Why Should You Prepare an Estate Plan?

Estate Planning Course Volumen 1

It is a common misconception that estate planning is important for only those with money or who are advanced in age. This myth is a cruel deception. In most states, if you own property over $30,000 your children or family could be subject to probate. By investing the time now to plan your estate you could possibly save your loved ones months if not years of agony and literally thousands of dollars in court fees and/or estate taxes.

What is Estate Planning

Arranging for the distribution of one’s wealth is what estate planning is all about. A critical part of estate planning is creating documents that outline your wishes for distributing your assets after you die. Every individual has an estate plan. If you do not have a formal written will or trust, your estate plan is created out of default by your state. Every state in America has laws governing the distribution of property when a person dies without a will or trust. If you have not made any provisions for the distribution of your estate before you die, your estate would be distributed according to your state’s “intestate succession” statutes which provide for the distribution of your estate to your spouse and relatives in an order established by your state’s law. So the question is not whether you will have an estate plan, but whether you will have an estate plan of your own selection or one imposed upon you by law.

Unfortunately, many people have neither a will or a trust which would identify their intent and desires after their death. They become so involved in their daily activities that they give little thought to the consequences of their demise. However, many do realize the importance of estate planning documents to protect and provide for their dependents, but people often die prematurely leaving dependents unprotected. Families can be financially devastated and ripped apart by this procrastination.

So, as discussed your choices for estate planning are as follows:

• Doing nothing
• Preparing a Will or a Trust

Traditionally, estate planning has involved creating a will. A will is a legally binding document that addresses how your assets will be distributed at your death and also names an executor who will assist with the administration of your estate. Settlement of your estate may be supervised by the probate court. This process depending on the nature of your estate can last as quick as 6 months for a simple estate or up to 1-2 years for more complex estates.

A will is a flexible tool that can be changed at any time as long as you are mentally competent. In addition to naming distribution of the estate, your will can:

• Designate a trust to be established under the will for family members after assets go through probate. (This type of trust is known as a testamentary trust not to be confused with a Living Trust.)
• Nominate a guardian.
• Direct how debts, taxes and expenses are to be paid.

Some of the advantages of a will are:

• Disputes can be settled through the probate court.
• A will is traditionally cheaper to prepare than a trust ($500 versus $3,500).
• The probate process can lessen the time allowed creditors to make claims against your estate. Probate estates can select a fiscal year rather than a calender year for income tax purposes.

Some the disadvantages of a will are:

• Lack of privacy: Your files can be accessed through the records office.
• Time: Probate can take 6 months to 2 years or more until distribution is administered. If you own property in more than one state, then probate needs to be held in each state.
• Probate and legal fees can range anywhere from 3% to 10% of your gross estate.

If you should become incapacitated, a will does not make any provisions. You need a separate Durable Power of Attorney. By preparing a will, most people feel they have effectively safeguarded their family’s inheritance. However, this is often a false “peace of mind”. A Last Will and Testament outlines your wishes about the distribution of your property after death, but testamentary documents such as wills usually require probate. In preparing only a will, you may be forcing your loved ones through months, even years, of agony in the probate court. In some states, probate can take 10% of your GROSS estate.