As they approach retirement age or their children become adults, many of our clients’ estate planning goals change. Later in life, your goals may shift from raising children and saving for retirement/college to more detailed planning about how your Estate will be administered. Often we hear from our clients that they want to make their Estate as easy and painless as possible for their children. The purpose of this article is to provide a brief overview of some considerations on this topic.
Will vs. Trust
For most people with an estate plan, their primary estate planning document is their Will. A Will states who gets what after your death and who is in charge of this process. This process is called Probate and the person in charge of it is called your Executor. Probate is how we transfer assets or property out of a deceased person’s name to the beneficiaries they have named in the Will. This process involves, among other things, filing a Will and Petition with the Probate Court, running Notice to Debtors and Creditors in a newspaper, transferring assets, and filing a separate Petition to close the Estate. This process typically takes 6-12 months and can take much longer depending on the complexity of the Estate. Probate can also be expensive between fling fees, publication costs, maintenance and upkeep of property, and legal fees.
By properly utilizing a Trust as your primary estate planning document you can eliminate the time and expense of Probate. When you create and fund a Trust you are creating a separate legal entity that can own your property. You choose the person you want to manage the assets that the Trust owns. This person is called the Trustee. Your Trust document instructs your Trustee on how to manage the Trust property and when and to whom to distribute the Trust property. This planning strategy skips the Probate process described above and enables your children to distribute your Trust property much more quickly, often in a matter of weeks, after your death. This type of Trust is most commonly called a Revocable Living Trust. A Revocable Living Trust works particularly well if you own real property in multiple states as this would otherwise require multiple, separate Probate proceedings. One in the state where you resided prior to your death (Georgia) and one in each separate state where you also owned real property at the time of your death.
By the term “retirement accounts” I am referring to an IRA or 401K or other similar investment vehicle. The moneys in your retirement account were placed there “pre-tax” meaning that income taxes were not paid on them. When this money is distributed to you, income taxes must be paid. The financial services company that manages your retirement account will permit you to choose a beneficiary or beneficiaries for the account. The financial services company will pay the account directly to your chosen beneficiaries upon your death. This skips the Probate process for these accounts. Naming a beneficiary on this accounts is also advantageous for tax purposes for your children. They can spread out the distributions and income tax liability over a longer period of time. Make sure that your retirement accounts have specific beneficiaries named. Make sure that you’ve updated those beneficiaries if your spouse has passed away or you’ve divorced.
Life insurance policies also allow you to name a specific beneficiary or beneficiaries. Again, here the life insurance company will pay out the death benefit directly to your named beneficiary upon your death. This skips the Probate process for these proceeds. Make sure that you have specified beneficiaries for any life insurance policies. Also, make sure that you’ve updated these beneficiaries if your spouse has passed away or you’ve divorced. However, if any of your beneficiaries are minor children (under the age of 18) this may not be the best plan for them as minor children cannot receive money directly without a court-appointed conservator.
Funding Your Trust
We commonly get calls from potential clients who have trusts but they are not sure what they say or whether they have been funded. Funding your Trust means actually changing how your assets are owned so that the Trust owns them. Unfortunately, simply signing a Trust document at your attorney’s office is not sufficient to skip the Probate process for your Estate as discussed above. If you have a Trust and you aren’t clear on what it says or aren’t sure whether you funded your Trust, give us a call. We would be happy to review your Trust and your Estate Plan with you and help you make sure it accomplishes your estate planning goals.