Estate planning is the systematic approach to getting your personal and financial affairs in order in the event you become mentally incapacitated or die. The basic legal document necessary to plan for death is a Last Will and Testament, which contains a written set of instructions to your loved ones as to how you want your estate to be distributed after your death.
What Will Happen if You Die Before You Make a Will and Estate Plan?What will happen to your property if you don't make a will and estate plan before you die? All states have a legal process in place for determining who will inherit the property of a person who fails to make a valid will through each state's "intestacy laws."
What does it mean to have died “intestate?” This simply means that a person has died without having made a valid last will. If this is the case, then the intestacy laws of the state where the person lived and owned real estate at the time of their death will determine who will inherit their property. While each state has different laws, they all follow the same general pattern - first your spouse and your children will inherit your property; if you don’t have a spouse or any children, then your parents will inherit your property; if your parents have predeceased you then your brothers and sisters will inherit your property; if not, then your property will go to your nieces and nephews.
The Components of a Last Will and Testament
A Last Will and Testament generally consists of four parts:
- Part one deals with how your final bills will be paid;
- Part two deals with how the cost of settling your estate and any estate taxes and/or inheritance taxes will be paid;
- Part three deals with who will be in charge of overseeing the settling of your estate (the Personal Representative/Executor) and what powers they will have, and, if you have minor children, who will be responsible for raising the children (the Guardian/Conservator); and
- Part four deals with who will get the balance of your estate, how they'll get it, and when they'll get it.
Probate and How to Avoid It: The Revocable Living TrustWhile a Last Will and Testament is an important part of any estate plan, there's one main drawback to having all of your property pass under the terms of your will: The property must go through probate before your loved ones will be able to have access to it. Probate can take anywhere from six to nine months to over several years, which means that your family will have limited and often times no access to your assets until probate has been completed.
This is where a Revocable Living Trust comes into play. What is a Revocable Living Trust? It's a written legal agreement that sets forth how your property will be managed both while you're alive and then after you die. The part that deals with how your property will be managed while you're alive will contain your mental disability plan, and the part that deals with how your property will be managed after your death will contain the exact same terms that would have been written in your Last Will and Testament had you decided not to set up a Revocable Living Trust.
How Does a Revocable Living Trust Avoid Probate?
So how does a Revocable Living Trust avoid probate? Because if your assets are funded into the trust during your lifetime, then they won't need to be probated after your death. How do you fund your assets into the trust? For bank accounts and real estate, your name will be taken off of the asset and the name of your trust will be inserted in its place. For other assets, such as life insurance and retirement accounts, the trust will be named as a beneficiary of the asset. Once the trust is fully funded, you'll no longer own your assets – your trust will, and property that's owned by a Revocable Living Trust doesn't need to be probated after your death. Instead, the trust property can pass immediately and directly to your loved ones.