Why estate planning is important
Choose the Four “Ps” of good estate planning: protection, probate avoidance, privacy and peace of mind.
Proper estate planning is vital — not only for you, but also for your family. There are many misconceptions about estate planning that can cause major problems or cost your family their fortune. Many believe that saving on federal estate taxes is the main reason for planning, but family estate planning is so much more than avoiding taxes alone. Let us take a look at some of the biggest contributors to loss of assets and family frustrations that result from improper estate planning.
Probate – In most cases, probate is required to pass title and ownership of a deceased person’s property to his or her heirs. If you have a will, you’ll go through probate. It can be a time consuming process, from nine to 24 months. It can also be extremely costly, usually between 4 percent to 10 percent of the value of your estate, which can be even more devastating to smaller estates.
Probate proceedings are also public record, and anyone may find out about your private affairs. If you value your privacy and want to keep your hard earned assets, you will avoid probate. The good news is that, by setting up a well-written, fully funded Revocable Living Trust, you can avoid the unnecessary time and expenses of probate.
Joint tenancy is a way to own assets with someone else, usually a spouse or child. While owning assets such as a home or bank account in joint tenancy may seem advantageous, the tax and legal problems that may arise can be mind-boggling. The perils of joint tenancy can include:
• Joint tenancy only delays probate, it does not avoid it.
• Capital gains are not avoided.
• Joint tenancy is subject to court judgments or creditors.
• You can receive unintentional gift taxes that you do not even know about.
• Possibility of control issues with the co-owner.
• Accidental disinheriting.
There are many planning options that are far safer than owning property in joint tenancy – one of those ways is with a good living trust.
State Estate Tax – Many states have a lower estate tax than the federal estate tax. That is why it is important for you to have a proper living trust. The advantages of a living trust is an effective way to avoid many pitfalls of improper estate planning. A living trust avoids probate, preserves your privacy, eliminates challengers to the estate, establishes conservators, minimizes estate taxes, takes care of minor disabled children and allows you to be in continuous control or management of your assets.
In summary, choose the four “Ps” for good estate planning: protection, probate avoidance, privacy and peace of mind.