The process of estate settlement is not a favorite topic around the dinner table at family gatherings. It can be an uncomfortable topic — but those who prepare in advance for a smooth transition with the help of an estate planner in Utah typically leave more assets and less stress to their loved ones.
Simple vs. Complex Estate Plan
As a first example, someone who has a “simple” estate plan may only have a will in place at the time of their passing. Another individual may have a trust and a will set up together, and we will deem this as the “complex” estate plan.
One might imagine that the complex plan would be complex to distribute, whereas the simple plan would be rather simple, exactly according to the instructions in the will. Rather, it is quite the opposite.
The “complex” estate plan has had a cash investment on the front end to meet with a lawyer and draft an effective trust for anywhere in the range of five to ten thousand dollars, in most cases. A will is drafted alongside the trust. Meanwhile, the simple estate plan could have a minimal upfront cost, and sometimes a will is simply a handwritten document with very little complexity.
The “simple” estate plan will be directed by state law. Although the will does provide direction for the wishes of the decedent of the estate, their estate will run the course of the probate process.
The probate process includes a judge who ultimately makes the final decisions regarding the estate of the decedent. Because this is a court proceeding, it is public information as well. When an estate goes through probate, there is typically a six-month window for creditors to make claims against the estate. This process can be lengthy and costly, making an already tough life situation that much more difficult for the heirs of the estate.
Often probate costs run in the range of 2-3% of the estate, commonly being greater than $50,000 in total cost.
Meanwhile, the “complex” estate plan will have a pre-selected trustee. This trustee is either a trusted friend or family member, or it could be a professional. The trustee has a fiduciary duty to distribute the estate according to the parameters laid out in the trust and in the will. Commonly, this type of estate settlement is fairly quick and requires no court action.
In the end, the “complex” estate plan results in being the most cost-effective and efficient way to transfer an estate to the heirs. Though it can be difficult to have these conversations, it is well worth it to be prepared in advance.
Children & Guardians
As sad as it is, some individuals pass away while still having children in the home. Having an estate plan in place can help to ensure that your children will be taken care of by those whom you trust and would have chosen yourself — otherwise, a court decides that for you.
Oftentimes, there will be a trustee who administers the trust and two guardians in the case of children. One guardian will be given the legal right and responsibility to raise your children. Often this is a close family member, such as a sister, aunt and uncle, or even grandparents. The second guardian is usually given responsibility regarding the assets of the estate that have passed to the children as heirs.
This separation has developed as a common practice due to the mismanagement of estate funds in many cases. Guardians are given a lot of trust, and this can be abused. This separation of roles can act as a safeguard to ensure that the children’s interests are protected.
Here is a real-life example.
A grandmother left her estate in trust with specific arrangements for the trust to act as an education fund for her grandchildren. Her vision was that the assets in her trust would be sufficient to educate all of her grandchildren, and possibly even some of the next generation. Upon her passing, an uncle was deemed to be the trustee and given full responsibility for her assets.
One of the grandchildren heard of the grandmother’s intentions and inquired about the possibility of assistance with his education costs.
This uncle repeatedly had excuse after excuse as to why funds were unavailable. After several months, the young man inquired again and was told that all of the assets were gone. None of the funds had been used for education costs according to the grandmother’s wishes, they had been squandered away by a selfish and financially irresponsible individual.
Careful preparation and separation can negate situations like these.
Transfer on Death (TOD) Designations
There are several assets that will transfer at death directly to the joint tenant or beneficiary simply based on the titling of the property.
Certain titling methods will completely avoid the probate process and pass directly to the beneficiary. It is important to coordinate the wishes of a Grantor in a Will & Trust to be consistent across the titling of all their financial accounts and property deeds.
Power of Attorney (POA)
Often referred to as POA, a power of attorney designation can be very important to have in place before reaching cognitive decline.
POA is written authorization given to a trusted individual to represent or act on the behalf of another. The grantor gives this right and this allows the individual given the POA rights to make decisions regarding the finances of the grantor.
Additionally, a Durable Power of Attorney for Health Care is a very similar document that designates an individual to allow them to make decisions regarding their health care in the case that they are not able to make those decisions themselves. This can relieve the burden on the family when medical decisions are very tough because you have left a directive with your wishes, as well as the enabling power for them to carry out those wishes.
Both of these POA types can be designated in advance with a “springing POA” clause, meaning that these powers only spring into action once certain criteria are met.
Turn to TrueNorth Wealth for Expert Estate Planning Services
Estate planning is a complex issue and there are many moving parts.
Each piece coordinates with all the others to ensure a smooth transition at the time of estate settling. It is an important time to prepare to ease the burden on your family while they simultaneously grieve the loss of loved ones.
Here at TrueNorth Wealth, we meet many of our clients at the crossroads of retirement and assist them in their estate and financial planning needs. We offer comprehensive solutions to ensure that your financial future is squared away and taken care of. Contact us for a consultation.