When you hear the word estate, what comes to mind? For many people, it’s a million-dollar home, fancy cars, lots of money, land, or any expensive items that they own. The truth is, you don’t have to be wealthy to have an estate. In fact, almost everyone has one, whether they realize it or not.
What’s an estate?
Your estate is simply everything you leave behind when you die. It includes things like your home, any land that you own, retirement accounts, cars, bank accounts, life insurance policies, and any personal belongings. While we spend our lifetime building a legacy, it is important to think about what happens to everything included in your estate. That’s where estate planning comes in. It’s more than deciding who gets what when you’re no longer here: it’s about making your wishes known, providing for your loved ones, reducing costs and taxes, and having a plan in place when you can’t make the important decisions (Clifford, 2022).
What happens if you don’t have a plan in place?
Well, I’m glad you asked. Without a plan (a will or a trust) in place, state law decides who inherits your assets, and nobody wants that! This is why documents like a will, trust, durable power of attorney, and health care directive exist. They ensure your wishes are followed and provide clear direction for your loved ones when they need it most. However, getting the documents is only half the battle.
What are beneficiaries?
You must also make sure your beneficiaries are explicitly named inside your will, trust, and accounts. A beneficiary is simply the person or organization chosen to receive your assets.
One of the misconceptions we frequently see is the belief that a will controls everything you own. The fact of the matter is not everything goes through your will, even if you have one. It’s important to know what assets your will covers and what assets bypass your will entirely. Assets such as IRAs and other retirement accounts, Transfer on Death (TOD) accounts, life insurance policies, and annuities (anything with a designated beneficiary) do not go through your will. In fact, your beneficiary designations on these accounts override your will every single time.
For property controlled strictly by a will, beneficiaries usually receive their inheritance after the probate process ends. For a trust, they can get their assets much faster because a trust bypasses probate completely. You can also name primary or contingent beneficiaries to set the order of who gets what if someone passes away before you. (Link to previous blog post "Beneficiaries: A Blueprint" to learn more.)
Naming beneficiaries on bank accounts, investment accounts, certain homes or vehicles depending on your state, and the accounts mentioned above is a great way to avoid probate1 and cut out the middleman.
While probate can be a lengthy and expensive process, it does have one advantage: it can help protect your estate from creditors after you die. Because of this, probate is not entirely bad, just time consuming.
Which is better, a trust or a will?
Many people wonder whether they need a will or a trust. It really comes down to how complex your situation is. If you do not have many assets or dependents, a simple will can meet your estate planning needs while being less expensive than a trust. Otherwise, a trust may be worth looking into depending on your needs.
There are several advantages to a trust due to its flexibility. If you ever become temporarily or permanently incapacitated, you can name a trustee to step in and manage your finances to handle whatever you cannot. They are also super helpful if you have more complicated assets, like owning property in different states. Plus, if you have young children, grandchildren, or anyone else who might not be ready to handle a large inheritance all at once, a trust lets you set clear rules. You can easily structure distributions, so they receive funds in gradual portions over the years rather than getting everything at once.
While it is important to have a plan, estate planning is not a set-it-and-forget-it task. As your life changes, your plan needs to change right along with it. Major life events like marriage, divorce, growing your family, or losing a loved one are all great reasons to revisit your documents. As a good rule of thumb, we recommend reviewing everything every three years.
What’s our “perspective”?
No matter where you are in life, it is never too late or too early to meet with an estate attorney to create or review your plan. Taking this step protects what matters most and gives you and your loved one’s true peace of mind. Building a legacy takes time, but protecting it takes planning.
References:
Clifford, D. (2022). Plan your estate. Nolo.
For additional resources on creating a simple will and the role of the executor, check out these links below:
- Trust and Will: trustandwill.com
- Legal Zoom: https://www.legalzoom.com
- Estate Exec: https://www.estateexec.com/Docs/Guide
- American Bar Association: https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/guidelines-individual-executors-trustees/
