What is Estate Planning?

Estate planning, in a nutshell, means “putting your financial affairs in order before you die.” But, of course, you don’t have to be rich to do that. Even people of modest means can spare their loved ones serious distress by creating an estate plan and wills to dictate what happens to their property after they die.

What Makes Up Your Estate?

Your “estate” is everything you own – all your property and property rights, even assets with loans against them. Loans don’t die when you die. How your property is managed and distributed after your death depends on whether you die “testate,” meaning with a valid will, or “intestate” without a will. That is why it is important to think carefully about this. You don’t need to wait until you get sick or injured.

When You Die With A Will

Leaving a will ensures that your wishes are carried out, if possible, and your property is distributed in the way you choose. It can also make probate of your estate much easier.

Probate is the legal process by which ownership of your property is transferred to living beneficiaries. The court also uses the probate process to establish the validity of a will when the deceased left one.

You will designate an executor in your will. The executor is someone who will manage your estate through the probate process and see to it that your wishes are carried out.

A Will vs. No Will

Dying intestate “without a will” doesn’t mean that your loved ones will avoid a court proceeding or that they will get nothing. Intestate estates still require an application to the court to determine who gets what and in what measure because you didn’t outline your wishes in a will. The hierarchy, in most cases, places surviving spouses first in line, followed by your children, then parents, siblings, and finally, more distant relatives. This is even more important if you wish to leave some property to someone who is not your relative.

Intestate Probate Administration

Intestate administration is often a lengthy, inefficient, and expensive proceeding because the administrator is usually required to seek permission from the court for each of these actions. The administrator will spend much time requesting court orders and attending hearings. An intestate administration can range from a couple of months to two years or more.

If you die without a Will, the steps for obtaining a grant of probate goes like this:

• Someone initiates a case in the Supreme Court;
• The court determines that there is no will and appoints an administrator rather than an executor, usually a family member or beneficiary;
• The administrator gathers the deceased’s assets, identifies the beneficiaries, and notifies the deceased’s creditors;
• The administrator liquidates estate assets to the extent necessary to pay the deceased’s debts, taxes, and the costs of estate administration, such as an attorney’s and accountant’s; and
• The administrator distributes the remaining proceeds and assets according to the intestate succession schedule set out in state statutes.

Untitled Assets

Some assets can pass directly to beneficiaries if there’s no need to officially pass title to the property. For example, personal property like furniture and jewellery usually won’t have documentation to establish ownership.

There may be no need to go to court if your estate is composed entirely of untitled assets unless your beneficiaries agree on how to distribute this property.

Assets That Pass Outside of Probate

Some assets will pass directly to your beneficiaries outside the probate process even if you do leave a will.

• If you’re married, your spouse will take sole ownership of at least their share of your joint property.
• Some assets transfer automatically because they’re contractual in nature—you designate a beneficiary who will take ownership when you die. They include life insurance proceeds, annuities with death benefits, and many retirement accounts.
• Some bank accounts often have “payable on death” provisions that allow you to designate a successor; some cease to be operational after you die.

In each case, there’s no need for the intervention of a probate court because the account already has a legal means by which to transfer to your beneficiary or successor.

The Role of Trusts in Estate Planning

A trust is an entity or an agreement that allows you, as the grantor or donor, to transfer property to someone known as the trustee for the benefit of a third party, called the beneficiary.

Trusts are often used in estate planning to take advantage of favourable tax treatment, to place conditions on the use or distribution of assets, or to allow the heirs to take possession of assets without a probate proceeding.

The trustee holds the assets in a fiduciary capacity. Therefore, they have a high responsibility to see that the assets are preserved for the beneficiaries.

A living trust is created during your lifetime and provides a way for you to preserve and retain control over your assets even if you should become incapacitated. It can alleviate the need for guardianship or conservatorship if you’re unable to make decisions on your own.

A testamentary trust is one that is formed according to terms contained in your will. It doesn’t exist until you die. Your executor would then create the trust, transferring some or all of your property into it.

Revocable vs. Irrevocable Living Trusts

Living trusts are either revocable or irrevocable.

You can name yourself as the trustee of a revocable trust, retaining control over the assets you transfer into it during your lifetime. This type of trust can provide a lot of flexibility during your lifetime, including the ability to revoke or dissolve the trust as your needs change. In addition, you can provide for a successor trustee to take over upon your incapacity or death.

Irrevocable trusts can’t be changed once assets have been transferred into them. They can’t be revoked or undone—the transfer of assets is permanent. But irrevocable trusts generally allow for the best estate tax consequences depending on the purpose for creation.

A revocable trust will become irrevocable upon your death because you can no longer amend or revoke it.

Trusts for Specific Purposes

There are many types of trusts, and state law will determine which are recognised in your state. Trusts are also subject to some federal or state laws, particularly with regard to how they’re treated for estate tax purposes. Taxes can be assessed if the property exceeds a particular minimum value. So, you should seek advice from a tax accountant or financial planner who deals with the area.

Wills and trusts can be used to accomplish many goals and can be as flexible as your needs and wishes would require. However, ensuring that those needs and wishes are carried out requires careful planning in choosing the best trusts or the best provisions for your will.

Contact ABMS Lawyers for a confidential chat on (08) 9468 3297 or email us at office@abmslayers.com.au to get more information about your situation.