Estate Plan Defined
An estate plan is the process of planning for the orderly administration and disposition of property after the owner dies. The goals of your estate plan may include the following:
- Avoiding confusion when it comes to your final wishes.
- Ensuring that your children have the legal guardian of your choice.
- Protecting loved ones by ensuring that they receive your assets.
- Helping to reduce or avoid conflict among family members.
- Minimizing taxes and legal expenses associated with your estate.
- Wealth preservation for your intended beneficiaries.
- Flexibility for you before you die.
Estate planning is a must especially if you are in a non-traditional relationship, you have chosen to cohabitate without being married, you have been married more than once and/or you have children. If you have children from a previous marriage, your estate planning is even more important, as your current spouse may not be inclined to share your estate with them unless that spouse is required to do as based on the provisions of your will. The last thing you want to do is to unintentionally disinherit someone you love because you failed to implement a plan for the proper disposition of your estate. (For related reading, see Estate-Planning Must-Haves For Unmarried Couples.)
Estate Planning Terms You Should Know
Estate
The estate includes all the property that was owned by a decedent (deceased person) before it is distributed by a will, trust or under inheritance laws. An estate also includes all of the decedent's assets and liabilities.
Property
Property is divided into two categories:
- Real property usually refers to land, including permanent structures and minerals.
- Personal property refers to everything other than real property, and includes automobiles, jewelery, household items, patents, loans, bank accounts, cash, insurance policies, securities and insurance policies.
The grantor is the person transferring property to another party (referred to as grantee) under a trust that he or she created.
Beneficiary
The beneficiary is the person who inherits property from the grantor. The beneficiary can be one or multiple parties. (Read more about the importance of keeping your beneficiaries current in Update Your Beneficiaries.)
Trustee
The trustee is the person or entity who administers the property on behalf and for the benefit of the beneficiaries in accordance with the trust document. The trustee is also considered a fiduciary, because he is charged with the duty to act for the benefit of other individuals, which in this case is the beneficiaries of the trust. (Can You Trust Your Trustee? provides more information on choosing a competent trustee.)
Successor Trustee
A person or entity that takes over the duties assigned to the original trustee when necessary. The terms of the trust usually define the circumstances under which the successor trustee would assume the responsibilities of trustee under the trust.
Probate
Probate is the legal process the state takes through the court to identify your rightful heirs, as well as their share, and also transfer the title of property from your name to theirs. Not all property is subject to probate, but the property that is subject to probate can possibly go through an expensive and time-consuming process. (Skipping Out On Probate Costs can help you take some of the stress out of the probate process.)
Estate Transfer
This is the process by which property interests are legally transferred to another person. It may occur either during an individual's lifetime, when these transfers can be done as a gift or through a sale, or after a person's death.
Who Needs Estate Planning?
In general, anyone who has ownership in real or personal property should perform estate planning for those properties. This includes the following:
- Anyone who owns property alone, as tenants in common (TIC), or as community property.
- Anyone owning assets in multiple states.
- Anyone who has dependents.
- Anyone who owns a small business.
- Anyone who may become incapacitated prior to death.
- Anyone who wants to make a transfer of wealth.
- Anyone who owns assets that may be subject to tax and want to reduce the taxes involved in transferring these assets.
Estate Planning: Introduction To Wills
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