What is estate planning?

Estate planning is the creation of a definite plan for managing your wealth while you’re alive and distributing it after your death.  When we talk about an estate, we mean all assets of any value that you own, including real property, business interests, investments, insurance proceeds, personal property and even your personal effects.

These assets may be owned by you individually or jointly with others.  Below are some examples of how married couples commonly hold title to property:

  • Tenants-in-Common:  Undivided one-half interest owned by each spouse.
  • Solely-Owned Property:  Entire interest owned by one of the spouses.  Property was generally acquired prior to marriage or was a gift or inheritance to one spouse alone after the marriage.
  • Joint Tenancy:  Individual interest owned by any two or more people in which the survivor acquires the entire interest upon the death of the other joint tenant(s).

What evils are we trying to avoid?

All of us face three principal obstacles in planning our estates:

  • Living Probate (The expensive court proceeding to manage your estate if you are disabled)
  • Death Probate (The expensive court proceeding to manage and distribute your estate at death)
  • Death Taxes (The taxes the governments demand on your death on wealth accumulation exceeding the applicable Federal and State Exemption amounts)

What are your estate planning options?

There are four basic methods you can use to plan your estate:

What happens if you do nothing?

Believe it or not, a majority of Americans choose to do nothing.  Experts report that 70% of all Americans have no written estate plan.  Of those who have planned, most have created a simple will or rely on joint tenancy ownership of their assets to distribute their estates.  Unfortunately, for the majority who have no plan in place, state law will dictate how their estate is to be distributed at death.  As you might imagine, the government’s plan of distribution has no particular relationship to your wishes or the best interests of your family.

Without argument, doing nothing can result in probate costs, unnecessary attorney’s fees and, of course, higher death taxes.  What most people don’t realize is that there can also be major problems caused by creating a simple will or holding title to your assets in joint tenancy.

This Living Trust information will walk you through a discussion of each of the estate planning evils and explain what happens if you plan with joint tenancy and/or a simple will.  We will then explain the benefits of a living trust.

What is Joint Tenancy and why do so many people use it?

Joint tenancy ownership occurs when two or more people hold title to an asset together.  Unlike other forms of joint ownership, upon the death of one of the owners, the entire interest passes by operation of law to the surviving joint tenants.  The full name for joint tenancy is Joint Tenancy With Right of Survivorship (JTWROS).  Right of survivorship means that whoever dies last owns the whole property.

Because a joint tenant’s interest passes by law to the surviving joint tenants immediately at death, it is not controlled by the owner’s will.  For example, let’s say two good friends, Bob and John, owned a piece of property as joint tenants.  Bob dies and his will says that upon his death all of his estate should go to his wife, Mary.  What happens to his interest in the real property he owns with John?  Because the title passes automatically at death to the surviving joint tenant, John will own the entire property and Mary will get nothing.  This is only one of the unforeseen problems that joint tenancy ownership can create.

Is creating a Will a good idea?

Many people plan their estates by creating a document called a Last Will and Testament.  A will is essentially a legal document that dictates how you want your assets distributed at death.  As we’ve already learned, a will doesn’t control the distribution of all your assets.  Joint tenancy property and life insurance proceeds both pass outside your will.  (Life insurance proceeds pass by law to the named beneficiary on the life insurance contract.)  Wills don’t take effect until you die, so they are no help with lifetime planning.  Upon your death, your will becomes a public document when it is filed with the probate court and is available to anyone who wants to read it.  Once your will enters the probate process, your estate is no longer controlled by your family.  It’s in the hands of the court and the probate attorneys.  Because a simple will guarantees that your estate will go through probate, it’s a very poor estate planning document for most families.

Why do so many estate planning professionals recommend a Living Trust?

Revocable Living Trust is a complete will substitute.  It can control all of your assets both during your life and after your death.  Here’s how it works: When you set up your living trust, you transfer the title of all your major assets (stocks, bonds, real estate, etc.) from your name to the name of the trust.  You then name yourself as the trustee and beneficiary.  That gives you, and you alone, total and complete control of all your assets.  You can buy, sell, trade, do whatever you want – just like you do now.

Here’s the difference, and the true benefit of a Living Trust.  When you die, there will be no assets left in your name, and therefore, no probate for your family to endure.  Whomever you name as your successor trustee will immediately gain control of your assets and will distribute them according to your exact instructions as set forth in the trust document.