What You Need to Know About Estate Planning Law
Estate planning law entails arranging the administration or transfer of an individual’s estate before incapacitation or death. An estate plan consists of documents, such as the most recent will and testament, trust, healthcare directives, and power of attorney.
A 2023 study shows that only one-third of Americans have an estate plan, despite its importance in preserving family assets and the interests of their dependents.
This article gives an in-depth insight into what estate planning law entails, the parties to an estate plan, and must-have documents in estate planning.
Understanding Estate Planning
Estate planning is the act of defining how you want people to handle your assets when you become incapacitated or die. Similarly, it entails documenting advance healthcare directives should you fall sick and cannot express your wishes.
Although the estate planning concept is more popular among the rich, everyone with assets should carefully draft an estate plan. The essence of this proactive planning is seamless asset administration, preserving wealth and loved ones’ interests.
If you fail to administer your estate clearly, the court may help you decide. Leaving things at the court’s discretion may delay the inheritance process and inconvenience your relatives. Although the court will attempt to act in your relatives’ best interests, its decisions may not capture your wishes, especially if you have dependents or minors with special needs.
Furthermore, estate planning law permits an individual to deploy different techniques to reduce the tax burden for beneficiaries who get the inheritance. The merits of planning your estate are numerous, and you can simplify the seemingly complex procedure by aligning with an estate planning attorney.
The process of estate planning law includes the following:
- Taking inventory of assets—personal belongings, retirement accounts, savings, investments, vehicles, and land
- Highlighting debts or liabilities
- Assigning portfolios to life insurance policies and financial accounts
- Preparing a will and other essential documents
- Selecting beneficiaries
- Choosing an executor or personal representative
The Parties in Estate Planning
You may enlist the help of different professionals when drafting your estate plan. Such professionals include financial advisors, estate planning lawyers, and accountants. The parties to an estate plan include:
Testator: This is the assets’ owner creating the estate plan.
Beneficiary: They are entities, whether a private person or institution, that the testator names to benefit from their estate.
Fiduciary: They are an individual or entity that the testator appoints to act on their behalf and help their beneficiaries manage the assets. Fiduciaries include:
- Trustee—They are an individual whom a testator appoints to administer the estate they place in a trust
- Executor—They are someone a testator appoints as their representative to administer their assets
- Guardian—They are an individual a testator appoints to care for and decide on behalf of an incapacitated fellow or a minor
Essential Estate Planning Documents
You need numerous documents to complete your estate planning. This segment explains the essential documents you need:
Will
The last will and testament is a document that captures how you want to distribute your estate after your death. It highlights all your assets and their recipients or beneficiaries. The last will and testament also names the executor administering the assets.
Further, if you have a minor child, the will should include a section for the appointment of a guardian to care for them until they attain adulthood.
The executor will file the will in court after your death to commence the probate process. Then, the court will validate it and order a grant of probate to authorize the execution of the document.
Trust
It is an agreement between the assets’ owner and a trustee. A trust empowers the trustee to hold assets on behalf of the estate owner for the beneficiaries’ interests. The two types of trust include:
Revocable Trust: The estate owner can alter a revocable living trust when desired. However, this privilege will erode you of federal tax benefits because of your ability to access your assets and reallocate them willingly. This trust type has the same merit as an irrevocable trust in that it permits the trustee to share the assets with the beneficiaries after the testator’s demise without following the probate route.
Irrevocable Trust: This living trust forbids the owner from making changes after transferring assets into it. Thus, it has estate tax benefits and excludes the assets from the probate process.
Beneficiary Designations
Beneficiary designations are the identified recipients of non-probate assets in estate planning law. These assets do not need probate for the beneficiaries to receive them. Examples are pensions, 401(k) accounts, and life insurance plans.
“Asset owners do not often add these assets to their will as the respective entities can provide the beneficiaries’ names. The ownership of the assets automatically goes to the designated beneficiaries as written in the estate planning document after the account owner’s demise,” says estate planning attorney Sasha Begum of Begum Pelaez-Prada, PLLC.
List of Digital Assets
It is an essential list of the testator’s digital assets, including the login details. The asset owner may also choose a digital executor to share their assets after their passing.
Durable Power of Attorney
A durable power of attorney empowers an individual to make medical, financial, and legal decisions on the signer’s behalf. It permits the authorized individual to decide on the signer’s behalf after their incapacitation.
List of Insurance Policies and Financial Details
It lists every insurance policy and financial account, such as credit cards, retirement plans, investments, mortgages, and bank accounts. Furthermore, it entails access to information for documents drafted by estate planning law. You can write the information in a notebook or Excel sheet and keep it with other essential documents.
Advance Healthcare Directives
These pertain to the healthcare decisions you must make for an incapacitated individual. They primarily comprise two documents. First, a living will highlight end-life care and medical preferences, like life support and a healthcare proxy with a durable power of attorney that empowers someone to decide on another person’s behalf if they become incapacitated.
Also Read: Why you need to Diversify Your EB-5 investments?
When You Need an Estate Planning Attorney
You can simplify the process by liaising with an estate planning attorney. However, you may not necessarily need the help of a legal professional if all your assets are in beneficiary-designated accounts.
Below are compelling reasons you may require the professional guidance of an estate planning attorney:
- To prevent an elongated probate procedure
- To reduce estate tax
- To seamlessly handle out-of-state assets
- To address a business’s succession plan
- To protect minors or relatives with special needs
- To draft or prepare an irrevocable trust
- To guard the estate against the Medicaid recovery program because of long-term care
- To cater to foreign or non-resident heirs
- To avoid state-imposed inheritance tax and federal levies
Final Thoughts
This article highlights the numerous advantages of estate planning laws. You may employ multiple estate planning techniques to reduce the probate process. However, the process can be complex and confusing without a legal professional’s involvement.
