No one likes to make plans for what happens after they pass away, but it’s an important part of ensuring your hard-earned money and property gets divvied properly. It’s a stressful situation to deal with the affairs after a person has passed, but the better prepared their estate is, the more seamless this transition will be, allowing the family to focus on mourning, re-uniting, and rebuilding.
It’s also important to understand that estate planning isn’t just relegated to seniors. The following tips apply to estate planning for any stage of life. Whether you’re in your prime, a senior, or a grandchild helping a grandparent, it’s never too soon to take precautionary measures and plan ahead.
Your Beneficiary Plays A Big Role
It’s not uncommon for individuals in the estate planning process to get overwhelmed by the choices they have to make, and choose instead to let their loved ones handle it when the time comes. But this can cause even more problems, and additional stress.
Appointing a beneficiary or multiple beneficiaries for your life insurance isn’t the only way to ensure there’s no confusion. All assets could benefit from a beneficiary, including oft-neglected assets like brokerage accounts, checkings, and savings. When you appoint beneficiaries, it also avoids having your family go through a probate process (depending on the type of asset).
Understanding how probate works is critical here. Probate is a legal term used to describe the official process a court uses to settle an estate. Estate distribution fees vary from state to state, but if there is no beneficiary chosen, it typically costs ten percent of the estate’s overall value. For an asset valued at $500,000, the receiver would see a loss of $50,000.
Because settling an estate is so time-consuming and costly, it’s much better to have your beneficiaries chosen well in advance. For larger assets, such as a home, you would still need to go through a probate process, but fees would be lower and the process would be quicker.
You Need A Living Trust, Too
Some property requires a living trust in order to have a beneficiary receive full control of an asset. This isn’t the same as a will; in fact, many people confuse a will with a living trust. Both allow you to name beneficiaries for your assets, but have a few key differences. For example, with a will, you cannot avoid probate, transfer of property, or maintain privacy following a death. Living trusts also cover ground for different types of assets. With a living trust, you can name beneficiaries for larger assets, like houses, cars, boats, jewelry, and other valuable belongings.
Living trusts ensure the transfer of assets to the trustee is much more seamless, and the receiver is relieved of any court or probate process. While the owner of the trust is still living, they remain in complete control of the trust (which acts as its own entity) and can freely make any changes. This ensures that you can continue to manage your assets and, upon death, your property will be effectively taken care of and distributed as necessary.
Accidental Disinheritance Happens
A living trust also ensures that your assets go into the hands of the right people. For instance, there have been many cases where children of the deceased have been disinherited because proper precautions weren’t taken in time. This is called an accidental disinheritance, which is when the living person intended to leave property to an heir, who does not receive anything in the end. There are many reasons an accidental inheritance might occur.
This can happen if you take the wrong route in passing on property to your children; instead, it can transfer to their stepmother or stepfather, who can choose to do with it what they please. For example, many states will void a will following a marriage or birth of a child.
Things can also get tricky when your money is tied into mortgages, 401ks, or IRAs. In this situation, you might state on your will that one child receive all your money, but because that money is tied to other areas, a different beneficiary might receive it. Without the right legal representation during your estate planning, you may not understand the regulations of your state or circumstances.
One look at famous cases of accidental disinheritance will help you understand how it important it is to proceed with caution when it comes to your estate. One of those cases were between John Seward Johnson I, son of Robert Wood Johnson (who co-founded Johnson & Johnson) and Robert Johnson’s third wife, Barbara Piasecka. Robert Johnson left his entire estate to Piasceka, a former maid who was 42 years younger than him. Eventually, the children were granted almost half the estate — but it was a $10 million legal battle that could have been avoided.