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Back to Basics: Estate Planning 101, Part II

A trust is an important estate plan document. Other estate planning documents include a last will and testament and intestate succession.

 

Every state has laws that determine who your heirs are and what proportion of the estate the heir is entitled to receive. Heir refers to blood relatives and are usually grouped according to closeness of relationship:  Children and spouse; siblings and parents; aunts, uncles, and cousins. Where there is no will or trust, the estate is deemed “intestate” and must be settled according to state probate law. Individuals who inherit property under a will or trust are referred to as beneficiaries. Persons can be named as beneficiaries on bank accounts, life insurance policies, financial portfolios, retirement accounts, and certain types of titled property such as real estate – they need not be heirs. Remember heirs can be beneficiaries, but beneficiaries are not always heirs.

 

To complete an estate plan, you should consider adding trust documents.

 

  •     Trusts: A trust permits a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. Since trusts usually avoid probate, your beneficiaries may gain access to these assets more quickly than they might to assets that are transferred using a will. Additionally, if it is an irrevocable trust, it may not be considered part of the taxable estate, so fewer taxes may be due upon your death. Assets in a trust may also be able to pass outside of probate, saving time, court fees, and potentially reducing estate taxes as well.

 

Trusts are classified as either express or implied:

  • An express trust is created when a person has the intent to create a trust and complies with the requisite formalities to create a trust.

 

  • An implied trust is created by conduct, regardless of whether there was intent to create a trust.

 

According to the American Bar Association, an estate plan allows you to

  1.             Provide for your immediate or extended family.
  2.             Get property to beneficiaries quickly.
  3.             Plan for incapacity.
  4.             Minimize expenses.
  5.             Choose executors/trustees for your estate.
  6.             Help a favorite cause.
  7.             Reduce taxes on your estate.
  8.             Make sure your business continues smoothly.

 

Estate planning is important because it limits tax liability. Other benefits include ensuring that your money and other assets are inherited by the people you want, saving heirs and beneficiaries trouble, money, and heartache, and preserving estate assets.

 

This is Part II of a continuing series on Estate Planning Basics. To read Part I about last wills and testaments and intestate succession, click here.

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