Estate planning usually carries a stigma with it. Many of us believe that it’s the domain of either the very elderly, or the very rich (or both). However, estate planning is an important consideration for everyone–especially those of us who have people who love, care, and depend on us. None of us like to think about the sobering eventuality of death. But proper planning is a way to keep your loved ones from suffering under the financial stresses that can stack up when a loved one dies. Funeral costs are higher than ever, and issues with taxes, trusts, and life insurance can get confusing. Proper estate planning makes sure that your money goes where you want it to go, that the things and people you care about are taken care of, and that the burden of closing up your affairs and planning your funeral is as simple for your loved ones as possible.
While a legal will will help direct your affairs in the event of your death, there are more considerations to include in estate planning to make it as seamless as possible. Estate planning can also include trusts, medical directives, child guardianship, and 401(k)/IRA beneficiaries. The purpose of an estate plan is to:
- Ensure that your possessions and money go where you want them to go
- Name someone to handle your business and affairs once you’re gone
- Make provisions for the guardianship of your children when you’re gone
- Make a plan for who’ll make medical or financial decisions if you become unable to do so
- Make provisions so that the financial burden on your family will be minimal after your death
It should also include all needed documentation and instructions if you have specific wishes for your funeral and burial. For example, if you’re to be given military honors, if you want to be cremated, or if you’re part of a certain group or society that takes care of things after you die, all certifications and forms should be gathered into one place and put in order.
Sometimes a will is enough to cover everything that you want. Other times, it will be smart to include trusts, power of attorney documents, and other pertaining considerations.
- All physical assets (i.e. car, computer, furniture, collectibles, jewelry, family heirlooms, etc.)
- All financial assets (i.e. equity in a business, real estate, insurance policy)
- All digital assets (i.e. passwords, music accounts, web accounts)
- All debts (i.e. credit card, mortgage, payment plans, medical expenses)
Yes, you can. Any adult of sound mind can write their own will. The only requirements are that it must be dated and signed, and that there must be two witnesses who also sign, verifying that they saw you sign the will on the posted date.
However, a will that isn’t exacting about legal details can be manipulated and stalled in court. It can be misinterpreted and contested when you’re not around to clarify it. In order to make sure that your money is going where you want it to, and that you’re taking advantage of the best way to get it done, it’s smart to get the help of a professional. An improperly drawn up will can be even worse than no will at all, so it’s always safest to go to a professional for help to make sure it’s done right. We can help you see things that you didn’t notice yourself.
Consider this too: taxes and transfers of funds can be confusing to handle after the death of a loved one. Giving your heirs access to someone that you trust to professionally handle your affairs and make sure that all the loose ends are tied up and that things are managed to the best advantage might be the best gift you can give them.
We can also help you think of extra considerations that will ensure that the transition is smooth and as easy as possible for your bereaved loved ones. This might include letters for your beneficiaries, instructions on specific things like how to manage your house, instructions for where to find things, and even logins and passwords for your online accounts.
A living will includes medical directives for your family so that your wishes will be fulfilled if you’re incapacitated and unable to make your own choices. This includes Do Not Resuscitate orders, organ donor options, when life support may be withdrawn, etc. It only applies while you’re alive. When you die, it has no purpose. It cannot replace or stand in for a last will and testament.
Trusts are simply a type of relationship where one person gives something of value to someone to keep for the benefit of someone else. Attorneys often draft complex documents to outline the terms of the relationship but at its core it’s that simple.
The person who creates the trust has several names including grantor, settlor, trustor, or trustmaker. The person who holds the assets is called the trustee. The person who the assets are being held for is referred to as a beneficiary.
Once assets are given by the trustmaker to the trustee, the trustee has a responsibility to use the assets for the benefit of the beneficiary according to the terms of the agreement. If the trustee does not use the assets as agreed upon, he or she will be liable to the beneficiary.
Estate planning usually carries a stigma with it. Many of us believe that it’s the domain of either the very elderly, or the very rich (or both). However, estate planning is an important consideration for everyone–especially those of us who have people who love, care, and depend on us. None of us like to think about the sobering eventuality of death. But proper planning is a way to keep your loved ones from suffering under the financial stresses that can stack up when a loved one dies. Funeral costs are higher than ever, and issues with taxes, trusts, and life insurance can get confusing. Proper estate planning makes sure that your money goes where you want it to go, that the things and people you care about are taken care of, and that the burden of closing up your affairs and planning your funeral is as simple for your loved ones as possible.
Fortunately, estate tax only affects the very rich. Currently under U.S. tax law, each person can transfer up to $5.43 million during their lifetime to persons other than his or her spouse without having to pay any federal estate tax. Additionally, a person can generally transfer an unlimited amount to his or her spouse during their lifetime. Because these limits are so high, estate tax affects a very small percentage of the population. If, however, estate tax applies, the tax is paid by the estate of the deceased.
Proper estate planning is a must if you have an estate worth more than $5 million. There are many ways to decrease or eliminate what would otherwise be estate tax liability if advance planning takes place.
Some states have estate tax which becomes effective at dollar amounts below the $5.43 million. Utah is not one states.
In Utah, if a person dies owning any real estate or assets valued in excess of $100,000 the estate must be probated in the probate court. If a life insurance policy has the estate or no one listed as a beneficiary, the death benefit will be paid to the estate and will count towards the $100,000 amount. In order to avoid probate a person with any significant life insurance should have the death benefit paid out to a family member or a trust. Wills do nothing to avoid probate. They can simply instruct the executor, appointed by the probate court, where to distribute the life insurance proceeds during the probate process.
Charitable contributions can play a big role in estate planning. There are many different types of trusts and planning techniques that can be used for all different types of charitable purposes. Many of these seek techniques seek to accelerate charitable income tax deductions, decrease the amount of an estate subject to estate tax, and provide family learning opportunities while still providing funds and other assistance for important charitable causes.
Ideally, everyone over the age of 18 should have an estate plan. However, there are some groups of people who need an estate plan more than others. These include parents of minor children, parents of special needs children, elderly, business owners, and high net worth individuals.
For most people estate tax is not an issue. Generally, the estate worth less than $5.43 million is only dealing with income tax for the final year of the deceased’s life and the income tax return for the estate itself.
Larger estates are much more complicated and should be addressed by a professional. Estate, gift, generation-skipping-tax, and income tax issues are often abundant with larger estates and errors can cost the beneficiaries significant amounts of money.
Similar to people, pets can be cared for by setting up a trust for the pet’s benefit. Utah Trust Code Section 75-2-1001 allows the creation of trusts for pets. Some of the issues addressed in the trust are living conditions, care, and veterinarian costs.
When an owner dies the plan simply contacts the person designated as a beneficiary. If there is no designated beneficiary the funds go to the estate. It is important to list an individual or a trust specifically designed to accept IRA/401(k) proceeds as the beneficiary. The reason for this is because IRAs and 401(k)s are tax advantage accounts that allow the funds to only be taxed when made to the plan as a contribution (Roth) or when the funds are withdrawn from the account. If no beneficiary is listed for the plan the estate will receive it and must withdraw all funds over a 5-year period, which can significantly limit the tax benefit. If a spouse is listed as a beneficiary, he or she can simply roll over the proceeds into his or her own IRA account and not be taxed until later down the road. If a child is listed as the beneficiary, the child can roll over the funds into an inherited IRA account and stretch out the period that funds need to be withdrawn over a period of his or her expected lifetime.
If a trust is listed as a beneficiary of an IRA or 401(k) it needs to be carefully drafted or it will be subject to the 5-year distribution requirement similar to an estate.
There are many types of trust for many different purposes. Some of the more common types of trust include a Revocable Living Trust used to avoid probate plan for incapacity, a Special Needs Trust used to maintain government needs-based benefits, Asset Protection Trust used to prevent creditors from obtaining assets, and Life Insurance Trusts which are used to plan for estate taxes.
In Utah, most estate plans use a Revocable Living Trust to avoid probate and plan for incapacity. Without one, many people have to go through the probate court system to retitle and take contract of the deceased loved one’s property.