Estate Planning Basics

When you think of the words “estate planning,” what comes to mind? Many people associate estate planning with creating a last will and testament. While wills are an integral part of the process for many people, there are several other types of legal documents and services that also fall under the estate planning umbrella. In addition to wills, estate planning also encompasses various types of trusts, asset titling, beneficiary designations, and advance directives for health care and finances. Depending on your circumstances and goals, your plan may involve some – or even all – of these tools. In this article, we will explore each of these items in more detail. 

Wills

Creating a will allows you to direct the distribution of assets that pass through your probate estate. Essentially, your will controls assets you owned in your name alone at the time of your death, without a joint owner or beneficiary. Your will is also the document you can use to name a trusted family member or friend as your Personal Representative (also commonly referred to as the “Executor.”) 

Your personal representative is responsible for handling your estate when you die, safeguarding property and other estate assets, paying valid debts, and distributing remaining assets to your named beneficiaries.  While acting in this capacity, your personal representative must follow applicable state laws and adhere to the terms of your will.  

It is important to understand that assets passing through your will may be subject to probate administration when you die. Contrary to popular belief, creating a will does not eliminate the need for probate. 

Trusts

Trusts are another popular estate planning device. There are several different types of, and uses for, trusts. Trusts can be revocable or irrevocable. With a revocable trust, the person creating the trust can change its terms or revoke it entirely during their lifetime. Irrevocable trusts, in contrast, cannot be revoked or altered, except in very limited circumstances. Trusts can also be “living,” meaning the trust instrument is created and maintained during the grantor’s lifetime, or “testamentary.” A testamentary trust can be created inside a will, and can spring into being after the person who created the will dies. This is a common type of trust when someone wants to leave assets for minor children or other beneficiaries who may not be financially responsible. 

The most popular type of trust is the revocable living trust. A revocable living trust can be used to manage and distribute assets and property in place of a will. There are several reasons someone might consider creating and using a living trust in place of, or in conjunction with, a will. Assets owned outright by a trust, including assets that pass directly to the trust at death by way of beneficiary designations, are not subject to probate administration. This means those assets avoid the potential public scrutiny, expense, and delays often associated with probate. If you create and fund a revocable trust but later become incapacitated, your named trustee can also seamlessly manage your finances without needing to establish a guardianship through the court. 

While assets passing through a will are generally distributed outright to estate heirs according to the terms of the will, trusts allow for assets to be managed and disbursed to named beneficiaries over a period of years or even for the beneficiaries’ lifetimes and beyond. The trust provisions guide the trustee’s actions, giving the trust creator the ability to control from beyond the grave and leave a legacy that can impact future generations. 

Trusts can also be used to manage assets for beneficiaries with special needs, in blended families where spouses want to provide for children from previous relationships while still protecting each other’s interests, for estate tax planning, charitable gifting, and more. 

 

Asset Titling

Another component to the estate planning process is a review of how your assets are titled. This includes assets like real estate, automobiles, campers, boats, trailers, investments, bank accounts, and others. 

It is important to know whether you own assets outright in your individual name, jointly with someone else, in a business entity under your control, or inside a trust, as each form of ownership could impact your estate plan in different ways. 

As mentioned above, assets you own in your name alone when you die, without a beneficiary, will pass through your will. If you own property with someone else held as “tenants in common,” your share of that asset will pass through your will. However, if you own property with your spouse as “tenants by the entirety,” or with someone other than your spouse as “joint tenants with rights of survivorship,” then when one owner dies, the property will pass to the other joint owner outside of probate court. Your will or trust does not control this type of jointly-owned property.

Similarly, property owned by a corporation, partnership, or LLC you own or participate in will be subject to the business’s operating agreement or other governing documents. Depending on how the property is structured and whether you have entered into “buy/sell” agreements with others, your share may or may not be subject to probate administration. 

If you create one or more trusts through the estate planning process, your attorney can help you review your assets, make recommendations about retitling assets into the name of the trust, and will provide guidance to help you through the process. This step, also referred to as “funding” your trust, is critical in ensuring your estate plan functions the way you want it to. 

Beneficiary Designations

There is a common misconception that your will or trust automatically controls all of your assets. However, assets for which you named one or more beneficiaries will pass outside of your estate planning documents. This includes life insurance policies, annuities, retirement accounts like 401(k)s and 403(b)s, investment accounts with a TOD (transfer on death) designation, bank accounts with a POD (pay on death) designation, and real estate where you hold a life estate but have named someone else as a remainder beneficiary at your death.

If you name someone as a beneficiary of an account, policy, or other asset but later change your mind about who should inherit the asset, it is critical to update your beneficiary designations. Updating your will alone does not change the life insurance company or financial institution’s contractual obligation to distribute the funds to the persons or organizations named on the beneficiary designation on file.

If you create a trust, your attorney may recommend updating beneficiary designations to point assets toward your trust when you die, to streamline administration and provide for liquidity to pay debts and other expenses. In some cases, however, it may be preferable to name beneficiaries directly. Your attorney can help guide you and make recommendations based on your situation. 

Powers of Attorney

Estate planning also includes planning for periods of lifetime incapacity. The Personal Representative named in your will does not have any authority to manage your finances, access information about your accounts or other assets, or pay your bills during your lifetime; their role doesn’t start until after your death. 

Creating a durable power of attorney allows you to name a trusted family member, friend, or professional fiduciary who can step in to handle your financial affairs if you are alive but no longer have the capacity to manage things yourself. By planning ahead and creating a power of attorney, you can eliminate the need for someone to establish a court-ordered guardianship. 

Health Care Advance Directives

Another aspect to consider during the estate planning process is giving someone else legal authority to make health care decisions for you, if you reach a point where you cannot voice your own wishes for your care. 

An advance health care directive allows you to name someone as your agent, giving them authority to speak for you and to carry out your wishes. You can also use this legal document to specify things that are important to you, providing a written guide to help your health care agent act in a way that aligns with your goals and values. 

Choose a Skilled Estate Planning Attorney Can Help with Your Estate Planning Needs

As you can see, estate planning involves much more than wills alone. Working with an experienced, knowledgeable estate planning attorney is the best way to ensure your plan is tailored to meet your needs and goals. 

Forefront Law in Jacksonville specializes in probate, estate planning, and family law matters. To learn more about how we help clients protect their loved ones through proactive planning, and to schedule a consultation to begin or update your estate plan, contact us today.