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Many people tend to think that an estate means a large tract of land
and great wealth as well as extensive personal property that is very
valuable, such as vintage antiques and collectibles. Although some of
this can be true, it certainly does not mean the same to everyone.
Actually, in a recent version of Webster’s Dictionary, here are the
three definitions provided for the word estate:
1) a condition or stage of
life; 2) property;
possessions; and 3) a large individually owned piece
of
land containing a residence. Although definition
number 3 hints at that
described in the paragraph
above, you can see that the other two have
nothing
to do with “a large tract of land”. Even definition
3 only designates
the presence of a residence – it
does not indicate the type. According to
definition
3, an estate could actually be a one-room shack in
the middle
of a small lot.
According to these definitions, an estate can mean simply the property
and/or possessions of a person. When someone dies, the property and
possessions are rightfully passed over to the next of kin – or disposed of
according to the directions left by the deceased. If there are no directions
that have been defined, the state laws determine this division of the estate
– be it large or small.
An Estate plan is the desire and intent of how all assets and property
will be transferred from one person (or couple) to the next person (or
generation.) A will can be one component of an estate plan, but it alone
cannot effectively complete the estate plan.
A will names whom you want to handle your final affairs and whom you
want to receive your assets that are titled in your name. However, most
people don’t know that a will only controls the assets that are titled in
your name. It does not control assets that are titled in joint ownership
and go to your spouse or another joint owner when you die. It does not
control assets with beneficiary designations; things like retirement
accounts, such as IRA, Roth IRA, Annuities, 401(k), 403(b) and Profit
Sharing plans, and life insurance policies.
A will also does not go into effect until one is deceased. A properly
executed Power of Attorney is needed for the time between when one is
no longer able to handle one’s own affairs and death. Oftentimes a will is
quite sufficient to handle all the affairs of one’s estate. However, it is
important that each will be specifically designed and properly executed
for individuals with their specific situations and circumstance in mind.
Another component or tool for
estate planning
is the use of titling assets
in joint ownership. Most married people title assets together using a title
called “joint tenants with right of survivorship” (commonly abbreviated
JTWROS). This leaves the entire balance of the assets to the surviving
joint owner. It is a very simple and effective tool that easily handles
homes, automobiles, and checking accounts. It is important to note that
this designation supersedes the will.
There are several other possible techniques and practices to incorporate
into an estate plan. Some utilize the practice of “Gifting” assets away to
another party while one is still alive, There are some very important tax
considerations surrounding gifting that must be discussed with a
competent tax advisor.
A Revocable Living Trust is another alternative or addition to a will in a
more comprehensive estate plan. This trust is its own entity like a person
or a corporation. It is called a Revocable Living Trust because it is
established while one is living and can be changed or “revoked” by the
donor at any time. Since the assets are then owned by the trust, probate
is avoided because the assets never change hands again unless final
instructions of the trust are to distribute them to a named beneficiary.
Another decision in estate planning is to do nothing. If one dies with no
valid will in place, one is deemed to have died “intestate.” Although
beneficiary designations will be honored, the laws of the state in which one
owns property or assets will control all probate assets. This lack of control
may cause assets to be distributed in a manner that is less than desirable.
The important thing to do is to have financial, tax and legal professionals
work together to help you
create an estate plan.
In many instances, a
complete Estate Plan includes all of the items discussed above. They will
work together to achieve the goal of an effective estate plan.
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