Have you experienced or heard of family conflicts arising due to the lack of an estate plan or a will? Unfortunately, many people think about estate planning in terms of age or wealth, or they don’t think about it at all. According to the latest Gallup poll, only 46 percent of adults in the United States (U.S.) have a will. In other words, more than half of the adults in the U.S. have nothing in place to describe how their estate will be administered after their death. An excellent place to start is to learn basic estate planning terms.
Estate Planning Terms
Before planning begins, it’s important to know and understand essential estate planning terms that include the following:
- Advance directive: A document that outlines, in advance, specific decisions or instructions to handle your health, finances, etc., and who will make these decisions for you if you are mentally unable to make those decisions.
- Beneficiary: A person you selected to receive a benefit.
- Contingent beneficiary: A person you selected to receive a benefit if the beneficiary dies.
- Estate: An estate is everything you own, including debt.
- Estate plan: This is a collection of legal documents that allows your voice or wishes to be heard when you cannot speak for yourself.
- Estate planning: The process of arranging for the administration and distribution of your estate when you die or become incapacitated.
- Intestate: To die without a will.
- Probate: A court-supervised process of the transfer of assets to the rightful beneficiaries.
- Trust: A legal arrangement that allows a third party to hold and manage the assets of any beneficiaries.
- Will: A legal document that states how you want your property distributed after death.
One of the most significant pieces of advice anyone can share is to get your affairs in order while you can. Estate planning is a process that lets others know what happens to your estate if you are unable to speak for yourself due to mental incompetence or after death. An estate plan consists of several legal documents that provide instructions regarding:
- the transfer and distribution of property
- health care
- who can make decisions for you
- funeral arrangements
- guardianship of minor or physically or mentally challenged children
- storage and location of legal documents
Although estate planning involves the transfer of assets or property, not all assets go through the public process of a court-supervised transfer (probate). Only probate property is transferred through the supervision of a court. Probate property includes property solely owned by the deceased, property transferred by a will, life insurance proceeds payable to the estate of the deceased, etc.
A probate court does not transfer non-probate property. The transfer of such property occurs outside the provisions and control of a will or court. This type of property is transferred in two ways: by operation of law and by contract.
The transfer of property by operation of the law follows stipulations laid out in state laws. For example, in a joint checking or savings account with the right of survivorship, the property (account) is transferred to the surviving owner(s) by operation of the law rather than provisions of a will. The transfer of property by contract refers to property that can be designated to beneficiaries by contract. For example, the transfer of property such as employer-sponsored pensions, bank accounts with a pay-on-death beneficiary named, mutual funds, stocks, and life insurance policies with a named beneficiary, etc., can all override provisions in a will if a beneficiary is named. If a beneficiary is not named, the property will then be included in the deceased’s estate and remain under the probate court’s control.
Talk with your attorney or financial adviser for more information about transferring your estate by the probate court or outside the probate court. Specifically, research how you can transfer your property outside the probate court.
Transfer Estate Documents
Will
A will, an estate planning tool, is a legal document that can be used to transfer or distribute properties after death. Because this document is enforced only after death, the will can be canceled or changed anytime while you are still living. This legal document:
- specifies who gets your property
- identifies the person in charge of handling your financial affairs as stated in the document (executor)
- names guardians for minor children and/or disabled dependent adults
- specifies your funeral arrangements
A will must meet the requirements established by state laws. In the state of Alabama, some requirements are:
- You must be at least 18 years of age to have a valid will.
- You must be of sound mind.
- The document must be written, signed, and dated.
- At least two witnesses must sign the document.
- The document cannot be handwritten.
- The document cannot be oral (audio recording or video recording).
Trust
A trust is another estate planning tool used to transfer property. It is a legal agreement between you and a person chosen to manage and control your assets on behalf of a beneficiary. A trust transfers assets/property outside a probate court’s control. Depending on the type, a trust differs from a will in that it may become effective before you die. Talk with your attorney or financial adviser for more detailed information about wills and trusts.
Health Care Decisions
Advance directives are documents created in advance that allow individuals to tell healthcare providers their wishes regarding the type of care they want if they become incapacitated. They contain written decisions regarding their healthcare and who should speak for them. In Alabama, two advance directives are combined into one document. The living will is combined with a health care proxy/health care power of attorney to form an advance health care directive. The living will is consistent with the laws of the state. In Alabama, it addresses circumstances related to life-sustaining treatment and artificially provided food and hydration when permanently unconscious or terminally ill, or injured. The health care power of attorney is another advance directive. Its purpose is to give someone the legal right to make health care decisions for you if you are incapacitated.
Summary
In summary, estate planning is very important regardless of age, wealth, or any other variables. It allows your voice to be heard when you cannot speak for yourself. Estate planning can not only prevent family conflicts, but it can prevent loved ones from having to make painful healthcare decisions.
Visit www.aces.edu to discover other educational resources on estate planning.
Original source can be found here.
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