Estate planning is the legal process of preparing for the future. Though it can feel morbid to think about what will happen when you die, estate planning will make everything easier for your loved ones. Creating a plan shows you care about them and makes it straightforward for family or friends to follow your wishes. Estate planning covers many different legal aspects, which will be different for everyone depending on their family and their assets. Hiring an attorney to assist in estate planning can take the stress out of the process. This article will cover the importance of estate planning and what it all entails.
What Is Estate Planning?
In simple terms, estate planning is the preparation of tasks to manage a person’s assets in the event of their incapacitation or death. Most estate plans are made with the help of an attorney who is experienced in estate law. Estate planning can be a complicated task, but it will make life easier for loved ones if they have a plan to follow in case of death. Furthermore, estate plans will take care of your business, property, and other assets after death. It will ensure someone you trust looks over the whole process, and your heirs receive what you have allotted to them. There are many different components of estate planning, including:
- Writing a will.
- Taking inventory of tangible and intangible assets.
- Accounting for your family.
- Establishing your legal directives, including a medical care directive and power of attorney.
- Reviewing your beneficiaries.
- Noting your state’s estate tax law.
- Planning to reassess if anything changes in your life.
Why You Need an Estate Plan
Making an estate plan can seem overwhelming, but there are many reasons you should do it. If you have children, estate planning is essential. You’ll need to name a guardian in the event something happens to you. Furthermore, making sure your life insurance will cover any bills or tuition payments is essential, as is documenting how you would like your children to be cared for. Here are a few other reasons why an estate plan is so important:
- Distributes assets and legacy wishes.
- Minimizes the probate process and any expenses, delays, or loss of privacy.
- Avoids any fighting among family members left behind by giving clear direction.
- Ability to incorporate charitable giving and business succession.
- A financial power of attorney allows someone to help with financial affairs if you are unable to manage them.
- With a living will, a health care proxy gives someone you trust the authority to make healthcare decisions for you in case you cannot make them yourself.
- Beneficiaries can be set up for family members you want to look out for after your death.
- Covers funeral expenses and makes any final arrangements you wish.
Essential Components of Estate Planning
As mentioned, estate planning includes different legal directives that prepare for the future. The estate planning checklist will be different for everyone, but there are several essential components that most people will want to think about. If you choose to work with an attorney, they can help you determine which documents are most vital to your estate planning. Remember that aspects of your estate plan will change with time. It’s crucial to reevaluate after any significant life changes, or if you’d ever like to add something that was missing before.
Write a Will
There are two types of wills, a living will and what is sometimes referred to as a “last” will. Writing a living will is very important if you have young children or other people under your care. A last will and testament will outline who you’d like to inherit your property and any other assets or specifications you’d like to include.
Take Inventory of Assets
Taking inventory of tangible and intangible assets is an essential part of estate planning. Tangible assets include homes, land, other real estate, vehicles, collectibles, and other personal possessions. Intangible assets are checking and savings accounts, life insurance policies, stocks, bonds, ownership in a business, and retirement plans. You may not be aware of how many intangible assets you have since they aren’t objects you can see, like tangible assets. Hiring an attorney to help you inventory your assets is a great idea, especially if you need help estimating their value.
Account for Your Family
Accounting for your family in estate planning means checking your life insurance plan and documenting wishes for your children’s care. If you have a living will, that will outline anything important regarding your dependents. You can name a guardian and even a back-up guardian if you think that’s necessary.
Establish Legal Directives
Establishing your legal directives, including a medical care directive and power of attorney, is an essential step in estate planning. There are several ways to go about legal directives. In some cases, a trust is most appropriate. With a living trust, you can allocate portions of your estate while you’re alive. Then in the case that you become ill, your trustee can take over. Upon death, the assets from the trust will transfer to your beneficiaries. This route bypasses probate, a court process that can distribute your property how it chooses.
Other legal directives include establishing a medical care directive and financial power of attorney. As mentioned, a living will and a power of attorney for your healthcare layout exactly what decisions would be made and by whom if something were to happen to you. Similarly, the financial power of attorney gives someone you trust the authority to make decisions for you in the case that you cannot. Giving someone power of attorney is a very powerful legal action and should be considered with the utmost care and trust.
Note Estate Tax Laws in Your State
Estate tax laws vary depending on where you live. By estate planning, you are often minimizing any estate or inheritance taxes. But it depends on the state. Some states have estate taxes, and some don’t. The same goes for inheritance taxes.
Reviewing your beneficiaries may need to happen more than once. For example, if you get a divorce but your ex-spouse is still a beneficiary of your life insurance, then your current spouse will not receive any of the policy’s payout if you should die. Estate planning can also include looking at your marital estate, especially if you went through a divorce or separated from a partner. It’s also important to name back-up beneficiaries and not to leave any beneficiary sections blank. This means the state will get to decide who gets the property.
Reassess if Anything Changes
Unfortunately, estate planning is not a one-and-done deal. But, that can also be to your advantage. Making plans for the future is crucial, and when things change in your life, you’ll want to make sure your estate plan gets updated, too.
Benefits of Hiring an Attorney for Estate Planning
If the prospect of estate planning makes you anxious or nervous, it might be wise to hire an attorney to assist with the process. Working with an attorney who has expertise and experience in estate planning will make it easier to know exactly what you need and how to go about it. Take the stress out of making plans for your estate by hiring an attorney to assist you.Read More
Generally, people don’t like to talk about their own death, much less plan for it. Although it’s only human to fear the end of your life, you should still be aware of the consequences for your loved ones that outlive you, especially if you have debt. Have you ever thought about what happens to debt when you die? Or what debts are forgiven at death–if any?
In addition to creating a will (either a living will or just a last will and testament) and/or a trust (either revocable or irrevocable, depending on what’s best for you), you have got to learn what happens to debt after death. By getting your affairs in order, you will save your loved ones many headaches and money problems.
What Happens to Debt When You Die?
It depends on the situation. If all of your debt is only in your name, it will come out of your estate after your death. Not sure if you have an estate? Everyone does. Your estate is simply everything you own when you die, such as:
- Bank accounts
If you took the time to create a will, the executor (or the person you put in charge of executing your will) is responsible for carrying out everything you outline in that document. In this legal process known as probate, the executor doles out inheritance, pays debts, handles your assets, etc.
What is the Purpose of Probate?
The purpose of probate is to make sure that wills are honored, and post mortem liabilities are taken care of. The word probate encompasses the legal process of dealing with the deceased’s assets and debt, the court that oversees it, and the actual handling of the assets. Unfortunately, depending on the amount of debt, the value of assets, and the number of beneficiaries of a will, paying debt can cut into the overall estate and take away from beneficiaries.
If there are issues with the will or squabbles among beneficiaries, you may need to hire a probate lawyer and go to probate court to settle disputes and navigate the complex process. However, while you’re still alive, you can get your affairs in order to ensure your loved ones can avoid probate as much as possible.
What You Need to Know About Debt and Death
There are a number of things that can happen to debt after death, but there are a few bits of essential information that you need to be aware of. The following list includes the most important facts you need to know about who is responsible for debt after death.
Debt Is Not Inherited Unless…
If all of your accounts and assets are in your name and your name only, none of your family members will inherit debt, not even your spouse. If you have a joint account with your spouse or, for example, your dad co-signed on your car loan, they’ll inherit those unsatisfied debts.
What happens to your debt when you die and have no family, co-signers, or joint accounts? Your estate handles it. However, if you live in a community property state, your rules are different.
Federal Student Loans Will Be Forgiven
If the borrower of a federal student loan dies, then the loan is forgiven. A loved one will need to provide an original or certified death certificate. Don’t confuse federal student loans with private ones. Although some private loan servicers offer forgiveness at death, not all servicers do. There is no law that forces lenders to cancel a loan. Make sure you check with the loan servicer.
Creditors Will Try to Scam Your Loved Ones
If no one in your life legally inherits your debt after you die and your estate isn’t vast enough to cover those debts, creditors just have to take a partial loss. What happens to your debt when you die if you have no assets or others responsible for your debt? Creditors have to take a full loss. Just because your loved ones aren’t responsible for that debt doesn’t mean creditors won’t try to get them to pay anyway.
When your loved ones don’t need to pay, it’s best left that way. If they agree to pay even a small amount, they could end up legally responsible for all of the debt. If they tell the creditor never to contact them again, the creditor has to honor that.
Creditors and Their Claim to Your Estate
Even if no one stands to inherit your debt, inheritance can be diminished in probate court. To satisfy outstanding debt, creditors are legally entitled to anything in your estate– including family heirlooms and your home. A probate lawyer can help your beneficiaries fight for what’s theirs.
You should know that creditors only have a certain amount of time to make a claim against your estate. If they miss the window, they’re out of luck. With that said, creditors have to be informed of your death. Failing to do so will extend the creditor’s claim window or leave your loved ones responsible for the debt.
Don’t Use Accounts
The final piece of information you need to know about debt after death is that your family — even authorized users on credit cards– have to stop using your accounts after you die. An account can only be used if it’s a joint account that holds another person accountable for the debt. All other cases can be considered fraud, and your loved ones will face legal repercussions.
Prepare for Death and Probate With an Attorney
Whether a death in the family is imminent or you would just like to be prepared so you or your loved ones can avoid the worst, now is a great time to create a trust and/or will. Depending on how affairs are coordinated, the probate process can be minimized. By hiring a lawyer to help organize your estate and legal documents, you’ll get an understanding of what to expect as far as debt after death and probate are concerned. At Cline Jensen, PLLC, our expert team of attorneys is ready to help draft wills, draft trusts, and navigate probate. Contact us today for a free consultation.Read More
There are a myriad of ways to take care of your belongings and assets before you die to ensure they go to the right people and are properly cared for. Wills and trusts are the two most common ways to do this. A will outlines how a person wants their estate to be dealt with after they die and who they want to deal with it. A trust is a fiduciary relationship. It is a legal entity a person establishes during their lifetime to manage their assets after death. A person (trustor) gives another party (the trustee) the right to hold the title to property or other assets for the benefit of a third party (the beneficiary).
In the same way that different types of wills are important and useful for different situations, there are also different types of trusts. Two basic trusts that you need to know about are revocable and irrevocable. Let’s explore what they are, how they are similar, how they are different, and then discuss which is right for you.
A revocable trust, also known as a living trust, can be changed or canceled by the trust’s creator (trustor) at any time. The trustor can change beneficiaries or undo the entire trust if they change their mind. The motivation for choosing this type of trust is to maintain control over assets regardless of taxation.
Only after the trustor dies does the property or other assets transfer to the trust’s beneficiaries. A trust requires that a trustee is put in place to manage assets in case of emergency. If the trustor can no longer manage their own assets, the trustee takes over. Given the sensitivity of the information in a trust and the power a trustee has, this person is always someone in whom the trustor places great confidence.
If you’re looking for total control over your trust, assets, and estate, a revocable trust may be for you. There are a wide array of advantages to choosing a revocable trust, such as:
- Maintain control over assets after death or mental incapacitation
- Flexibility to make any changes at any time.
- Assets in a revocable trust won’t have to go through Probate Court after you die. Probate is expensive, time-consuming, and will expose your personal financial details to the public.
- You’ll maintain privacy surrounding your estate and property transfers.
- Unlikely to be challenged in court.
Although revocable trust disadvantages are small in number, they pack a heavy punch. The downsides of this trust involve significant fiscal risk.
- Assets are included in your estate at the time of death. State (depending on the state) and federal estate taxes may be due.
- Assets are not protected from creditors. If you’re sued, trust assets can be taken as collateral.
An irrevocable trust and the terms it defines are unchangeable and bound by law once the document is signed. There are rare exceptions, but those are few and far between. The primary motivator for choosing this type of trust is to move assets out of your estate. Irrevocable trusts tend to be more difficult to set up and demand the assistance of an estate attorney. If you’d like to learn how to set up an irrevocable trust, call Cline Jensen, PLLC.
If it requires you to set the terms in stone without knowing what the future has in store, why would you want an irrevocable trust? The advantages of this type of trust outweigh the disadvantages for most folks.
- Trustor no longer legally owns the trust assets, so they cannot be lost to lawsuits or creditors.
- Assets can be moved into the trust in a way that halts capital gains taxes
- Because the trust legally removes the trustor as the owner of assets, state and federal estate taxes can be avoided.
- By putting your assets into an irrevocable charitable trust, you can take a charitable income tax deduction.
It’s clear that the advantages of this type of trust are many. However, irrevocable trust disadvantages exist, as well. Creating a trust that is legally can’t be changed comes with a number of downsides, such as:
- You relinquish all control over assets in the trust once the document is signed.
- Choose your trustee wisely because they make all the decisions regarding the trust assets if something unexpected happens to you.
- Instead of capital gains taxes, gift taxes may be due.
- If nursing home or other unexpected expenses related to end-of-life care come up, funds in an irrevocable trust can not be accessed.
Can you change a revocable trust to an irrevocable trust?
This is a common question from those wondering which type of trust is right for them, and the answer is, yes, you can change a revocable trust to an irrevocable trust. You have to go through the restatement process to ensure the document is properly structured to be irrevocable.
This can happen automatically if the creator of a revocable trust dies. This way, the trust assets can be properly distributed to those named in the document with no extra fuss or hassle.
Which is Better: Revocable or Irrevocable Trust?
At the end of the day, deciding between a revocable and irrevocable trust depends on the situation and who is involved. If it is essential for you to maintain control over your assets and make sure that someone else can control them if you become mentally disabled, a revocable trust is probably for you. If avoiding taxation is more important to you than remaining in control of your estate, an irrevocable trust is likely the best route for you.
If you feel unsure about the type of trust that’s best for you, call our team of estate planning experts at Cline Jensen, PLLC. We will help you parse out the details and take the time to figure out what type of trust will be most beneficial to you and your family. Visit our website to learn more about our areas of practice and schedule your free consultation today.
Most people have strong opinions about how they would like to be treated in an emergency medical situation. Especially if this emergency means they’re unconscious and can’t be consulted about life-altering decisions. It is for situations like this that everyone needs to have a living will.
If you’re wondering, “What is a living will? Why is it important to have one?” You’ve come to the right place. Parsing out different types of wills and the legal processes surrounding them can be confusing. Let’s explore what a living will is, how it’s different from others, and why it’s essential to have one.
What Is a Living Will?
A living will is a legal document you create to inform others of your wishes concerning end-of-life medical treatment. It outlines which procedures you’re willing to undergo and medications you would take to prolong your life if you’re unable to communicate with medical personnel due to an accident, unsuccessful surgery, or other events. It also details the life-extending treatments you would refuse and circumstances in which you wouldn’t want to be kept alive. Some specifics that are often addressed in a living will are:
- Use of feeding tubes
- Implementation of “extraordinary measures”
- Palliative care directives (care to decrease pain and suffering)
Once you’ve crafted your living will, you can make changes to it at any time. You’re not bound by your initial decisions, but whatever the document says when it comes time to use it is what will be executed.
Living Will vs. Will
The term ‘living will’ is often confused with the term ‘last will,’ which sounds similar but means something quite different. A last will, or last will and testament, is a legal document that explains precisely what you want to be done with your property and other belongings after you die, as well as legal guardians for your children and other family responsibilities.
While a last will and testament defines what you want to happen after you die, a living will is used while you’re still alive. It gives you a say in all matters concerning your life, even when you can’t communicate for yourself. An estate planning attorney can help you draft either type of will and take care of any related matters.
Living Will vs. Advance Directive
A living will is one document, but an advance directive is a file containing many documents concerning end-of-life medical treatment, which can include:
- The living will itself
- A Do Not Resuscitate (DNR) order
- Organ and tissue donation instructions
- Establishing a medical power of attorney
- Directives related to specific diagnosed illnesses
A living will is imperative to ensuring you maintain control over your life, no matter what happens. An advance directive is a whole slew of documents that further expand on that idea. Not only does an advance directive include the living will, but it also provides further instructions on other important considerations in life-or-death medical situations.
3 Reasons It’s Important to Have One
Choosing to create your living will could be one of the most influential decisions you ever make. The following reasons will help you understand why this document is so vital and how it benefits you, your loved ones, and the healthcare professionals who treat you.
Control Remains in Your Hands
The importance of being able to speak for yourself even when you’re in a coma cannot be understated. Without a living will, doctors have a huge say in the next steps. You could be revived into a state that leaves you dependent on machines and other people to stay alive (even if that’s not what you want) or given treatments that you can’t afford. However, with a living will in place, doctors must respect your wishes. If they don’t, a medical claim can be filed, and they’ll face serious consequences.
Prevents Family Arguments
Having a document that states your exact desires will prevent arguments and strife among family members. End-of-life or other monumental medical decisions can strain relationships, especially when there is disagreement. Taking all urgent decisions out of your loved ones’ hands will allow them to accept whatever happens and support each other through the process instead of arguing over personal opinions.
The living will can also limit unwanted medical bills for you or your family, depending on the situation’s outcome.
Peace of Mind
Finally, once you’ve created your living will, you can breathe a deep sigh of relief. Knowing that you have your last wishes in order means you don’t have to worry about bad things happening in an already tragic situation.
Your doctors and family won’t have to make any tough decisions, there will be fewer fights, and your preferences will be respected. By doing what you can to protect your interests today, you’ll help alleviate future challenges.
What Do You Include?
If you’re wondering how to write a living will, there are some tough questions that you’ll have to ask yourself. Although it can be difficult to take a deep dive into a hypothetical situation where your life is at stake, you’ll be glad you did it. Consider questions such as:
- What if you’re unable to breathe on your own? What would you want to happen?
- Would you want feeding tubes implemented if you can’t feed yourself anymore?
- Which procedures and drugs for pain management are you okay with?
- Would you want a Do Not Resuscitate (DNR) or Do Not Intubate (DBI) order?
- Do you want to donate your body or organs after you die?
You should also consider any medical conditions that you already have and if you’d like to include any special instructions. Imagining yourself in a potentially life-ending situation can be tough, but you’ll save your loved ones from arguments and painful decisions later on.
Have You Created Your Living Will?
If you haven’t created your living will, it’s time to consider it seriously. Whether you’re 29 years old or 89 years old, you never know what can happen. Life is full of surprises, but a living will helps keep things simple. Although you can draft your last will without an attorney, having one guide you through the process ensures the will is done right and that it can protect you when you need it most. Contact our expert estate attorneys at Cline Jensen, PLLC, for a free consultation today.Read More