Estate planning involves much more than just executing a last will and testament. Read on for strategies for avoiding probate.
Older Americans may hesitate to broach the subject of wills, trusts, elder care, retirement expenses and end-of-life concerns for a variety of reasons. Some may want to defer conversations about living wills and inheritances until after their retirement. Others may have misconceptions about estate planning options.
According to a recent study, over two-thirds of aging baby boomers did not have a precise idea of their projected retirement liquidity. Such uncertainty represents quite a gamble, considering that many of that generation have life expectancies entering the 80s and 90s.
Estate Planning as a Probate Alternative
As a preliminary matter, readers should be reminded that drafting a last will is not necessarily sufficient for avoiding probate. Although a will can help ensure assets pass to the designated heirs and beneficiaries, a probate court may nevertheless want to inspect a will for validity and to ensure it is carried out correctly. (Of course, a will is better than nothing, as the probate of an estate without a will generally involves a court-appointed administrator who performs a time-consuming and costly inventory of the estate’s property and debt obligations before distributing the remaining assets according to the state’s laws of intestacy.)
Another misconception that may cause aging Americans to defer estate planning is the belief that creating a trust will tie up their assets and funds or require a separate tax return. To the contrary, a revocable trust might be the perfect option for individuals with such concerns. With a revocable trust, the grantor who creates the trust can retain control of it by serving as its trustee. The terms of a revocable trust generally are completely amenable or revocable during the grantor’s lifetime. That means that the grantor can change his or her mind about any property put into the trust. Furthermore, a trust is not considered a separate entity for tax purposes, so the grantor can continue filing the same individual or joint return as in past years.
Best of all, the property in a trust is controlled by the trustee. That control permits a trustee to bypass the probate process and transfer trust property directly to the beneficiaries. Since trust assets are usually identified in writing, a will can be used to direct subsequently acquired property to go to the trust. Notably, although property in a trust may be subject to taxes, there is a high threshold for estate taxes, at least: In 2014, estates under $5.34 million were exempt.
Multiple Approaches Toward Estate Planning
Finally, the concept of estate planning should be not viewed as a singular event. In addition to assets, medical and health concerns can also be addressed in estate planning through documents like a living will and/or a medical power of attorney. Wills and trusts should also be periodically updated to reflect life events like a remarriage, buying a new house or even starting a new job. An attorney who focuses on estate planning will be well suited to such a task.
Keywords: estate planning, wills, trusts, irrevocable trust, revocable trust, probate, attorney