The first is the one that everyone starts with—Intestate Succession and Guardianship. For more information on that plan, click here. Hopefully, you’ve decided that this is not the best plan for you and your family and have decided it’s time to set up something more appropriate for your situation.
2. Last Will and Testament
That brings us to the second type of estate plan, the Last Will and Testament. This document does not do anything until you pass away. At that time, your family or someone else you have designated files your original Will with the Clerk of Court. That person, often with the help of an estate administration attorney, opens up a legal action called probate and goes through the process of administering your estate. For more information on that process, check out our Living Will blog.
That process is often complicated, time-consuming, and expensive. The person appointed as the Executor of your estate is bound by law to track every penny that you had at the time of your death until it is all properly dispersed to your heirs or beneficiaries. The clerk of court charges $4 per $1,000 of all assets passing through your probate administration. Thankfully, your Last Will and Testament only deals with things that do not have a pay-on-death beneficiary established.
When we decide to do a plan centered around a Will, we also want to set up beneficiaries for most of our accounts so that our heirs or beneficiaries can simply provide a death certificate to the bank or financial institution to have those accounts moved over to them. This prevents the assets from going through probate, so the clerk does not charge their fees, it is not required to be tracked, and no public record is created of what you had and who inherited what. However, those designations do not afford any protection to our heirs.
3. Trust Planning
To avoid probate and also provide protection for our heirs and beneficiaries, we usually look at Revocable Living Trusts (or some other type of Trust if the situation requires). Trusts are just contracts. For a Revocable Living Trust, it is a contract between you as the Grantor (the person who is creating the Trust), you as the Trustee (the person who is managing the Trust), and you as the beneficiary (the person benefitting from the Trust).
I can write up and sign a contract between me and myself that says I am going to eat healthily and exercise, but when I violate that contract tomorrow, I can’t sue myself. The Revocable Living Trust can be modified, changed, and even revoked during the Grantor(s)’ lifetime. However, if something should happen, the Trust lays out who will step in as a successor Trustee and who are the beneficiaries once the grantor(s) are gone.
Because the Trust is a contract, it is private and not overseen by the court system. It also creates a slew of protections for the heirs. This means that assets in Trust do not need to go through the probate process and also can be safeguarded against various potential situations. We’ve already discussed above how the probate process can be time-consuming, expensive, and destroy privacy. Let’s turn to asset protection.