Estate Planning 101 - Simplified
For part of my career, I (Leanne) was a Trust Officer. In that capacity I experienced first-hand how important estate planning is in the financial planning process. Good planning integrates all aspects of one’s financial life because every aspect affects all the others – estate planning is not a separate thing but a part of one’s financial life. We at Two Tugboats Wealth Management know that estate planning can be baffling or intimidating to people, so we always address it in our financial planning process. We work with several estate planning attorneys to help shepherd our clients through the process and minimize the confusion that can keep them from getting it done. Some questions we hear are: What is an Estate? Is it a Will? What is a Trust? Do I need one? Here is my attempt to give a simplified bit of education on this topic.
An estate is comprised of all the things one owns; essentially, all of one’s personal property. Some of the property is stuff, also called tangible, personal or real property: real estate, cars, furnishings, collectibles, jewelry, art, etc. Some of the property is not stuff, but instead involves different kinds of cash, investments, insurance proceeds, etc. Lastly, liabilities are also part of one’s estate and will need to be paid off by the estate assets upon death before the remains of the estate can be distributed.
Estate planning is the living process of deciding what will happen to one’s personal property at death (the final distribution and transfer) and then making those decisions legally binding and at least tax-considered (if not tax-advantaged). It also includes deciding who will have authority to make financial and health decisions prior to death in the event of one’s illness or incapacitation. This planning can be difficult to face because it can be emotionally challenging. A 2024 Caring.com survey showed that only 32% of Americans had a Will. Estate planning is something that will never be a “squeaky wheel” or cry out for attention in a busy life, so it must be approached proactively. Yet, it is perhaps the most loving thing one can do for one’s family.
Everyone who owns something, and/or has minor children, needs an estate plan: state specific, legal estate documents that clearly state who gets what. The plan can be simple or complex depending on the type and amount of stuff and assets one has:
A simple estate plan may include a Will (for the distribution of personal property and the guardianship of children), a Healthcare Proxy (for medical decisions) and a Power of Attorney (for financial decisions). In some states this would also include a Living Will which is a document that describes end-of-life medical decisions in a more in-depth way than a Healthcare Proxy.
A more complex estate plan could include all of the above as well as different types of Trusts and insurance policies that allow for more private, efficient or tax-beneficial transfers at death. For example, in the case where the beneficiaries of the estate are members of a blended family, a charity or other Trusts for the benefit of minor children, or those with special needs, etc.
One of the fundamental aspects of the final distribution and transfer of property is who and how one owns their property at death. Depending on the ownership of the property, the authority to distribute will lie with either: 1) a Judge/Personal Administrator (Executor) combo; 2) a Contract (by operation of law); or 3) a Trustee.
Personal and real property owned in sole name will transfer through the Probate process administered by the court and the designated Personal Representative (Executor), either by provisions of the Will, or if no Will, by the state’s laws of intestacy rather than by the deceased person’s wishes. The laws of intestacy establish a specific order or priority for the distribution of assets. A common misconception is that a Will will avoid the Probate process. A Will simply ensures that the court will enforce the deceased person’s wishes as expressed in the Will.
Financial assets owned in sole name will transfer either by operation of law through the designation of a beneficiary to the account or, if no beneficiary is designated or living, through the Probate process. It is always a good idea to designate a primary and contingent beneficiary and to keep the beneficiary designations current.
Jointly owned property or property held in trust (owned by a Trust, rather than directly by a human person) will transfer outside of the Probate process. Jointly owned property will become the property of the joint owner(s) at the death of one of the owners (there are various types of joint ownership possibilities). Property held in trust will be distributed by the named Trustee according to the terms of the Trust document. It is this opportunity to avoid the Probate process (which can be lengthy, public and potentially costly) that is the primary reason people make use of Trusts. Other reasons include preserving more of the estate for the heirs or charitable beneficiaries through different tax-saving options afforded by some Trusts.
So, in simple terms:
If you have stuff or money/investments or minor children, you need a plan for the distribution of your estate and/or the appointment of guardianship of your children at your death.
You also need a plan for who will make those decisions in case you are still living, but incapacitated, and unable to make those decisions for yourself.
How you own your stuff can make its final distribution easier for your heirs.
The time to plan for this is now, while you are of sound mind and alive.
Estate Planning won’t ever make its way to the top of your to-do list on its own, so you should act proactively and make it a priority.
It might sound scary or complicated, but it is just a plan, and anyone can do it with some help. Effective estate planning ensures that your wishes are known and implemented after death.
Caring.com article:
