Estate planning is about caring for your loved ones, seeing they are provided for, and making sure your hard-earned property is distributed according to your wishes. An estate plan is your blueprint for where you want your property to go after you die, how you want it distributed, and the marching orders for those you select to manage your affairs after you die or become incapacitated.
What is included in your estate? Your estate consists of all your property, including:
- Your home and other real estate owned,
- Tangible personal property such as cars and furniture, and
- Intangible property such as insurance, bank accounts, stocks and bonds, and pension and Social Security benefits.
So, what is an estate plan? When most people think about an estate plan, they think of a will. But a will is far from the entirety of an estate plan. Estate plans may include:
- Durable powers of attorney for finances
- Durable powers of attorney for health care
- Health care directives
- Living trusts, including:
- Revocable living trusts
- Marital trusts
- Special needs trusts
- Perpetuity trusts
- Credit shelter or tax savings trusts
- Irrevocable trusts
- Discretionary trusts
- Incentive trusts
- Other types of trusts
- Nonprobate transfers
- Beneficiary deeds
- Transfer on death designations
- Beneficiary designations (such as for IRAs and insurance policies)
- Joint ownership
An estate plan should be designed for your individual situation and should meet your personal goals.
If you do not have a will, the state has one for you. In Missouri and Kansas, if a person does not have a will or estate plan, half of anything he or she owns at death passes to the surviving spouse and the other half goes to the children. If the children are under the age of 18, a court-supervised conservator administers the children’s share of the estate.
Most parents do not believe that the age of majority set by the state (age 18) is old enough to have control of substantial amounts of money, so they want to protect their children by setting a higher age. This can be done by an estate plan. A trust can delay distribution of assets to children until the children reach what the parents consider a more suitable age, and the trust can name a financially mature trustee to manage the property in the interim. The trustee can be given flexibility to expend trust funds for the children’s needs, such as support, education, and unforeseen circumstances. If a child is disabled, a “special needs” trust can be established that will supplement government assistance rather than replace it, enhancing the quality of the beneficiary’s life without jeopardizing the existing benefits.
A revocable trust offers all the advantages of avoiding probate but still allows the person to direct how their property is to be distributed, including alternate provisions attempting to anticipate varying scenarios of life and death. A revocable trust can be changed or revoked until the person’s death or incapacity, but it does take effect immediately upon execution and funding. This is why such trusts are often referred to as “living trusts.”
Even if a person has a living trust, however, he or she should also have a will – a last will and testament. This is because some assets may still pass by other means. The primary provision of this will is a clause (a “pour over” provision) by which any assets passing by way of the will is bequeathed to the living trust. The will is a valuable backup to insure that everything passes as intended.
Except in rare circumstances, a surviving spouse will have no estate taxes to pay. And since January 2, 2013, estate and gift tax exemptions for anyone are $5 million, indexed for inflation (currently the exemption is more than $5.12 million). So most people can plan their estate based on whom they want to inherit their property, at what time and under what circumstances, and whom they want to administer the plan now and in the future. Married couples whose assets are greater than $5.12 million can plan their estate in ways to save taxes upon the death of the survivor.