The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
There are a lot of misconceptions about what estate planning entails. Many people think that estate planning and creating a will are the same thing, but they are not. Estate planning is the process of arranging for the management and disposal of a person’s estate. It can be done through a will, trust, or other estate planning documents. In other words, a will is a component of an estate plan, but a will by itself does not constitute a comprehensive estate plan.
Estate planning is a process that takes into account all of your assets and liabilities in order to create a plan that will ensure your estate is distributed according to your wishes after you die. This includes things like choosing an executor, setting up trusts, and making arrangements for your children or pets. Estate planning also encompasses healthcare decision-making.
The purpose of estate planning is to ensure that your assets are distributed in the way you want them to be, that your loved ones are taken care of financially after you die, and that estate taxes are minimized. If you don’t have an estate plan in place, the state you live in will come up with one for you, based on generic statutes. Those statutes may not produce the results that you would have wanted.
There are a number of different estate planning tools available, each with its own benefits and drawbacks. The most common estate planning tools are wills, revocable trusts and irrevocable trusts. Let’s take a closer look at what wills are.
A will is a legal document that states where you want your assets to pass after your death and names a person to carry out your wishes (the “Executor” or “Personal Representative”). Sometimes, wills include other information, like a person’s desired funeral arrangements or who someone wishes to nominate as the guardian of their minor children. In most states, wills either have to be witnessed by two disinterested witnesses or handwritten and signed by the testator himself or herself. Wills are a common estate planning tool because they are relatively simple to create and, if prepared correctly, manage to at least set forth a person’s basic wishes.
The fundamental difference between the two terms is that while a will may be a component of an estate plan, a comprehensive estate plan will include more than just a will. An estate plan may include a will, a revocable trust, an advance health care directive, a power of attorney, retirement beneficiary designations, and potentially irrevocable trusts. These differences have important implications.
Without a revocable trust, your estate will likely be subject to probate upon your death. Probate is the long and expensive process by which a court determines who is entitled to a deceased person’s assets. A will, by itself, will not avoid probate.
Without an advance health care directive, you cannot name an agent to act on your behalf in the event that you become incapacitated. If you name someone, like a spouse or close friend, as your health care agent, you can ensure that when you’re in a coma or otherwise incapacitated, you’ll have someone you trust making important health care decisions on your behalf.
An estate plan that incorporates irrevocable trusts can help you protect your assets from creditors. If you have money or things that you want to keep away from people who might try to take them from you, through your estate plan, you can put them in an irrevocable trust that cannot be reached by your creditors. A will, by itself, cannot provide any creditor protection.
Finally, wills only take effect upon your death. Other structures, like revocable trusts, take effect immediately. This is an important difference between wills and revocable trusts, which are able to provide for a person and his or her loved ones during life and not just after death.
We hope this article helps you understand the key concepts. If not, you can always read more about trust agreements, or contact our team of experts who can help you out find what’s best for you!
We’ve built a platform to give everyone access to the tax and wealth building tools typically reserved for wealthy individuals with a team of accountants and lawyers. We make it simple and seamless for our customers to take advantage of these hard-to-access tax-advantaged structures so you can build your wealth more efficiently at less than half the cost of competitors.
From picking the best strategy to taking care of all the setup and ongoing overhead, we make things simple. The results are real: We have helped create more than $1.1 billion in additional wealth for our customers. If you would like to learn more, please feel free to explore our Learning Center, check out your potential tax savings with our online calculators, or schedule a time to chat with us!
