When it comes to preparing your estate plan, we know there can be questions. Below are some of the most frequently asked estate planning questions we receive when meeting with clients to design their plan or presenting to groups on the importance of estate planning.
Why should I prepare an estate plan?
Who do you want to inherit your property? When do you want them to receive it? In what proportions and under what conditions? If you choose not to plan and make these decisions, the State of Kansas will decide for you (this is called intestacy). Your default beneficiaries will be based on whether you were married and who among your descendants or other relatives are still living. Generally, your assets will go to your closest living relatives. No assets will be distributed to charities that you regularly supported in life, and no consideration will be given to how close you were to a particular relative. For example, you may not have spoken to your brother in decades, but have a close relationship with your brother’s son. Despite your estrangement from your brother, if he is your closest living relative, he will get an inheritance and your favorite nephew won’t.
Property is generally distributed outright in intestacy. This may not be the best option for your heirs, who may not be able to manage the inheritance, may be in the middle of a divorce or bankruptcy, or may be under age. Planning now gives you the opportunity to choose your beneficiaries and how they receive their inheritance.
Finally, if you have minor children, you can designate who you would like to raise your children after your death.
What is probate?
Probate is the formal, court supervised procedure to identify all assets owned by a deceased person (a “decedent”), identify the decedent’s creditors and beneficiaries, and the distribution of assets accordingly. Probate is required whether you have a Last Will or not. Because probate is a formal court proceeding, with built-in waiting periods, a simple, uncontested probate can last 9-12 months or more and cost several thousands of dollars.
What is the difference between a Will and a revocable trust?
A revocable trust is essentially a substitute for a Will, and distributes your property in the same manner. However, a revocable trust has the added advantage of avoiding probate, a process which is public, costly, and time-consuming. This is particularly beneficial if you own real estate in more than one state. If your trust owns all of your assets, you eliminate probate in each state where you own real estate.
A revocable trust also provides for incapacity planning by avoiding the conservatorship process, which is established through the court. The conservatorship process is essentially probate for a living person and it comes with the same drawbacks, including being costly, open to the public, and time-consuming. However, a properly funded revocable trust will eliminate the need for a conservatorship because the trustee of the revocable trust can use the trust’s assets to provide for the trust’s maker and his family should he become incapacitated.
However, a revocable trust requires more time and effort during your lifetime. With a trust, you must transfer legal ownership of substantially all assets to your trust while you are living. Some assets cannot be transferred to the trust, but instead should be “payable upon death” to the trust through a beneficiary designation. As you acquire additional assets, you must be careful to title assets in your trust’s name.
What other alternatives to a Will exist?
One alternative that also avoids probate is to own property in joint tenancy with rights of survivorship. Property held in joint tenancy automatically passes to the surviving owner upon the death of the first owner. Downfalls to titling property in joint tenancy include the possibility of an immediate and taxable gift, a potential future income tax liability to the recipient because the property will not receive a step-up in income tax basis, and the ability of the recipient’s creditors, such as a divorcing spouse, to reach the asset and potentially force the sale of the property. Also, if an intended recipient dies before you, then probate will still be necessary, and you may inadvertently disinherit children of the predeceased recipient.
Another alternative is to designate a beneficiary on each asset by beneficiary designation or “pay on death” document. This option has many of the risks identified with joint tenancy. In summary, there is no substitute for a revocable trust.
To learn more about Estate Planning for Different Life Stages, click here.
Do you have other questions that haven’t been answered above? Call our Estate Planning Group at 316.631.3131 and we will be happy to assist you.
