The TreeceCo Report 

Last week we began a two part series. If you missed last week's newsletter click here to read it. 

The first step to a solid estate plan is understanding the basics and today we will take a look at the most common tools people use to prepare an estate plan.The complications mentioned last week could add up to unnecessary fees and possibly a delayed distribution of your estate. But the question most asked at this point is, "what do I do?  What are the options?"

Option 1: Doing Nothing. Unfortunately, many people are so bombarded with decisions in their daily lives that when it comes to making decisions about death the common habit is to make no decision at all.

Remember my phone call? Hopefully, you do not find yourself in this category. If you do, please, do not feel bad. You are not too late!

  1) Are you too busy?

  2) Do you think you do not own enough?

  3) Are you confused about your options?

If you never get around to creating an estate plan the distribution of the estate falls under the state's intestate succession statutes.

These are the rules the state uses when you die without any type of trust or will. Remember, 70% of Americans do not have a simple will. While these guidelines attempt to be fair, they may not necessarily distribute the estate according to your wishes.

For example, in some states the estate could be split between the spouse and the children, allowing only a share of the estate to go to the spouse. 

Furthermore, the laws in some states only allow for the inheritance of property to blood relatives and not to special companions and friends.

In addition, if you have minor children, the courts may control their inheritance and appoint guardianship. If you procrastinate and never make a documented decision, your decision could be left up to the courts. So, the bottom line is this: Doing nothing is your worst plan... But it is still a plan.

Option 2:  A Will. Your second basic option is a Last Will and Testament. A Will is a legally binding document that addresses how your named assets will be distributed at your death and also names an executor who will assist with the administration of your estate.

Settlement of your estate may be supervised by the probate court. This process, depending on the nature of your estate, can last from a few months to much longer. We've even heard from clients who spent years settling their parents' estates in probate court.

A Will is a flexible tool that can be changed at any time as long as you are mentally competent. In addition to naming distribution of the estate, your Will can:

  •  Designate a trust to be established for family members after assets go  through probate. (This type of trust is known as a testamentary trust)
  •  Nominate a guardian.
  •  Direct how debts, taxes and expenses are to be paid.

 Disadvantages of a Will:

  • Lack of privacy: your estate files can be accessed through the records office.
  • Time: probate can take a few months to a couple years until distribution is administered.
  • Probate may need to be held in each state, if you own property in more than one state.
  • Probate and legal fees can become very expensive.
  • A Will does not make any provisions if you should become incapacitated. A separate conservatorship proceeding would be held.

 Advantages of a Will:

  • Distribution can be settled through the probate court (If you do not mind the time factor).
  • A Will is initially cheaper to prepare than a trust ($50 to $500).
  • The probate process can lessen the time allowed for creditors to make claims against your estate.
  • Probate estates can select a fiscal year rather than a calendar year for income tax purposes.

Option 3: Living Trust

The revocable living trust, also known as the living trust or the family trust, has become a very common estate planning tool. The name revocable is used to identify its flexibility to be changed or canceled by you as long as you are alive and competent.

Once you pass away, the trust becomes irrevocable. That means your wishes cannot be changed after your death. A living trust is a legal agreement in which you place your assets into the name of the trust for the benefit of you, your spouse, and your heirs.

The trust holds title to your assets and gives control to the trustee. The title of the assets will look something like this:

Bill and Mary Johnson, Trustees of The Johnson

 Family Trust dated month/day/year

Despite the way it may sound, you do not lose control of the assets you put into the name of your trust. Technically, if prepared correctly almost every asset (not all - more on that later) will be put in the name of the trust.

As a result of being your trust's trustee, you maintain complete control. You can still buy, sell, borrow or transfer your assets. Upon the incapacitation or death of you and your spouse, the control will be transferred to the successor trustee.

At that point, the successor trustee will manage the assets in line with the terms you have established within the trust. As a result, your estate will not need to go through probate because ownership has been assigned and control has been given to the successor trustee through your living trust.

Note: In order for assets to avoid probate, they have to be properly titled in the trust's name. Not a problem with the right instructions.

So, what can a living trust give you? The living trust can give you a great amount of flexibility. With it you can:

  • Name anyone over the age of 18 to act as trustee.
  • Maintain full control of the assets in your trust.
  • Manage your taxes the same way you currently do.
  • Change or modify the terms of your trust at any time.

  Disadvantages of a Trust:

  • The initial cost of a trust can be more expensive than a simple Will.
  • More time and effort is needed when preparing a trust over that of a Will.
  • Property may need to be taken out of the trust's name if you desire to refinance. Once the refinancing is finalized, the property can be placed back into the trust.
  • Like a Will, a trust provides no protection from your creditors

  Advantages of a Trust:

  • A trust can avoid the probate process, thus passing the assets and avoiding the time and expense usually occurring with probate.
  • Unlike a Will, a trust is a private document and is not generally public record.
  • A trust can provide uninterrupted management of the estate should you and your spouse become incapacitated.
  • A living trust is valid in every state.

Creating a proper estate plan can sometimes be frustrating. Many individuals are not always aware of their options or the questions that they need to think about.

  • Do you have further questions?
  • Do you have a child receiving SSI?
  • Are you and your spouse on your second marriage and have children from previous marriages?
  • Is the majority of your estate in your IRA?
  • Do you have property in more than one state?

If you have any questions now is a good time to get an answer.You can email our our office or call our office at 855.534.4653 or 704.935.5295.

-The TreeceCo Team!