Q. What is estate planning?
A. Estate planning is a crucial part of lifetime financial planning that involves the disposition of one’s property in the future. However, it is much more than that. Estate planning’s purpose is to develop a plan that will enhance one’s wealth and ensure the financial security of individuals and their families. While most people believe estate planning is only for the wealthy, it is something that everyone should engage in because for families with modest assets, they can’t afford to lose assets due to poor planning. It is a complex endeavor, and people should consult with a seasoned estate planning attorney such as Richard J. Arendt in the greater Chicagoland area.
Q. Why do I need an Estate Plan?
A. Everyone has an estate composed of everything they own – bank accounts, real estate, personal property, investments, life insurance, etc. While some people worry about the expense associated with constructing an estate plan, this sum often is nominal when compared to the cost of not having one. The ability to control how your estate is given to people or organizations you care about is important, and instructions from an estate plan ensure that your wishes are carried out. Otherwise, the state will distribute your assets for you in a way that is not in accordance with your wishes. Additionally, family members are frequently saddled with the expense associated with contested probate proceedings and avoidable tax consequences.
Q. When should I start my estate planning?
A. It is never too early to start. Begin by taking stock of all your assets. These would include all your investments, retirement accounts, real estate, insurance policies, and anything else you may deem as valuable. Include those items that may have more emotional value to you or your family, even if they don’t necessarily have financial significance. These tend to be the items that initiate the most conflict after a person passes if a decision has not made in advance about who should receive these items upon your death. Decide what you want to happen to your items of value and who you want to inherit them. This is also the time to think about people you would trust to handle your business affairs and medical care in the event that you become incapacitated. A good Estate Planning attorney will ask all the right questions so you can be assured knowing that your assets and family will be taken care of as you wish after your death.
Q. What is a will?
A. A will is a legal document that specifies who should receive which of your assets after your death. It also allows you to name guardians for any dependent children. Without a will, the courts decide what happens to your assets and who is responsible for your kids. Wills do have limitations. In particular, the beneficiary designations on financial accounts, insurance policies and other assets take precedence over wills, so it’s important to make sure your beneficiary designations are up to date and reflect your wishes.
Q. Do I need a will?
A. Yes. Everyone needs a will. A will tells the world exactly how you want your assets distributed when you die. It’s also the place to name guardians for your children. Dying without a will – known as dying “intestate” – means you have no say over who receives your assets, and can leave your heirs and the court system the complex and costly job of wrangling over who should get what.
Q. Where do I get a will?
A. If your finances are simple and you are not married and have no children, you can craft a quick and inexpensive will using a Web-based legal document service. Otherwise, you’ll probably want to hire an attorney to draw up a will for you.
Q. How much will it cost?
A. Web-based legal document providers can help you draw up a basic will for less than a hundred bucks – but such services typically are appropriate only if your finances are very simple. An attorney will cost several hundred dollars per hour. While that may seem high, a properly designed will and estate plan can pay for itself by reducing taxes and other costs. An attorney will also explain options that can keep your heirs out of probate court and reduce their tax burden upon your death.
Q. How often should I update it?
A. It’s a good idea to review your will every time there is a significant change in your life; The death of one of your heirs; the birth of a new heir; a significant change in your financial situation; major adjustments to your investment portfolio; real estate purchases and sales; and changes to your living situation (marriage, divorce, partner). In addition, make sure to review the beneficiary designations on your 401(k), IRA, pension and insurance policies: Assets in those accounts will be transferred automatically to your named beneficiaries when you die, even if your will says otherwise.
Q. What if I die without a will?
A. Dying without a will – also known as dying intestate – means you have no say over who receives your assets, and can leave your heirs and the court system the complex and costly job of wrangling over who should get what.
Your assets go into what is called probate. Without a will, your heirs must hire an attorney and go to probate court. This can be an expensive and drawn out legal process in which the court determines who inherits your estate, and can take anywhere from a few months to a few years, depending on how complicated the estate is.
So-called intestacy laws vary considerably from state to state. In general, though, if you die and leave a spouse and kids, your assets will be split between your surviving mate and children. If you’re single with no children, then the state is likely to decide who among your blood relatives will inherit your estate.
Q. What is probate?
A. Probate is a term for the legal process that occurs after a person dies. The probate court system must first validate that the will is authentic, and then proceed to distribute the estate among the heirs. When a person leaves no will, the probate court must decide, according to the laws of the state, who gets what.
Probate is an expensive process and can take anywhere from a few months to a few years, depending on how complicated the estate is. If you want to spare your heirs the hassle of probate, there are a few ways to avoid the process, such as a revocable living trust.
Q. What is a living will?
A. A living will is a legal document that allows you to express your wishes to doctors in case you become incapacitated. In a living will, you can outline whether or not you want your life to be artificially prolonged in the event of a devastating illness or injury.
A living will is often combined with a health care proxy, which allows you to designate someone to make health care decisions for you if you become incapacitated. The living will and the health care proxy together make up what’s called an advanced health care directive. If you contact an experienced estate planning attorney, these documents will be prepared and executed as a part of your overall estate plan.
Q. What is a trust?
A. A trust is a legal entity that lets you put conditions on how certain assets are distributed upon your death. Trusts also can help minimize gift and estate taxes. If you have concerns about how all your assets are going to be distributed after you die, or how much tax your heirs will have to pay, you might want to look into opening a trust. Contact an experienced estate planning attorney to guide you.
Q. Do I need a trust?
A. A trust can be a useful tool for lots of people. Trusts are great for minimizing estate taxes or protecting your estate from lawsuits and creditors. The laws concerning estate plans and subsequently trusts change frequently so it is best to consult with an estate planning attorney to determine what is best in your individual situation. It is important to remember, assets you want protected by the trust must be retitled in the name of the trust. Anything that is not titled to the trust when you die will have to go through probate.
Q. What’s the difference between a trust and a will?
A. Wills and trusts are two different instruments with important differences:
- Effective date. Wills go into effect only after the individual who created the will dies. Trusts, on the other hand, can be used to transfer property while you are alive, upon your death, or after you die.
- Property involved. Wills usually cover any property that is owned solely by an individual upon death unless it is a joint will. However, trusts cover only property that has been transferred to the trust and placed in the trust’s name. Once transferred, the trust owns the property and not the individual.
- Process for validation. Wills are required to go through probate to be validated, which is the legal process in which a court examines a will, pays creditors, and transfers property from the estate to the beneficiaries as directed in the will. Trusts do not go through probate, and trusts continue to hold properties transferred to it after death without any court supervision.
Q. What kinds of trusts are there?
A. There are numerous types of trusts. Most people will use one of two basic types of trusts: living trusts or testamentary trusts. A living trust or an inter-vivos trust is set up during the person’s lifetime. A testamentary trust is set up in a will and established only after the person’s death, when the will goes into effect. Living trusts can be either revocable or irrevocable. The laws concerning trusts and their tax implications change periodically. Unless you have a simple financial situation with no heirs, it is a good idea to contact an estate planning attorney to provide guidance on what is best for your situation.
Q. Where do I get a trust?
A. Consult an estate attorney if you want to set up a trust. With so many state and federal laws to take into account, it’s important to enlist the advice and services of an experienced estate planning attorney. A lawyer will ask the right questions and guide you through the various types of trusts and help you decide what best suits your assets and goals; while helping make sure it’s legally sound and executed appropriately.
Estate planning is a complex process should involve a holistic approach that takes into account each individual’s unique circumstances and goals. There is no one-size-fits-all approach to estate planning that works, and it requires carefully listening to the needs of a client. The Law Office of Richard J. Arendt can help you craft a well thought-out estate plan that preserves your wealth and ensures your loved ones’ future financial security. Richard J. Arendt is dedicated to providing expert counsel in the greater Chicagoland area, including Boone, Cook, Du Page, Kane, McHenry, Lake, and Will counties. You may call us to schedule an initial consultation at (312) 642-9606.