By Staff Writer
Wednesday, April 29, 2020
Death is something we all have in common. It is a fact of life, although it’s not something many of us want to think about. Only 21 percent of Americans have discussed their last wishes with their loved ones and just one in three adults have arranged advanced directive documents such as a living will with medical instructions or power of attorney naming a person responsible for final affairs. Planning for death is not a popular topic, however the thought and discussion should not be avoided. If you have a spouse, children, relatives or close friends it is important to plan for your sake as well as theirs. Having a plan not only makes things easier for your survivors, but it also helps to ensure that the money you worked hard for is distributed properly.
Wills versus Trust:
Wills and trusts are common words that most are familiar with but the differences are not as commonly known. There are a lot of similarities between wills and trusts. The main reason anyone would elect to set up either, is to have a say in what happens after they are gone. Establishing a will or a trust helps ensure that “last wishes” are fulfilled.
This document is used to name a beneficiary and state who should receive your property upon your death. The document also allows you to appoint a legal representative to carry out these wishes. A will only goes into effect after death and passes through probate. Probate is a legal process that takes place in court after someone dies. The process takes time and often results in less money going to the beneficiaries due to attorney and court fees. In probate, the information is public which can result in people fighting over the assets and money. Two important things that can be done with a will but not with a trust, are to name a power of attorney and a guardian for children.
A trust serves as a legal agreement, where a “trustee” is named and holds the legal title to your property for a beneficiary. Trusts can have two types of beneficiaries, the first receives income during their life and the secondary receives the left over funds after the first named beneficiaries have passed away. A trust is effective upon creation and can serve as a mechanism for assets to be distributed before, at death and afterwards. It’s important that the personal property to be transferred is in the trust because the trust retitles the ownership of the property. In addition to estate planning, a trust can be used for planning for a disability and optimal tax results. Depending on the size of the estate and state tax laws, a trust can save a lot of money when the property is transferred to the beneficiary. Estate tax is complicated, however a trust can allow you to increase the estate tax benefit, which helps the beneficiary. As with everything discussed in today’s post, you should talk to a professional to get more information. It’s worth noting that a trust does not go through probate which avoids attorney and court fees and allows the assets to be divided in a shorter amount of time than with a will.
Who should have one?
Wills and Trust are for everyone. There are clear advantages to each and it is possible to establish a trust and then follow it with a will, where the will can contain anything that is left out of the trust. For example, any assets or property that are not included in a trust, will be treated as part of the estate and without a will, these assets will be transferred to the heirs per law. This is especially important if the intended beneficiaries differ from the heirs identified by law. A legal document, such as a will or trust, being in place, can confirm who should inherit your items.
How to establish a Will or Trust?
Setting up a will or trust can be something people avoid just because they don’t know how to go about it. There are multiple options as you can reach out to an attorney or Certified Public Accountant (CPA), or use a self-serve document generating website. One factor that may help you decide which route you choose is the cost. An attorney or a CPA will likely charge anywhere from a couple hundred dollars to a couple thousand dollars, this depends on the complexity of your assets. When selecting a professional to help you draw up a legal document like a will or trust, you want to find an attorney that specializes in estate law. If you choose a self-service website like LegalZoom.com, the variable pricing starts at $89 for a will and $279 for a trust. This website does provide a sample and bundling options, but the actual costs depends on the complexity of your assets.
When preparing a plan for “in case”, wills and trusts are useful documents to have in place. In addition to delegating who gets what, it may be important to think about how your survivors will continue on after your death. If you are a main provider for dependents or a spouse, life insurance could be something you want to purchase. Life insurance pays a lump sum to the beneficiaries in the case that you die. This is typically intended to cover burial expenses and replace the income of the person who died. There are various kinds of life insurance, but the two main categories are: term and whole life. Term life insurance allows you to buy coverage that expires and typically the costs are lower when you’re younger. Whole life insurance policies last your entire life and the premium is the same price for the duration of the policy. You can determine how much insurance you will need by thinking about your family and what expenses your family expects. The option to buy multiple term policies is available as well, for example you could buy a policy that you expect to expire after your children graduate from college. Increasing the amount of life insurance you have as your family and exposure grows is a good approach. As your net worth grows and your kids get older you might need less life insurance or you may want more as you near retirement. Plotting out what you might need over the long term of the next few decades will help you determine how much insurance you will need, and talking to a professional should give better insight for planning.
“Open In Case of Death”
While it is unpleasant to think about, it’s important to organize a master folder for all the information we’ve discussed. Sharing this folder and its location with a close friend or family member will make everything smoother for your survivors in an unexpected situation. Even if you do not die but become ill or incapacitated, having a designated place for all the special files that someone would need will reduce stress. In addition to legal documents, it’s beneficial to include financial account access for loans and credit cards, billing log-in credentials for utilities and subscription services, personal identification documents such as a passport or birth certificate and relevant medical information in this folder. In many households, one person takes care of paying the bills and if something happens to that person the others are left trying to put the puzzle together. Implementing a plan and selecting a certain person to handle your affairs when you no longer are able to, can prevent family disputes, and create the best case scenario for a worst case situation.
Thinking about end of life is not easy and if you’ve never thought about it, you’re human. “In case of death” planning doesn’t come to us as a natural thought. Taking the initiative to get things in order, set up legal documents and designate someone to take care of your affairs is the best way to prepare your family for the unfortunate. These steps can make it easier on your loved ones and ensure that they are cared for after you’re gone.
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