Several tools and planning options are available to ensure that your money, possessions, and real estate are passed on as you would like. All of these legal arrangements have advantages and disadvantages. Use of one or a combination of these tools will be based on your circumstances, your wishes, and the way in which you want to protect your loved ones after death.
Beneficiary Designation: Some assets pass by means other than a will; these include insurance policies, Individual Retirement Accounts (IRA’s), 401(k) plans, pension plans, and profit-sharing plans. Beneficiaries and payable-on-death (POD) or transferable-on-death (TOD) designations are named on the contract, and—unless you designate “my estate” or make no choice at all—the transfer takes place directly upon death without involving the probate court. You can change your beneficiaries as the need arises by completing the required paperwork with the account holder—a bank or brokerage company. You cannot change them using a will or other estate-planning method. It is important to review beneficiary designations annually or when circumstances change to make sure that your assets will be distributed as you desire.
Gifts: Gifts are voluntary transfers of property without receiving payment before you die. Examples include stocks, cash, real estate, equipment, and personal property. Gifts can reduce the size of your taxable estate. However, if deathbed gifts leave the estate without funds to pay creditors, the probate court can order the property to be paid back to the estate. Gifting law is complex. Gifts can have an impact on taxes and eligibility for public benefits such as Medicaid payments for nursing home care. Consult experts before making any substantial gifts.
Property Ownership: Property ownership involves tangible, intangible, and real property (possessions) to which its owner has legal title. The way in which you own property or the way it is titled (such as single or joint ownership) prevails over such other estate-planning methods as wills; it determines how your property will be distributed upon your death. Moreover, ownership is defined by state laws. It is important to make wise decisions about how property will be transferred to insure that it gets to the intended party. Careful consideration in planning and titling property will help avoid unintended consequences.
Will: A will serves as a written document that provides instructions on how you want your assets distributed after your death. It is often the easiest and least expensive estate-planning document to prepare. Also, it will permit you to name a guardian for your minor children. The main disadvantage of a will is that it must go through the probate process when you die. There are costs and delays associated with probate, which vary widely from state to state. Consult an attorney to determine the impact of probate in your state.
Probate: Probate is a court-supervised legal process that proves the validity of a will and oversees the administration of an estate with or without a will. It involves the procedure of gathering the decedent’s assets; paying debts, taxes, and expenses of the administration, and distributing assets to the heirs or beneficiaries of your estate.
Trust: Assets can be transferred through a trust. When you transfer property to a trust you have created, you make a gift to the beneficiaries of that trust. Trusts can help avoid expenses and time involved in the probate process, and can help eliminate and reduce estate taxes. Assets in a trust can also be managed and distributed according to a predetermined schedule.
Lesson Contents
III. Power of Attorney: Planning for Incapacity
IV. Property Transfer: Documents and Legal Arrangements
VII. Personal Representative: To Carry Out Your Wishes
VIII. Gifting and Tax Strategies
X. How to Hire and Work with an Attorney
Prepare Your Estate Plan belongs to a series called Legally Secure Your Financial Future. The series also includes information to help you organize important household papers and to communicate your health-care wishes.