Angela discusses the importance of estate planning, particularly focusing on the differences between will-based and trust-based plans. She emphasizes the significance of having a well-organized estate plan to ensure that your assets are distributed according to your wishes and to avoid complications for your family after you're gone. The episode aims to demystify the concept of trusts and help listeners understand whether a trust-based plan is necessary for their specific situation.
Key Takeaways 💡
- Estate planning is crucial because without a proper plan, settling an estate can take months or even years due to difficulties in locating and retitling assets. Companies often have strict requirements for retitling assets, such as medallion guarantee stamps, which can be challenging to obtain. Many people mistakenly believe that having a will is sufficient, but this may not always be the case, highlighting the need for a more comprehensive estate plan.
- Overcomplicating estate planning can occur in two ways: either by becoming overly dedicated and trying to do too much at once, or by doing nothing and assuming everything will work out. Doing nothing can lead to more complications than having a plan in place. It's important to find a balance and take appropriate steps to ensure your estate is in order.
- A will acts like a vacuum cleaner, picking up the remaining pieces of your estate after contract property (assets with specific titling or beneficiary designations) has been distributed. Contract property, such as IRAs or bank accounts with payable on death designations, supersedes the terms of your will. It is important to understand that titling and beneficiary designations take precedence over what your will states.
- Assets passing through a will need to be itemized, found, listed, and valued, then go through probate, which can range from simple and quick to cumbersome, lengthy, and expensive. Many people underestimate the complexity of their estate, assuming it's simple because they consider themselves to be simple people with not a lot of assets. However, in reality, most Americans have more complex estates than they realize.
- To understand the complexity of your estate, create a list of everything you own, including cash, personal possessions, bank accounts, CDs, investment accounts, credit cards, online accounts, annuities, life insurance policies, precious metals, businesses, properties, and safety deposit boxes. For each item, determine its value and how it is titled, as well as what would happen to it upon your death. This exercise will give you a taste of the homework your executor will have to do.
- Probate involves working with an attorney, potentially going to court, paying creditors, closing accounts, and retitling assets, first to the estate and then to the beneficiaries. Some states are not friendly to probate, charging hefty fees to the estate. Probate can often be avoided by ensuring your contract property is set up correctly with appropriate beneficiary designations and payable on death designations.
- A living trust, when used correctly, can alleviate heartache for a grieving family by avoiding probate. With a trust-based plan, the living trust becomes your will, and a pour-over will ensures any forgotten assets are included in the trust. Assets titled in the name of the living trust or with designations to go to the trust avoid probate, making the process of finding assets, documents, and retitling much simpler.
- The downside of a living trust is that people often fail to retitle assets into the trust or continue to purchase assets without titling them to the trust, negating the benefits. A good trust document should make purchasing or financing items seamless for the trust. A living trust does not change your taxes, asset protection, or privacy. While setting up a trust can be expensive, it is often less expensive to administer than probating a will-based estate.
