Legacy Planning: Wills and Estate Planning for Dummies
It’s okay to admit it — you’re vaguely aware that you’re supposed to be creating a will or figuring out your estate planning, but you’re not even sure exactly what that means or where to begin. Not only is it okay to admit it, but being undereducated about wills and estate planning means you’re part of the vast majority of Americans who haven’t taken the first steps to plan for their legacy. But just because a lot of other people are failing to take steps to prepare for their future and that of their family and loved ones doesn’t mean you should too. Here are a few pointers to get you started in taking the first steps in your will and estate planning.
What’s the Difference Between a Will and a Trust?
A will is a legal document that every adult should create and finalize. A will is the legal tool that will control where your assets go after your death. Without a will, state law will control how your possessions are distributed, which might be contrary to your wishes. A will must be executed in accordance with state law and clearly describe your property and your intended beneficiaries, and should be updated when new property and/or beneficiaries enter (or exit) your life. A will only takes effect on your death.
A trust on the other hand can be used to transfer property either upon your death or during your life by placing property into a trust for the benefit of one or more beneficiaries. A trust provides many more useful benefits than a standard will, including:
1) avoidance of certain taxes;
2) the ability to direct how your property is used;
3) the ability to benefit parties (and yourself) before your death.
What’s the Big Deal with Probate?
You may have heard estate planning professionals discuss “probate” and specifically the desirability of avoiding it. Probate refers to probate court, which is the state court that will take control over a person’s property when they die unless other instruments are in place to transfer their property. Probate court can be very costly for the beneficiaries you are hoping to take care of, and can delay or even deny their payout.
Can’t I Just Invest in a 401K and Be Done With It?
It is certainly the case that taking advantage of the benefits of a company-sponsored 401k is wise, but 401Ks are the not same as estate planning. Not only are they limited in how much you can invest each year, but, in addition, they do not offer the same estate planning benefits you can find in other financial instruments. Such benefits include the ability to avoid capital gains and transfer taxes as well as the ability to direct how your investments should be spent both during and after your life.
If I’m Not Super-Rich, Why Should I Care About Estate Planning?
It’s important to separate the issue of the “estate tax” from the much broader concept of “estate planning.” It is the case that the estate tax (also called the “death tax”) only applies to some multi-million dollar estates, but there are many other facets of estate planning that apply to people at all levels of wealth. If you care about protecting your assets for the benefit of your loved ones, then estate planning is for you, no matter your level of assets.
See What a Pasadena Estate Planning Attorney Can Do For You
Christopher B. Johnson is an estate planning attorney in Pasadena, CA who has helped thousands of individuals and families over the past 18 years in creating and reaching their estate planning objectives. Schedule a consultation with him today to discuss your estate planning goals.