When you hear the term “estate planning” you may think of extravagant wealth or large mansions. The truth is that estate planning is actually a very practical way to plan for the future, and is not reserved for the ultra-wealthy. Inevitably we all must consider what we will leave behind in the event of our passing. To plan your estate is simply to establish what you have, what it’s worth, and what happens to it in the event of your death or incapacitation.
Assets can be tangible or intangible, ranging from real estate, vehicles, and collectables to savings accounts, insurance policies, and stocks. Once you evaluate your assets and have an idea of their value, it’s time to decide how to protect them.
When it comes to protecting assets, many choose to utilize trusts. A trust offers protection from probate, a process which can be costly, and gift or estate taxes. Trusts also keep your assets private and allow for specific and conditional distribution. They are especially ideal for those with children or other dependents who have more complicated financial needs. This arrangement allows assets to be held in a legally binding arrangement with a third party known as the trustee. The trustee can be an individual or a firm and is the party solely responsible for executing the directives of the trust.
There are several different types of trusts available but if you are establishing a trust within your lifetime it will be considered a Living Trust. An Irrevocable Living Trust removes entirely you as an owner of your assets for the rest of your lifetime. This option is usually chosen by those who want to protect their assets from seizure or property taxes. If lawsuits or creditors are a concern, this may be a good option, but most people choose the Revocable Living Trust. Your assets will be protected but won’t be off limits entirely. You still have access to everything and can make adjustments to the trust for the remainder of your lifetime.
In some cases, having a trust is not necessary but you can still plan ahead and make appropriate arrangements if you choose not to use a trust. A living will can provide medical direction in the event you are unable to make your wishes known. Assets named in a will could be held up in probate but if the value is under a certain amount that may not be a concern.
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