Estate planning is about planning for what will happen to your assets when you die. You don’t have to be super rich to prepare an estate plan. As long as you own one or more assets, you should have an estate plan in place as soon as possible. Generally speaking, estate plans cover the accumulation, conversion as well as the distribution of an estate (assets). Good estate plans maintain and enhance the financial security of people as well as their families.
Estate planning basics
Estate planning encompasses several components. Below is a review of each of these components to help you understand everything there is to know about estate planning.
Wills are the backbone of all estate plans. A will is a legal document highlighting a person’s intentions on how their assets should be distributed or disposed at death. Since death is uncertain and disputes usually arise when people die, everyone should prepare a will.
A will is enforceable after a person death. A will can be amended or changed anytime before a person dies or becomes mentally challenged. A properly drafted will has instructions that are executed by an individual’s personal representative (the executor).
Benefits of a will
There are several advantages of having a will the most notable being the fact that you can be able to control what happens to your assets when you are gone. A will enables you to take care of the needs and interests of your dependants among other people who may otherwise be unable to take care of themselves when you are gone. Having a will can also reduce your estate tax. Last but not least, you get unmatched peace of mind when you have a will in place.
People who have assets but die without preparing a will surrender their rights of asset distribution to the legal system. In such a case, courts decide who gets those assets that don’t have outright beneficiaries.
Important characteristics/information about wills
Wills are inexpensive to prepare. The cost, however, varies depending on complexity, the size of your estate as well as your location.
Wills transfer property which is in your name only. Any jointly owned property is transferred to the designated beneficiary.
Wills are still necessary even for individuals who have trusts because they cover assets which trusts don’t cover.
Trusts are another important component of estate planning. Trusts are about transferring property to corporate or individual trustees who manage the property on behalf of beneficiaries. There are various kinds of trusts depending on factors such as; when the trust is effective. A living trust is effective during a person’s lifetime. A testament trust becomes operative after a person’s death.
Trust terms can be amended provided the testator (the person who creates the trust) is still alive and mentally competent. Living trusts have special attributes i.e. they are revocable or irrevocable. Revocable living trusts can be accessed by the creator when he/she is alive. On the other hand, irrevocable living trusts seize belonging to the creator once they are created. The trusts are owned by trust entities once they are transferred. Once the creator dies, the beneficiaries can access the trusts.
Benefits of trusts
People set up trusts for many reasons. The most notable reasons include (but aren’t limited to);
To manage property more effectively: Most people set up trusts to ensure their property is invested and managed by professionals. Trusts complement wills in this regard. Instead of simply living your beneficiaries with property, trusts ensure the property is managed well by professionals on behalf of the beneficiaries.
Minimise taxation: Trusts also offer mechanisms for minimising the amount of gift and estate tax paid in most jurisdictions.
Better distribution of assets: Trusts are more efficient in the distribution of assets/property to beneficiaries. For instance, there are fewer delays. The expenses are also significantly lower.
Creators have more say: Trusts allow creators to place more conditions on the distribution of assets. For instance, it is possible to prevent squandering of property on luxuries like cars using a trust.
Estate planning is about engineering the accumulation, conversion as well as distribution of your assets when you are gone. Estate planning is about preparing wills and trust and why it is important to do so. Although there is more to estate planning that what has been discussed above, you have enough basic information now to get started.