Common Estate Planning Questions

As financial advisors who specialize in wealth management, we get a lot of questions about estate planning. Wealth management is about five common planning areas – investment, retirement, insurance, tax, and estate planning. Here are some of the most common questions we get regarding estate planning:

How are my assets transferred after my death?

Your assets are transferred at death through several mechanisms:

Operation of law: Assets are transferred according to the laws of the land. An example here would be a joint account. If one of the joint owners dies, the asset transfers to the other joint owner by law.

Operation of contract: There are several potential variations of this, including life insurance policies, retirement plan death benefits, pre- and post-nuptial agreements, and more. Many contracts and accounts give you the ability to add beneficiary desginations so that the asset passes to that person upon your death.

Operation of probate: Any assets that do not pass by operation of contract or law will go through probate court. If there is a last will and testament, this will tell the court who gets what, but it must still go through the probate court process. Even worse, if you did not have a will, then the probate court will decide how assets are disctibuted based on the state’s intestacy rules. Intestacy means someone died without a will.

Why do I need to have an estate plan?

As estate plan is important for several reasons. Benefits of estate planning include:

Passing your assets to who you intended. If you don’t have an estate plan in place, you can’t ensure that your assets will go to your desired beneficiaries, such as your children. Without a will or a trust, the courts decide who gets your assets.

Creating less stress for your surviving family members. On top of the terrible grief of losing you, imagine having to then distribute your estate without clear instruction? Too often, this turns into drama that tears the family apart. Save your family the burden and make your desires clear.

Protect your assets from unwanted recipients. An unfortunate reality is that just as important as making sure your assets go to who you want is making sure they don’t go to who you don’t want. It’s common for these issues to come up with divorce in particular.

Determining who raises your children. If you have kids, it is absolutely essential that you have a will in place. Without a will, if you and your partner are killed in an accident, it will be left to a court to decide who raises your children.

What role does a trust play in estate planning?

To establish a trust is to create a fiduciary agreement that allows a third party, known as a trustee, to hold assets on behalf of a beneficiary. Trusts are one way that wealthy families can minimize their estate tax, but they hold many more benefits than just that. While there are several types of trusts, the most popular is a living trust. By establishing a living trust, and titling any assets that will not pass by operation of law or contract to that trust, you may be able to avoid probate for your estate after you pass.

For example, let’s say a man establishes a living trust with his children as his beneficiaries. During his lifetime, he can take these assets out for any reason, change his beneficiary, remove any undesired provisions, add new provisions, appoint himself as a trustee, or even terminate that trust. Setting up this trust allows him to avoid probate fees, shield assets from a child’s creditors, and limit the timing of distribution of assets to his children.

What do I do if I am named executor of an estate?

If you are the executor of an estate, it is your obligation to file the tax returns of the deceased, and you may face large penalty fees. Before April 15th of the year following death, you may be required to file the following tax forms:

  • Income tax returns
  • Fiduciary income tax return
  • Estate tax return
  • Gift tax return
  • Various state returns

It’s best to speak to an accountant and/or estate planner as early as possible to determine which forms you will need. This will ensure timely filing with the correct information.

This is only a very basic overview of some common estate planning questions, and you likely will have more. If you need wealth management and estate planning advice in Naples or Fort Myers, we would be happy to help. Contact one of our expert financial advisors today.