the names of the heirs and how much of his/her estate each heir will receive, i.e. 50% to my son, Jack, and 50% to my daughter, Mary. Typically, only special assets are specifically named in the Will, i.e. my 5 carat diamond ring to my friend, Lucy, or my home in Heber Utah to my friend, Steve.
After that, a simple Will requires only a few other things. You must name an Executor of your Will. The Executor is the person who will handle the Estate affairs after your passing. He/She will open an Estate, determine all of your assets and liabilities, and make distribution of those assets as per the guidelines set forth in your Will. You will also have to name a Trustee if you plan on leaving any assets to a minor. There are a few other minor legal requirements that your local attorney can assist you with in drafting your Last Will and Testament.
A Living Will is a document that sets forth your wishes as to certain types of medical treatment in the event that you suffer a permanent disability that renders you incapacitated with no hope of recovery. The instance that we are talking about here is the person in a coma or permanent vegetative state. In order for a Living Will to take effect in Heber Utah, two physicians must certify that you have no real hope of recovery. At that point, your Surrogate (this person is named in the Living Will) will meet with your physician and advise him as to your wishes regarding treatment.
A Power of Attorney is another important document. This document gives your Agent the ability to act on your behalf in almost any type of situation that you could think of. The Agent has the ability to sign checks, transfer real estate, and make medical decisions and much more. As you can see, this document is very powerful, and as such, the authority bestowed with it should only be granted to an individual that you trust beyond reproach. This document becomes important in the instance where you can no longer act for yourself, or have difficulty doing so. However, you should be advised that this document takes effect immediately upon signing. Again, at least in Heber Utah, this document gives your Agent the ability to act on your behalf immediately.
Important Estate Planning Terms To Know
There are many aspects to estate planning, which is truly a flexible process that is unique for every individual. A living will is often a strong foundation, but estate planning doesn’t end there. Most individuals need to complete a series of documents to ensure their wishes will be fulfilled following their death. These are important terms to understand as you prepare and go through the process:
A living trust outlines what you’d like to happen with your assets, dependents, and heirs after you die. It is different than a will, because it skips the probate process that is required in the execution of wills. You simply name a trusted individual as the successor trustee, and he or she will carry about the instructions you’ve provided. This same individual may be responsible for managing your legal, financial, and healthcare needs if you become unable to do so yourself.
Special Needs Trust
If someone is incompetent or mentally or physically disabled, they can be protected by a special needs trust. This arrangement can pay for medical items and supplemental needs that the government won’t cover. When arranged correctly, the beneficiary can receive Social Security and Medicaid benefits, plus get the extra support needed from the trust fund. The assets are protected so they’ll be used in the way that has been designated.
Children’s Common Trust
This legal document can provide protection to children in a number of different situations. It can ensure that if sued, your children won’t lose their inheritance. It can also prevent a stepparent from stripping your children of their inheritance. A kid common trust can be created to ensure your assets will not be allocated to nursing home costs and will instead be gifted to your children.
This legal document outlines how you’d like your property and assets to be distributed after death. A critical part of the estate planning process, it also gives you the opportunity to name someone to execute those wishes and allows you to name guardians for your children. You may also set specific guidelines about how inheritances will be distributed, for example in the case of young children. Following death, a probate proceeding is often requested to confirm the validity of the will.
Power of Attorney
A Power of Attorney is a written authorization for someone to act on your behalf when dealing with legal and private matters. The level of authorization that person has can vary greatly, so it’s imperative to outline your wishes in great detail. The types of power the person may have included being able to make financial and health care decisions should you become incapacitated or otherwise unable to make them for yourself.
Difference Between An Heir And A Beneficiary
Many people use the terms “heir” and “beneficiary” interchangeably, but there are important differences between the two designations. Here’s how an heir and a beneficiary differ:
Who is an heir?
An heir is a relative who is legally entitled to an inheritance from a deceased relative’s estate when the decedent did not have a legal last will and testament.
When there’s no will, which is called “dying intestate,” an estate typically passes to the closest living relatives in prescribed shares, then to more distant relatives if close relatives are not living. While a surviving spouse is not an heir in the strict definition of the word, a spouse or registered domestic partner is typically first in line for assets through a state’s marital or community property laws. Assets pass first to a living spouse and/or immediate descendants (children and/or grandchildren, biological as well as adopted). If they’re not living, then to parents, and if they’re not living, to descendants of grandparents (aunts, uncles, and cousins). If all heirs are deceased, then the assets of the estate pass to the state, which is called escheatment.
Who gets how much is determined by each state’s particular intestate succession laws, which are blueprints for how an estate will be divided if a person dies without a valid will in place. It’s the probate court’s job to make sure the net assets of the estate pass to the people who are legally entitled to them.
Who is not an heir?
An unmarried partner, no matter the length of the relationship, would not be considered an heir. Neither would close friends, stepchildren, in-laws, legally divorced spouses, foster children, or a charity. This is one reason why it’s so important to make sure you have a legal last will and testament if you wish to leave your estate to someone who is not considered a legal heir.
Who is a beneficiary?
A beneficiary is a someone named in a decedent’s will, trust, life insurance policy, and/or financial account who has been selected to receive the assets. A beneficiary need not be an heir: a friend, a long-term partner, a stepchild, or a charity can be a beneficiary. Even a pet can be a beneficiary! And while heirs can be beneficiaries, it’s not always a given they’ll inherit. Take, for examples, parents who leave the bulk of their estates to romantic partners instead of their living children or grandparents who cut wayward grandchildren out their wills.
To make matters more interesting: while a last will and testament provides direction for how the decedent wants their assets distributed, it doesn’t necessarily determine who will inherit the assets because they’re often passed on through a beneficiary designation at a credit union, bank, insurance company, or other financial institution.
For example, a will may direct financial accounts to be divided evenly between two children, but if all beneficiary designations for all these accounts are in the decedent’s ex-spouse’s name, that ex-spouse is entitled to the assets. The children won’t get anything, unless there are accounts in the estate with no beneficiary designations; then the children would be entitled to those assets.
It’s important to remember: Beneficiary designations trump wills! This is why you should continually check your beneficiary designations and make changes when there’s a life event such as a birth, adoption, death, marriage, divorce, and remarriage. And unlike heirs, who inherit assets based on prescribed shares determined by a state’s guidelines, beneficiaries get amounts determined by the decedent. There can also be more than one primary beneficiary, as well as more than one secondary or contingent beneficiary in case the primary beneficiary is deceased. Also unlike heirs, beneficiaries can get distributions from the estate in percentage amounts based on the decedent’s directives. For example, a spouse could get 100% of an insurance policy benefit, but they could also get 34%, with two adult children each getting 33%.
There are many reasons that go beyond inheritance why having a last will and testament in place is a good idea. But if you’d rather give your assets to someone other than your heirs, check all your financial accounts to ensure you’ve made your beneficiary designations and then make an appointment with an estate or family law attorney in Heber Utah to iron out all of your last wishes.
Considerations for Telling Your Heirs About Your Estate Plan
One of the most important aspects to consider when telling your heirs about your estate plan is making sure they know exactly what your estate planning designations are. This promotes an open dialogue and invites communication about your wishes. This conversation allows you to explain why you have made certain decisions, gives your heirs the opportunity to ask questions and ultimately helps prevent the possibility of disputes arising in the future from upset beneficiaries. In case a major life event occurs (i.e. you passing away or becoming incapacitated), your heirs will know how to plan accordingly as to what they will receive. To go along with this, we recommend updating your estate plan every 3 to 5 years or whenever a major life event occurs to ensure all changes are documented accordingly. Your heirs should be notified when changes are made if those changes will affect them.
Know the Difference Between an Estate Plan, a Will, and a Trust
When telling your loved ones about your estate plan, it is important that each of you understand the difference between an estate plan, a will, and a trust. All these are important aspects of the estate planning process. The estate plan includes all of the documents that specify what happens to your assets after you pass away or are otherwise unable to care for yourself. This typically includes a will and/or trust, a power of attorney, an Advance Medical Directive, and more.
A will is a legal document that takes effect after you pass away. A will identifies the assets each of your beneficiaries will receive from your estate after you pass away and your debts have been paid.
A trust is a legal entity that takes effect as soon as it is signed. A trust holds legal title to the assets placed in the trust and governs how those assets will be administered both during your life and after your death.