Estate Planning

What does “Estate Planning” mean?

Estate planning is the thoughtful and orderly preparation for the management of your personal and financial affairs in the event of your death or incapacity. Proper estate planning aids in preserving and protecting your family’s assets and values against various risks of loss. It is an ongoing process because, as we all know, our individual and family circumstances change over time.

Who needs an Estate Plan?

Everyone needs some level of estate planning.  You should engage in estate planning if you are concerned about what will happen to your property or who will take care of you and your family when you are unable to do so.

A good estate plan is really about planning for the important people in your life and attempting to avoid, as much as is possible, problems that those people may encounter in winding up your affairs and in dealing with your property after your death.

What is included in my Estate?

In order to properly plan your estate, it is important to know the various ways in which property can be owned, because the way property is owned determines how and to whom it is transferred at death.

To be truly complete, an estate plan must provide for the management and distribution of ALL property, assets or benefits you own or control, both probate
and non-probate. Your Will, however, is only effective to direct the management, administration and distribution of your probate estate. Proper attention must be given to ensure that both your probate property (through your Will) and your non-probate property (through beneficiary designations, pay on death provisions, joint ownership, etc.) is distributed in a manner consistent with your wishes.

Your “estate” consists of your Probate Property and your Non-Probate Property.

Probate Property is property that you own in your name alone, with no joint owners, beneficiary designations, or pay on death provisions attached to the property. Probate property requires a probate court proceeding to determine who the property should pass to at your death. This is because the only way to know who should receive property that is in your name alone is by the instructions you leave in a written document known as your “Will.” At your death, in order to ensure that your Will was created properly and in accordance with all legal requirements, it must be “probated” in the appropriate state court. If you do not create a valid Will, the probate court will follow the directions contained in state law to determine who is entitled to receive your property. The state law that applies in the event you do not have a valid Will when you die is known as the “intestacy law.”

So, for example, if Lois owns her home and there are no co-owners or transfer on death beneficiaries, then the home is probate property that is part of her “probate estate.” The deed under which Lois holds title to the home does not specify who receives the property or succeeds to ownership when she dies. So, in order to determine who receives the home after Lois’s death, we need to refer to her Will (if she has one) or to state intestacy law (if she does not).

Similarly, if Lois owns an insurance policy or an individual retirement account (IRA) and names her estate instead of one or more specifically named beneficiaries on the beneficiary designation form (see Non-Probate Property below), then the insurance or IRA proceeds would be part of her probate estate and her Will would determine who receives the insurance and IRA proceeds.

Non-Probate Property is property that clearly specifies who the property will pass to at your death by the way the property is titled.

Non-Probate Property can be owned in different ways (and these vary from state to state). Non-Probate Property may be owned in the following ways:

  1. Tenancy in Common: Property owned by two or more owners where each owner owns a portion of the property separate and apart from the other owners.Example: Lois prepares a deed that transfers one-third of her home to her granddaughter, Betsy, as a tenant in common.  At Lois’ death (assuming Betsy survives her) Lois’ two-thirds tenancy in common interest in the home will pass to the beneficiaries she named in her Will. Betsy will retain her one-third tenancy in common interest.
  2. Joint Tenancy with Right of Survivorship: Property owned by two or more owners where each owner owns an undivided right to the entire property.
    : Lois prepares a deed that transfers the ownership of her home to herself and her son, Richard, as joint tenants with right of survivorship. At Lois’ death (assuming Richard survives her), the deed itself specifies that the entire interest in the home passes to Richard “by survivorship” even if Lois leaves the home to someone else in her Will.
  3. Tenancy by the Entirety: Property owned much like joint tenancy but only between a husband and wife (recognized in about half of the states).Example: Max and Ramona, residents of Florida, own their home as tenants by the entirety.  This form of ownership is only available to married couples.  At Max’s death the property will pass to Ramona. If either Max or Ramona went to sell the property while they own it together as tenants by the entirety, they must both agree and consent to the sale.  Unlike property held in joint tenancy, one spouse cannot sell property held as tenants by the entirety without consent of the other spouse.
  4. Written Contractual Arrangement: Property owned by a person that is governed by a contractual arrangement with a beneficiary designation that specifies who the property will pass to at death. For example, life insurance policies and retirement plans are contractual arrangements, and life insurance proceeds and retirement assets generally pass at your death to the specific beneficiaries you name on the beneficiary designation form the life insurance company or retirement plan provider requires you to fill out.Example: Assume that Lois owns a life insurance policy and names her grandson, Daryl, as beneficiary. At Lois’ death, the policy proceeds are paid to Daryl according to the terms of the beneficiary designation form Lois completed. If you own a life insurance policy on your own life, and the beneficiary you name (or that is named for you in the event you do not complete a valid beneficiary designation form) is some individual or organization other than your estate, then the insurance proceeds are non-probate property and will pass to the named beneficiary. Likewise, your retirement accounts will pass to the beneficiaries you name on the beneficiary designation form, regardless of what your Will says.
  5. Revocable Living Trust: A legal document you can create during your lifetime to hold your assets in which you name a trustee to invest and manage the assets for your benefit.Example: Tony owns a home and two investment accounts in his name alone. As long as they are titled in his name alone the home and accounts are probate assets.  During his lifetime, Tony creates a revocable living trust and transfers his home and investment accounts into the trust.  When the home and accounts are retitled into the name of the revocable trust, the trust controls the assets and they become non-probate property (because they are no longer controlled by Tony’s Will, but by his revocable trust).  At Tony’s death, all property titled in the name of his trust will pass according to the terms of the trust agreement and a probate proceeding willnot be necessary.