Let’s first look at what happens after your death. While we’re not discussing spirituality and the afterlife. We’re talking estate planning, that’s the administrative aspects of it. Before we start it is important to know that nothing in this article is legal advice. Always consult an experienced lawyer about the particulars of your situation.
The way in which the legal system manages your estate when you die is called probate. Your estate might be simple … but your estate may be complicated. No matter what the courts must give their approval on the method of distribution of your assets. You are more in control of the process than you believe.
THE ORDER OF THINGS AFTER YOU DIE
From an administrative perspective In an administrative sense, here are the steps you must take to manage your estate:
1. Estate administration. The primary stage in the probate process is to declare an estate and designate the executor or administrator and personal representative.
a. This person’s job is to collect the estate of the deceased as well as pay any debts and expenses, and then distribute any remaining assets to survivors or beneficiaries.
2. In the event of an estate sale, the executor is required to make an inventory of deceased’s assets and calculate their value. This encompasses all probate assets like personal property, real estate and bank accounts.
3. Paying off debts: The executor is required to pay any debts or expenses that the estate owes, like funeral expenses, outstanding bills as well as any taxes due.
4. The distribution of the assets When the executor has paid off all estate expenses and debts and expenses, they have to transfer the remainder of assets to the beneficiaries or the heirs. They do this in accordance with the provisions of the will of the deceased or will, if there is one or in accordance with rules of succession in case there isn’t a will.
A. Intestacy laws are different from state to state. In these situations, the courts attempt to determine the heirs who should inherit all the assets of an estate. You can avoid this procedure by writing a will and/or listing the beneficiaries on your financial accounts.
5. Closing of the estate When the executor distributes the assets to beneficiaries, they need to complete a final accounting as well as close the estate. Probate can take between a few months and several years, based on the size of the estate as well as any disputes that could arise.
WHAT IS PROBATE?
Probate is a legal procedure that is carried out following the death of a person. The intention behind probate is to confirm the deceased’s last will and testament (if there is one) and to disperse the assets of the deceased person to chosen beneficiaries or the heirs. Probate can be an expensive and lengthy process. It’s also an issue of public record.
Certain estate planning lawyers have stated that people do not have to strive to stay clear of probate in every situation. It’s best to speak with your trusted and knowledgeable experts about the best option for your particular situation.
WHAT CAN AVOID PROBATE?
Non-probate assets are those which do not undergo the probate procedure and instead are handed over directly to the chosen beneficiaries or the heirs.
Some examples of assets that are not probate are Life insurance, retirement funds that have transfers-on-death (TOD) designations, and bank accounts that have payable-on-death (POD) designations.
They are not subject to probate since beneficiaries or the heir has been named the beneficiary, and the assets will pass directly to the individual when the owner dies.
Assets that are transferred to a trust aren’t subject to probate. The trust distributes the assets according to the directions of the trust instead of being monitored and approved by these courts.
WHAT HAPPENS WHEN THERE ARE NO LISTED BENEFICIARIES?
If there is no beneficiary designation for a retirement account or another kind of account, the assets of the account will usually be part of the estate of account owner and at risk of probate. If there is no designated beneficiary, the assets in the account are distributed according to the provisions of the will of the account owner. If there’s no will, the account assets will be distributed in accordance with the laws of intestacy in the state where the account owner was a resident.
The typical asset flow follows the following pattern:
Spouse – Children – Parents – Estate
4 COMMON BENEFICIARY DESIGNATION MISTAKES
There are occasions where your plans and/or situation change during your life. This is a good time to examine your estate plan, which includes beneficiary designations.
Since these designations work outside the probate procedure, it’s important to make sure you’re not making these mistakes common to all:
1. Information that is out of date: You could have named a beneficiary many years ago, however that person could have shifted from you, died or become incapacitated. They may also have changed their contact details in the time since.
2. A wrong beneficiary name The beneficiary’s name may be misspelled the beneficiary’s name, or used an incorrect name (e.g. or the maiden name) that makes hard or difficult to find the beneficiary who you want to.
3. No changes since split or divorce: you could have designated your spouse as the beneficiary, and then you separated or divorced. Whatever your last will and testament states that the assets will go to the spouse who you divorced unless you change beneficiaries’ names.
4. There is no secondary (aka contingent) beneficiary: You could have named only one beneficiary. If the beneficiary is not able or unwilling to take the assets, they can transfer to your estate and be susceptible to the probate process. This could be in conflict with your intent.
HOW DO I SET UP MY BENEFICIARY DESIGNATIONS WITH MINOR CHILDREN?
The inclusion of minors directly as beneficiaries can lead to problems. This is due to the fact that, once they attain the age of reaching the age of majority in their respective state, they are entitled to the assets in their own name. A few people who have minors as beneficiaries are aware that a sudden windfall at age of either 18 or 21 could lead to irresponsible decisions for young people.
If you are considering any minor children who are beneficiaries, take note of these steps:
1. Select the guardian. The first step to set a beneficiary designation to a child who is minor is to select the guardian. The person chosen will be accountable for the child’s care in the event that both parents died prior to the child reaching the age of the majority. This person will typically be named in a will and testament.
2. Establish either a living trust or testamentary trust. To ensure that the assets are well-managed and used to benefit of the child, it might be beneficial to establish an trust. The trust structure can be designed to meet the children’s needs until an appropriate age or have reached certain milestones.
a. A trustee is the one who is financially accountable in the role of a fiduciary in the name of the beneficiary, i.e. children under the age of. The trustee distributes the trust assets in accordance with the conditions of the trust. This person could differ from the guardian who is in charge of the child’s care.
3. Designate the trust as the trust’s beneficiary. After the trust is established the parents can designate that trust the beneficiaries of their estates. This ensures that the assets transfer straight to the trust at their death, instead of becoming subject to the probate process.
a. If the trust isn’t in existence until your death (aka an irrevocable trust) you should consult the estate planner of your choice about the language you should include in the beneficiary designations.
It’s crucial to keep in mind that the laws governing the administration of assets for minors could differ from state to state. It is recommended to consult an experienced legal professional who is aware of the laws that apply to the state you reside in to ensure that your plans are compliant.
TAX IMPLICATIONS OF BENEFICIARY DESIGNATIONS AND DISTRIBUTING ASSETS
When you are drafting an estate plan that is in sync with the beneficiary designations you have made You can take it further to determine “net amounts” that will be distributed while keeping tax implications keeping in your mind.
This chart provides a basic guideline on the possible tax consequences for beneficiary designations. It’s essential to develop your estate plan in conjunction with an expert to fully be aware of the specifics of your particular situation. There are many details to consider in this area.
ESTATE PLANNING GUIDANCE
An effective exercise we conduct with our clients is creating an expected flow of their assets in the event that they die. We usually determine if their wishes are in line with the scenario we have created. In the event that they are not, it may encourage them to revise their estate plans as well as their beneficiary designations.
To enhance your service as a full-service client you’re eligible for an policies for implementation. This is a credit up to $300 you are able to receive each year to help you implement a portion of your financial strategy, for example, obtaining an estate planning.
We are not estate planning lawyers We can help you under the guidance of estate planning lawyers to draft the documents you require. This could include:
Last Will and Testament
General powers of attorney
Health power of attorney
Living will
Advance directives
Living Trust
For more complicated cases and those who prefer working on a one-to-one basis with an attorney we’ll be glad to recommend professionals.
However, I would recommend that you schedule an appointment for an Estate Planning consultation. The time we spend together is to help you know the workings in your plan for estate planning as well as to determine if your goals are clearly stated in the documents you have prepared and the beneficiary designations.
