An estate plan makes sure your wishes are followed and your loved ones are cared for. Here's what you need to know.
When you think of estate planning, you might be thinking to yourself, “I need an estate first!” But estate planning isn’t just for the rich and famous. (Point of fact: many famous people neglect to make a plan! See Prince).
An estate plan is all about making sure that if something happens to you, your family knows what to do. It’s not about how much money you have, or how many assets you own. It’s about planning ahead, so your family can grieve in peace knowing that they are carrying out your wishes.
If you die without an estate plan, the state will kick off an often lengthy and expensive process of deciding who gets what--your spouse, children, other relatives--with no regard to any wishes you may have had. So if you meant to leave your original iPod to your cousin, without creating a specific legal document with those instructions, your cousin has no right to the iPod.
You can see where we’re going here: estate planning is important and it’s better to make your own legally enforceable plan.
And if you're wondering when you should start estate planning, there is no one correct answer, but it's always best to plan ahead and often worthwhile to start sooner rather than later.
So now that we know estate planning is for everyone, what’s in an estate plan? A basic estate plan includes four key documents:
A will is a legal document that details who gets your assets after you die, who will manage your estate, and (if you have them) who will take care of your kids.
Sometimes called a last will and testament, a will is the most basic document of your estate plan. Everyone should have a will. A will is like an instruction manual for your family and the courts to follow after you die.
With a will, you get to write your legacy. You can do things like: Give certain assets to family members or anyone else, and can specify who gets what.
There are a couple of other important points to keep in mind about a will:
Despite the limitations of a will, it is the most important document for declaring your wishes in a legally valid document. And for people without a large or complicated estate, a simple will may be all you need for an estate plan.
Every state has its own laws for making a will, so it’s important to get legal advice specific to the state where you will execute your will.
But there are a couple of common requirements:
These are just the bare bones basics. There are other requirements and exceptions that vary by state. An attorney can help you navigate the nuances of your particular state and needs.
(Some people create handwritten or holographic wills, but there are limitations to this approach).
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A trust is a legal agreement designed to ensure a person’s assets go to specific beneficiaries. This sounds like a will, right?
Here’s the difference.
A will determines how your estate is distributed. Your estate consists of assets still in your name, and must go through the probate process.
When you create a trust, the assets you put into the trust are no longer part of your estate. Your assets are put in the name of the trust and you authorize a third-party to administer those assets for the benefit of the creator of the trust (you) and the beneficiaries named in the trust. As a result, the assets belong to the trust and are generally not subject to the probate process.
A trust is not just for rich people. It can give you significant flexibility on how your assets are distributed.
You can, for example, decide that your children will begin receiving distributions from your trust assets at 30 years old rather than when you die. And those distributions remain private, unlike in the case of a will that must go through probate and becomes a public record.
There are many types of trusts, but these two are most common.
Living trusts are also known as revocable trusts. This type of trust allows you to retain control over the terms of the trust as long as you are physically and mentally able to do so.
You can change the beneficiaries and assets in the trust, and can name yourself as a trustee. Typically, you would name a co-trustee or successor trustee, who can administer the trust once you die or are no longer able to manage the trust.
An irrevocable trust is just what it sounds like--you can’t change your mind. The terms of the trust, the beneficiaries, and the assets placed in the trust are all permanent. Why would anyone make an irrevocable trust? It might help you reduce your estate taxes.
You can also make many other types of trusts, including an education trust which requires the beneficiaries to use the money for educational expenses, a charitable trust which is an irrevocable trust that gives your assets to one or more charities, and others.
Nearly everyone would benefit from having a will. If you have no assets to pass on, then you don’t need a will. But if you have any assets to pass on, you can save your loved ones a large headache by writing down your wishes in a will. There are many options for getting this done, from a basic online will to more tailored solutions depending on what best fits your needs.
A trust can also be helpful because it is a better way to control how your assets are distributed. Assets placed into a trust are generally not subject to probate, so your assets will be distributed per the terms of your trust. By avoiding probate, you minimize the chance of your assets going to the wrong beneficiary (either as a result of someone challenging your will or the probate court finding the terms of your will too vague to enforce).
A will and trust can also go together. A will can be used to cover everything in your estate with a trust covering a more narrow set of assets where you want maximum protection and flexibility on how they are distributed.
Probate is the legal process of distributing the assets in an estate. If you have a will, the probate court will verify that the will is legal and that the deceased’s intentions are carried out. If you do not have a will, the probate court will decide how to distribute your assets according to state laws.
It’s a complicated process, but in its simplest form you can view it as four phases:
Probate for a small estate can take a matter of weeks or months, but for larger estates it can take years. Your will acts as a guide for the probate process, which can make things go more smoothly. Your executor and the court will know how your estate should be handled. But anyone with a valid claim to an asset in your estate can contest the will or intervene during probate, dragging the process out.
An estate planning lawyer can help create a plan that allows certain assets to avoid probate, and thereby avoiding the time and costs involved.
Estate planning attorneys typically charge anywhere from $300 to $1,000 to create a will. That’s a wide range, and it’s because the cost can vary greatly depending on your location and the complexity of your estate. For example, a lawyer in New York City is likely to charge a higher price than a lawyer in a small rural town, and a complex estate will take more time to account for in a will.
A trust is a more complicated document, and the cost not surprisingly is typically higher. Expect to pay at least $1,000 for an estate planning attorney to create a trust for you. But again, the cost can vary widely depending on your location and the complexity of your estate.
Another cheaper option is to use one of the many do-it-yourself online will and trust products. Some of these are just template documents you can buy, while others like Policygenius, Trust & Will, and Willing take you through a more guided process. Prices among these providers can also vary. You can buy a template from Office Depot for $19, while the more guided providers charge from $89 for a single will and from $399 for a simple trust.
Similar considerations apply if you are considering the cost to update your will, which often makes sense if your family or financial circumstances have changed since you first made a will.
Here’s where we come out on this: having any plan for your estate is better than no plan so, if hiring a lawyer is not in your budget, we recommend using a do-it-yourself online solution. Trust & Will, Willing, and Policygenius are all good options.
But if you are able to hire a lawyer, we recommend you do so. And that’s not because the do-it-yourself forms are bad. In fact, here’s a little secret: many estate planning lawyers use template forms themselves. But you’re not paying for the form, you’re paying for the legal advice from a trained expert, and the ability to ask questions and strategize for your particular situation. Do-it-yourself solutions can’t provide that service. In fact, it’s against the law for anyone other than a lawyer to give legal advice (it’s called the “unauthorized practice of law’).
So like anything in life, there’s tradeoffs. If you’re someone who wants to ask questions, has a complicated estate, or even just wants peace of mind that a trained expert is caring for your estate, hiring a lawyer is your best bet. If you just want to get something in place quickly and cheaply (which is better than no plan at all!), then a do-it-yourself solution might be right for you.
Estate attorneys are experts in preparing the legal architecture of your estate, including wills, trusts, the probate process, and taxes. An estate planning attorney can also be called an estate attorney, an estate lawyer, or an estate planning lawyer. The attorney you hire is someone you will be trusting to make sure your estate is handled properly and your family is taken care of according to your wishes.
Finding an estate planning attorney is hard if you don’t know what to look for. Experts recommend that you:
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Get started, and we’ll search far and wide for attorneys who want to help, provide estimated pricing, and make it easy for you to compare options. With all the information you need at your fingertips, you can choose who to contact and seamlessly schedule a phone or video meeting. It’s quick, it’s easy, and you’ll have peace of mind that you’re making the right choice.