So far, we have discussed many different aspects of estate planning in this blog. However, if this site is supposed to convince you that estate planning is something that you should really get a handle on, then we should probably discuss some basics. We’ll do so in a Question and Answer format:
What is estate planning? It is your instructions to the rest of the world, prepared in advance, regarding how you want your matters handled upon your death or disability.
What is a will? It is an estate planning document that specifically explains to your executor your final wishes regarding how to distribute your property upon your death.
What’s an executor? This is the personal representative that you specifically name in the will to carry out your instructions.
What if I don’t prepare a will? Whenever you don’t have a will, the state will determine how your assets are distributed through “intestacy” laws. Additionally, the state will determine other matters as well, such as who will get custody of your kids.
How would my assets be distributed under intestacy? This depends on what state you live in, and the rules can get quite quirky. For example, say that you are married with children. Fewer than half the states give your spouse all of your assets outright (Virginia is one such state). Maryland instead gives up to one-half of your property to your children. On the other hand, if you are married without children, Maryland will split your assets between your spouse and your parents. Suffice to say, if you don’t draft a will, your assets could end up with people and in proportions that you may not like.
What is probate? If you write a will, your executor will not have the discretion to simply hand out all of your assets after you pass. Instead, your executor must file the will with the local county court so that it can be probated, or proven to be valid, and administered. If your will is found to be valid, then your executor will have the weight of the government behind her when she attempts to distribute your assets, file taxes, work through administrative issues, etc. This process can be expensive and can take many months.
How is disability planning part of the process? This involves providing instructions in advance for your personal representative if you were no longer in a position to make your own decisions. Various documents can be created to guide personal representatives as to how you want your matters handled. These include “powers of attorney”, “living wills” or “advance medical directives”, depending on your state.
What is a “trust” and how does it fit in this discussion? Basically, a trust is a document created by a person, the settlor, to have one person, the trustee, manage specific property for another, the beneficiary. The “living trust” (aka “revocable trust”) is the most popular type because of its flexibility and benefits. You create this trust during your lifetime, and it becomes the owner of all your assets. Amongst other advantages, this setup can help you avoid probate. More on this in a future post, since we’re just about out of time.
OK, one more question — who is going to win the World Series this year? The Phillies, of course! UPDATE: While I may not have been correct this year, it will happen again soon enough!