Estate planning. It is the thing that everyone says that they need to do but always seems to be put on the back burner. I would estimate that most of the people who come in for a meeting with me say something about how they have been putting off setting up their estate planning for years. So why do people put off setting up their estate plans? One argument, and a strong one at that, is that people do not want to think about their life ending. Add on top of that, they would be coming into an office to talk to an attorney. I assure you that attorneys are as fun as the next person; I can assure you of this because determining what is fun is completely subjective. Regardless of how fun you think I may or may not be, the common emotion that I have noticed after clients have signed their estate plan is relief.
So, what do you actually get when you finish your estate plan? If you come to see an attorney at Sarah’s Law Firm, then you will receive a snazzy binder filled with the several documents you signed along your journey. You also receive a slick-looking flash drive with an electronic copy of all your estate planning documents on it. From a tangible aspect, that is essentially it. So then why get your estate planning done at all? It is a selfless act that will make life easier for whomever you want to be the beneficiaries of your Will or Trust.
Getting Affairs in Order
Probate. Just typing the word makes me cringe. Probate needs to be opened when we need someone to stand in the shoes of a dead person to sign over titles of assets to a sentient human. That shoe-wearing substitute is the probate court judge. The probate court judge needs to determine where your assets are supposed to go after you have passed away. If you did not complete your estate planning prior to your death, the judge makes this decision based on the laws of intestacy. For the most part, the judge will sign over title of everything that comes across her desk to your spouse; if you do not have a living spouse, then everything will go to your children. The probate process can take years to complete, especially if your children are not exactly on speaking terms. On top of that, the court charges a fee based on how much has to go through probate.
So how do we avoid probate? There are two main ways that probate can be avoided. The first is how the asset is titled. If your house is owned by you and your spouse and is titled as such, then you will not have to fight for ownership after your spouse dies; you automatically absorb your deceased spouse’s interest in the home. This is the same theory for jointly owned bank accounts. The other way to avoid probate is through the use of contracts. Contract law trumps probate. A Revocable Living Trust is a contract where the grantor is giving his or her Trustee legal title to the assets put in the Trust. Typically, the grantor is also the trustee of his or her Trust as long as he or she is alive and has capacity. However, after the grantor passes away, the nominated successor Trustee becomes the legal owner of the assets.
After the successor Trustee takes over, he or she will have to follow the rules that are written in the Trust about how the assets are to be distributed. Not only does everything in the Trust avoid probate, but the successor Trustee also has an instruction manual about how to go about taking care of your estate. Your children will not have to argue about what mom and dad would have wanted; what you want to happen to your assets can be stated in the Trust. Not only does having a fully funded Trust avoid probate, but it can clear up future headaches about who you want to have your car, jewelry, or even the photo album that has been stabilizing the coffee table in your living room.
Transfer on death beneficiaries at your local bank or credit union is also a contract that would avoid probate. The issue with relying on these beneficiary designations is that they do not answer any of the “what ifs” that a well-written estate plan can answer. What if the bank changes ownership for the third time in five years and it loses your beneficiary designation? What if, God forbid, people do not die in the correct order, and one of your children predeceases you? Would you want that child’s share to go to his children? These questions are answered when you have a Will or Trust.
Planning for your Family
What is family? I have heard several definitions from clients. Everyone’s definition of family can be correct to them. However, the law has a definition of family, and the law’s definition is what counts if you pass away with no estate planning in place. Stepchildren, sons-in-law, and daughters-in-law are not considered your heir in the eyes of the law. I have met several people who have told me that it does not matter that little Jimmy is from a previous marriage; little Jimmy is their son. That is great. It makes me happy to hear about little Jimmy’s foundation and support system. The law does not care. If you die without an estate plan in place, and the probate court must sign your assets over to the next closest family member, that third cousin that you have only talked to once would be higher on the pecking order to receive your assets than little Jimmy.
That is the beauty of having a Will or Trust. You get to decide how to define family. You can make it so that little Jimmy receives the same amount of inheritance as your biological and adopted children. You can plan for some of those “what ifs.” If one of your children passes away before you, do you want his or her spouse to receive that child’s share? That is completely up to you. Your estate planner can provide you with guidance and explain any risks or outside forces that may come with altering the definition of family. However, at the end of the day, you get to make the decision. If you consider little Jimmy to be your child because you have been in his life since he was a baby, you can provide for him in your estate plan.
Choosing your Beneficiaries
We just established that your Will or Trust can change the definition of family. However, your beneficiaries do not have to be family members. In fact, you can designate family members who should not benefit financially from your death. Some people wish to disinherit a family member. There are several reasons why one may wish to disinherit a family member. Some people wish to disinherit a family member because that family member is no longer part of his or her life. Others wish to disinherit family a family member because that family member is doing very well financially and does not need extra money. You are entitled to the reason why you wish to disinherit a family member, and your estate planner can make that happen within your Will or Trust.
Now consider not wanting to disinherit someone, but you want your beneficiaries to inherit your assets unequally. One reason I have seen for unequal distribution involves blended families such as the following hypothetical. If Husband comes into the marriage with two children and Wife comes into the marriage with one child, Husband and Wife can split it so that Wife’s child receives one-half of everything, and which Husband’s children would each receive one-quarter of everything. If Husband and Wife agree that this is the fairest way to distribute their assets after their death, Husband and Wife can have that written into their Will or Trust.
People can have their estate distributed unequally for a myriad of reasons. If one of your children could benefit more from your assets than your other children, you can have that reflected in how much each child receives. Others have charitable aspirations, but they do not want to completely disinherit their children. They can have a distribution plan in their Will or Trust so that their favorite church or charity can receive one-tenth of everything, and then the remainder of their estate is to be divided equally among their children. Your estate planner can make it so your assets transfer in any way you desire or believe is fair, as long as it is legal.
The bulk of what you read did not discuss what you get out of having your Will or Trust completed. I apologize if you wanted to read more detail about that binder that we put all of your estate planning documents in; it is pretty great in my opinion. The main takeaway of this article is a selfless one. Yes, you are deciding how you want your assets to be distributed upon your death. However, estate planning helps your family, friends, and people who you care about with instructions about what is to happen with your assets after you die. Having a Will or Trust written will save your loved ones’ time, headaches, arguments, and potentially money. Your loved ones will have a lot of their mind after you pass away; having a Will or Trust will ease some of that burden. The binder that holds your estate planning documents is nice, but your family will be more appreciative of the contents inside that binder.
By: Michael Vomastek, Esq.