Estate planning is the systematic approach to getting your personal and financial affairs should you become mentally incapacitated or die. The basic legal document necessary to plan for death is a Last Will and Testament, which contains a written set of instructions to your loved ones as to how you want your estate to be distributed after your death.
If You Die Before You Make a Will and Estate Plan
All states have a legal process for determining who will inherit the property of a person who fails to make a valid will through each state's intestacy laws.
What does it mean to have died intestate? It simply means that a person has died without having made a valid last will. If this is the case, then the intestacy laws of the state where the person lived and owned real estate at the time of their death will determine who will inherit their property. While each state has different laws, they all follow the same general pattern. First, your spouse and your children will inherit your possessions. If you don’t have a spouse or any children, then your parents will inherit your property. Should your parents have predeceased you, then your brothers and sisters will inherit your property. If these scenarios don't apply, then your property will go to your nieces and nephews.
The Components of a Last Will and Testament
A Last Will and Testament generally consist of four parts:
- Part one deals with how your final bills will be paid.
- Part two deals with how the cost of settling your estate and any estate taxes or inheritance taxes will be paid.
- Part three deals with who will be in charge of overseeing the settling of your estate (the Personal Representative/Executor) and what powers they will have. If you have minor children, the document will describe who will be responsible for raising the children—the Guardian/Conservator.
- Part four deals with who will get the balance of your estate, how they'll get it, and when they'll get it.
The Drawback of Having All Property Pass Under the Terms of a Will
While a Last Will and Testament is an important part of any estate plan, there's one main drawback to having all of your property pass under the terms of your will. The drawback is that your possessions must go through probate before your loved ones can have access to it. Probate can take anywhere from six to nine months to over several years, which means that your family will have limited rights, and often, access to your assets is not available until probate is completed.
Such situations are where a revocable living trust comes into play. This document is a written legal agreement that sets forth how your property will be managed while you're alive and then after you die. The part that deals with how your property will be managed while you're alive will contain your mental disability plan. The part that deals with how your property will be managed after your death will contain the same terms that would have been written in your Last Will and Testament had you decided not to set up a revocable living trust.
How Does a Revocable Living Trust Avoid Probate?
So, how does a revocable living trust avoid probate? If your assets are funded into the trust during your lifetime, they won't need to be probated after your death. How do you fund your assets into the trust?
For banking accounts and real estate holdings, your name will be taken off of the asset. The name of your trust will be inserted in its place. For other assets, such as life insurance and retirement accounts, the trust will be named as a beneficiary of the asset.
Once the trust is fully funded, you'll no longer own your assets—your trust will, and property that's owned by a revocable living trust doesn't need to be probated after your death. Instead, the trust property can pass immediately and directly to your loved ones.
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