One of the most important parts of the financial planning process is estate planning. Many people mistakenly believe that estate planning is only necessary for the wealthy. In reality, a basic estate plan is essential for everyone in order reduce uncertainty, eliminate unnecessary costs, and reduce stress for loved ones after a death.
Estate Planning Basics
The first step in the estate planning process is creating a list of your assets. Take a look at (1) what assets you have, and (2) review how your assets are titled. Once you have this foundation laid out, ask yourself what you want to happen to your assets after you are no longer here.
A basic estate plan contains a will which states where you want your property to go after your death. Your will is filed with the courts after you pass, and the executor distributes your assets according to the terms of the will. Using a will to distribute your assets requires that assets you held individually during your life go through probate. Here are some things you may want to know about probate:
- What is Probate? A legal process where the courts determine how to distribute assets titled in your name among your heirs. Probate records are public records that anyone can access. The process takes approximately 6 months at a minimum, often longer.
- When does Probate apply? Probate is often necessary in Illinois if the total value of the probate assets exceeds $100,000 or if there is any real estate.
Do all assets go through Probate? No, not all assets go through probate.
- Assets held individually with no named beneficiary will go through probate.
- Assets that are “qualified” assets (i.e. life insurance, annuities, IRA, 401(k)) with named beneficiaries will go directly to the named beneficiary(s) and avoid probate.
- Assets that have a Payable on Death or Transfer on Death designation will pass directly to the named beneficiary(s) and avoid probate.
- Assets that are held jointly with rights of survivorship will go to the survivor without having to go through probate.
Estate Planning with a Living Trust
If you want to keep your wishes private and have your assets pass to the intended beneficiaries without the use of the courts, you may want to use a living trust as part of your estate plan. Your living trust, like your will, is a document that states where you want your assets to go after you pass. Here are some benefits of setting up a living trust:
- Keeps assets out of the probate process and your affairs remain private.
- A family member, friend, or corporate trustee can assist in the distribution of your assets after you pass instead of having the courts distribute your property.
- Well-written trusts can save time, money, and hassles when it is time to distribute assets after you pass.
- The trust functions as you during your lifetime -- there are no additional tax filing requirements while you are living.
Any assets you want to pass through your living trust need to be titled to the name of your trust – simply having the trust does not mean all of your assets will go through your trust. Listing out your assets and reviewing how they are titled will ensure that your assets are part of your living trust if that is your intention. Work with your financial advisor to review or create your estate plan to ensure your wishes are met.