Estate Planning

“By failing to plan, you are preparing to fail” – Benjamin Franklin

Contrary to popular opinion, estate planning is distinct from wealth planning. Every individual has an estate plan by default, even if they take no action. Failing to proactively plan your estate can result in the implementation of a default plan by the state, particularly in the event of incapacity or death.

Without a personalized estate strategy, your family may become involved in public court proceedings known as probate, where your estate is administered under the supervision of a state court. Probate is a lengthy, expensive, and public process that most people wish to avoid. Unfortunately, without proper planning, this may become the legacy you leave for your loved ones to manage. The probate process varies in duration and complexity from state to state, lasting anywhere from a few months to several years.

While joint tenancies or payable on death transfers may be considered as alternatives to avoid probate, they may not fully align with your intended wishes. For instance, joint tenancies with children lack the tax benefits associated with transfers at death, potentially resulting in increased tax liabilities for your children. Additionally, joint tenancies and payable on death accounts may fall short of expectations in various ways.

1. A Will is sufficient.
   Unfortunately, having a will does not circumvent probate. While a will allows you to specify estate distributions, it still needs to go through the probate process. Additionally, a will does not offer assistance in cases of incapacity.
2. A Will controls all my assets.
   Only the assets you own will be distributed according to the wishes expressed in your Will. Assets held jointly with another person or with beneficiaries listed on an account will be transferred directly to the joint owner or beneficiary and not according to your Will.
3. My finances will be private in probate proceedings.
   Unfortunately, this statement is not entirely accurate. Probate is typically an open process, with some exceptions, and your finances can be subject to examination by anyone who wishes.
4. Living trusts are only for large estates.
   The primary purpose for a living trust is to avoid probate and protect your family at death so your estate is privately administered and distributed according to your wishes.
5. Living trusts cannot be changed.
   Living trusts can be amended or terminated at any time, as long as you have the capacity to do so. It’s important to note that a living trust is not primarily an asset protection mechanism; it doesn’t require a separation between you and the trust.
6. I will not have control over my assets in a living trust.
   A living trust is considered a non-entity for tax purposes, with you being regarded as both the owner and beneficiary of the trust assets. Holding property in a living trust does not alter your ownership or control over the assets.
7. Living trusts need to file annual tax returns.
   Living trusts are considered non-entities for tax purposes, meaning that the tax identification number of your living trust is generally the trustor’s Social Security Number. Therefore, holding property in a living trust typically does not affect your taxes.
8. A living trust will help protect my assets.
   Unfortunately, a living trust is to avoid probate and does not provide creditor protection. For creditor and asset protection, you’ll need to consider other planning options such as irrevocable trust and/or business formation.
9. The cost of trust and estate documents are only paid once.
   You will have an initial cost of creating an estate plan; however, it is recommended that you review and update your trust as your life circumstances change over the years and especially with changes to the federal or state estate and gift tax laws. However, these costs are minimal and are spent during your life to benefit your estate.
10. Adding my child as a joint owner of my home is easier and cheaper than estate planning.
    Unfortunately, your family may end up paying more when you add a child as a joint tenant. Depending on your basis or purchase price of your home, Your child is likely to incur significant capital gains tax on their portion of the appreciation in the value of the home. This situation can be avoided with a living trust estate plan.