Estate Planning Without an “Estate”
When the words “estate planning” come to mind, many people think of billionaires such as Bill Gates or Mitt Romney. These wealthy Americans certainly do have an estate and a very complex estate plan. However, anyone with a few dollars in the bank or a life insurance policy technically have an estate. Your estate is anything you’ve accumulated over your lifetime. Therefore, it’s important to have an estate plan even if you don’t feel like you have an “estate.” Below are a few tips to consider, including some information that may surprise you:
- Basic Will – We all know that a will is used to give our property to certain people or charities upon death. However, did you know that wills also provide for guardianship provisions for children? If you have children who are not considered adults in your state of residence and you don’t have a will, you may be putting your family at large risk in the event of a tragedy. For example, let’s assume two parents are married and have one child. If both parents passed away in a car accident and did not have a will with guardianship provisions, the children may have guardians appointed by the state. These guardians may be family, but it may not be the family member(s) you envisioned raising your children. Having a will is very important for children and even adults who need special care.
- Revocable Living Trust – This estate planning tool is a bit more complex than a will, but can offer many more benefits. Please remember, a trust isn’t just for the wealthy. If you have a car, a house, some investments and a bank account, along with children under your care, a trust may be for you. First, if used properly, a trust has the potential to avoid probate court in the event of death. Avoiding probate may mean saving probate court expenses, saving months of time dealing with the probate court system and keeping your estate private versus going through the public court system. Second, a trust has the ability to dictate how assets are distributed among family, friends and charities. For example, you may want to give money to a grandchild, but only if they use if for college. If not used for college, you may want them to wait until age 35 to receive any monetary gifts. With a trust, this type of unique request can be made. There are also many other potential benefits to a trust that are unique to each person and family. What’s the downside? It’s going to cost a little more to create than a basic will.
- Payable on Death Agreement – This handy tool is common with banks, but not every state allows such an agreement to be used. In the states of Missouri and Illinois for example, they are allowed. Adding a “POD” agreement to a checking or savings account allows those assets to pass to the named beneficiary upon death without probate court intervention. The best part about POD is that it’s generally free to do at your local bank. Please keep in mind, special rules apply when appointing minor children, incapacitated adults or other unique beneficiaries on a POD form.
- Transfer on Death Agreement – Like the POD mentioned above, the TOD has the ability to keep assets such as vehicles or non-IRA investments out of probate. As an example, in the state of Missouri, you can add a TOD beneficiary to the title of a vehicle. In the event of death, the vehicle may then be able to pass to the TOD beneficiary even if a loan exists on the vehicle. Each state varies greatly on TOD rules, so be sure to check with a legal professional for any questions.
Hopefully this list of popular estate planning documents has been helpful. Please be sure to speak with a qualified estate attorney before making any changes to your estate plan. This can be a very complicated topic, so professional guidance is important.