Making a will usually triggers an unsettling realization of mortality. But it should also make you think about your obligations to your survivors and, if your financial situation allows it, your community or charitable interests. A will minimizes the likelihood of disagreements by outlining your objectives and dictating how your assets will be distributed. It also gives instructions to your survivors on how to manage your estate. You can name an executor in your will who you believe to be capable and reliable.
If You Die Without a Will
If you pass away without leaving a will, your state’s intestacy laws and an administrator chosen by the probate court to handle your estate will determine how your assets are managed and distributed after your death, how your debts are handled, and how your minor children and other dependents are cared for. These rules often provide your surviving spouse a sizable share of the inheritance and distribute the remaining funds evenly amongst your children. They don’t take into account things that would lead you to give your heirs a less-than-equal share of your estate.
It is possible for the court to designate your surviving spouse or a suitable adult family or friend as the administrator, but this appointment is not guaranteed. Additionally, if you have a will and a thoughtful estate plan in place before you pass away, you may be able to avoid the lengthy, expensive, and time-consuming proceedings associated with intestacy.
As a result, creating a will that names your executor, indicates who will get your assets, and states your preferences for guardianships, charity donations, funeral arrangements, and burial should not be left until the very end of life. Even if you are young, you should create a will or other formal arrangement as soon as you have assets and obligations to a spouse, children, and other dependents.
This can enable your survivors to make decisions about other issues as well as decide how your assets will be distributed after your death. If your financial or personal position changes, the law changes, or your planning is impacted by one, you can update your will while you are still alive.
Disinheritance
Despite the fact that children (whether biological or adopted) are legally entitled to inherit, you have the option to deny a child’s inheritance in a will. Disinheritance clauses must adhere to state laws, each of which has different criteria, in order to be valid. A person may disinherit a spouse under specific and complex conditions in places with community property laws. So, whether your state is a common-law state, a community property state, or an equitable distribution state, you must be familiar with its legal framework. Keep in mind that a person can only exclude a spouse or kid from inheritance through a will.
Trusts, Retirement Accounts, Lifetime Gifts
Other legal frameworks that permit passing assets straight to your heirs should be known to you. Among these are beneficiary designations for retirement and other financial accounts, trusts that store your assets and plan for transfers in the future, and donations of money and other assets made during your lifetime. These agreements allow for the transfer of property without the need for probate. Additionally, you are able to give away ownership during your lifetime.
THINGS TO CONSIDER IN USING TRUSTS
Estate planning typically makes use of trusts. Asset transfers to heirs are made easier by “living trusts” established during the grantor’s lifetime that avoid the expense and attention of probate. Transfers made through a trust can frequently go more quickly and effectively than through a will.
These trust transfers give grantors the ability to keep their assets’ nature and value private. They can be used to maintain secrecy about the varying valuations of assets left to various heirs. Another benefit of employing trusts is to protect the secrecy of family companies and real estate owned by entities that are not publicly linked to their owners.
If the value of your estate exceeds the federal estate tax exemption, which is set at $12.06 million for an individual decedent in 2022, creating a trust to store and distribute assets following your death does not protect the assets from estate taxes.
The benefits of setting up a trust to avoid probate may be outweighed by the costs of doing so if the value of your estate is not high or if your assets are few and simple, such as your home and financial accounts. Trusts can have higher expenses than wills, despite the fact that using wills can also be expensive. The cost of using a trust includes the cost of legal fees as well as transferring property titles to the trust. Additionally, costs for continuous asset management and legal compliance exist.
Many assets, including retirement accounts like IRAs and 401(k)s, can be transferred without going through probate. You choose your beneficiaries for these accounts with your bank, financial advisor, or employer throughout your lifetime, as appropriate. Joint ownership of real estate and bank accounts by married couples, when properly set up and recorded, can grant a right of survivorship without the need for probate.
Will, Trust, or Both
Wills and trusts are often not viewed as either/or options when discussing estate planning. A will could be the least expensive and most practical option for small estates with easily transferable assets and simple bequests. A trust without a will, however, might cause issues when it comes to assets outside the trust that become regulated by intestacy rules. Using both arrangements may be beneficial for larger and more complicated estates.
A will is typically recommended even if the majority of your assets are held in ways that avoid probate. Even though your estate will be subject to probate if you have a correctly executed will, the cost may be less than creating and maintaining a trust. A trust and a will can be used together to avoid intestacy with respect to estate assets whose disposition is not controlled by a trust or other arrangement, allow for quick asset transfers, maintain confidentiality with regard to sensitive assets and directives, and benefit individuals of means and those who are concerned about privacy.
Any assets that do not pass automatically, like real estate held in trust or retirement funds with named beneficiaries, can be distributed according to a will. It can also include provisions for late-acquired, personally owned assets. In rare circumstances, a pour-over will might establish a testamentary trust to keep and oversee assets for the benefit of chosen heirs, such as for young children until they become adults.
With a will, the estate can avoid intestacy and potentially expensive and contentious legal actions to choose an estate administrator, distribute your remaining assets, and choose who will take care of your debts and obligations.
The kind and amount of your assets, the age and capacity of your heirs, the complexity of your bequests, tax planning concerns, and your option to use a will, trust, or both should all be taken into account. In the end, careful estate planning is crucial to preserve the value of your assets and to achieve the benefits you planned for your heirs.
THE SIGNIFICANCE OF WILLS AND TRUSTS FOR SAME-SEX RELATIONSHIPS
Estate planning will largely be the same for you if you are a member of an LGBTQ+ legally married couple as it is for married heterosexual couples. Estate planning is crucial for all unmarried couples, gay or straight, especially those who have been together for a long time. When a partner who is not legally married to you passes away intestate (without a will), family members or other parties may come into conflict over the deceased’s assets. Without a will, state laws may prioritize blood relatives over partners, and LGBTQ+ couples may experience prejudice from non-family people.
For instance, your state’s intestate succession rules will decide who receives your possessions, such as your house, if you pass away without leaving a will. Making an estate plan with your partner will guarantee that your relationship status is legally recognized by the state in the event that one of you passes away, even if your partner is not included on the mortgage or lease.
The objective is to make sure that the survivor may take advantage of all legal benefits even though they are not officially married. You may make sure your or your spouse’s desires for your estate are followed out by creating a will or trust, filling up a power of attorney document, designating a financial power of attorney, and designating a health care proxy. It is crucial to indicate guardianship of any minor children that one of you has but that your spouse has not formally adopted. Otherwise, who raises them may be decided by the courts.