As an estate planning attorney, I routinely encounter many common estate planning questions and misconceptions. By answering the 10 Estate Planning Questions below, I hope to clear up many estate planning misconceptions that people have.
1. Is Estate Planning Only for the Wealthy? No. There is a common misconception that estate planning is only for the wealthy. The truth is that almost everyone needs an estate plan regardless of income or net worth in order to minimize stress, unnecessary confusion, and costs for loved ones after a death. A basic estate plan consists of a Will, Power of Attorney for Property, Power of Attorney for Healthcare, and sometimes a Revocable Living Trust.
Your “estate” consists of all assets that you own at the time of your death. My experience as an estate planning attorney is that most people have an estate that is much larger than they realize. Even if there isn’t a lot of money sitting in a savings account – a home, life insurance, and retirement accounts are all assets that are considered part of your estate. This wealth will be transferred one way or another – the question is if it is transferred in a way that will benefit your family and the causes your care about.
2. What is Probate? Probate is a Court process of transferring legal title of property from a person who has died to that person’s heirs. Generally, the steps of the probate process are to: 1) confirm if there is a valid Will; 2) identify the heirs of the estate; 3) gather assets of the estate; 4) identify and pay creditors of the estate; and 5) distribute remaining estate assets to the heirs.
The Probate process itself usually takes at least 9 months to a year to complete if there are no complications. Because of the time and costs involved with Probate, most people want to avoid it. With some simple estate planning techniques probate can be avoided. A very crucial concept to understand is that Probate only transfers “Probate Assets”. Therefore, the first step in avoiding Probate is to determine if an estate has any “Probate Assets.”
3. What is the Difference Between Probate Assets vs. Non-Probate Assets? Probate Assets are assets that you own in your name only that DO NOT automatically transfer at your death. An example of a Probate Asset is real estate that you own in your name only. When you die there is no joint owner or beneficiary that it automatically transfers to. This can apply to any asset that is owned in your name only -- such as bank accounts, jewelry, stocks, cars, etc. If you don’t have any Probate Assets in your estate – then your estate does not have to go through Probate.
Non-Probate Assets are assets that DO automatically transfer upon your death. Examples of Non-Probate Assets are: Life Insurance Policies (they have beneficiary designations); property held jointly with others (generally jointly held property automatically transfers upon death); Property held in a Trust (a Trust usually names a beneficiary that will inherit the Property); Bank accounts that are “Payable on Death” (also known as POD Accounts).
4. Is there any way I can avoid Probate even if I have some Probate Assets? Yes. Illinois allows someone with $100,000 or less of personal property assets to use what is called a “Small Estate Affidavit” to transfer property to their heirs. This Small Estate Affidavit is usually signed by a family member of the person that died. The Small Estate Affidavit tells a bank or other institution holding assets of a deceased person where those assets should be transferred to. A person who signs a Small Estate Affidavit is guarantying to a Bank or other institution that the money being transferred is being transferred to the right place. It is important to note that a Small Estate Affidavit cannot be used to transfer real estate.
5. Does Having a Will Mean My Estate Will Avoid Probate? No. Many people think that by having a Will their estate will avoid probate. This is not true. A Will is a document that is used in the Probate process – it doesn’t help avoid probate. A Will is a document that states what happens to your Probate Assets when you die. Your Will also names an “Executor” who is a person that is appointed after you die to make sure the terms of your Will are followed and that your Probate Assets go where you wanted them to go.
6. What Happens if You Don’t have a Will? If someone dies without a Will – then they are considered to have died “intestate” or “without a Will”. This means that we look to Illinois Law to see who inherits your Probate Assets. For example, Illinois provides that if someone is married with children when they die – then half of their Probate Assets will go to the surviving spouse and the other half of their Probate Assets are split among their children. Every family situation is different, but most people usually want to have all of their estate go to their surviving spouse and not split between their spouse and children. For this reason, many people prefer to have a Will instead of letting the state decide who inherits their assets.
7. Do I need a Power of Attorney? Yes. Power of Attorney documents are important Estate Planning Documents. When someone is “mentally incapacitated” they are not to be able to make decisions about their health care or their assets. A Power of Attorney for Property is a document where someone names an agent to act on their behalf to make property-related decisions for them if they become mentally incapacitate. A Power of Attorney for Healthcare is a document where someone names an agent to make health-care-related decisions for someone that is mentally incapacitated.
8. What Happens if Someone Becomes Mentally Incapacitated Without Power of Attorney Documents? If someone becomes mentally incapacitated – such as being in a coma or having Alzheimer’s Disease – without signed Power of Attorney documents naming agents to act on their behalf, then a court process called a “Guardianship Proceeding” must take place so that a Judge can name a Guardian to make decisions for that person. Guardianship Proceedings can take up to 90 days be finalized and are costly. A court appointed Guardian will have to post a bond with the Court before they can act on your behalf. They also have to report all financial transactions to the Court every year. Power of Attorney Documents are relatively simple and much less expensive than Guardianship Proceedings.
9. What is a Revocable Living Trust and Do You Need One? A Revocable Living Trust (“RLT”) is a trust a person funds with their own assets when their alive. A person that funds a trust is called a “Grantor”. During the Grantor’s lifetime that person has complete control over the assets they transferred into their RLT. All assets in a RLT avoid probate when the Grantor dies. At death the assets in the RLT transfer to beneficiaries on terms that the original Grantor had previously designated. A RLT is a powerful estate planning tool that can be used to avoid probate, reduce estate taxes, and control assets long after the Grantor’s death. There are many factors to consider when deciding if a RLT is right for your estate plan.
10. How Can I Give Part of my Estate to a Charity or Organization Such as the Community Cancer Center? There are many ways that one can give to a charity or organization of their choice through their estate plan. While there are sophisticated, tax savvy strategies that can be used – which are beyond the scope of this article -- there are numerous ways those with more basic estate plans can give to charity. A few ways to help a charity through your estate plan is by naming a charity in a specific bequest in a Will; giving a percentage of a retirement plan to a charity (saving on income tax); or naming a charity as a beneficiary of a life insurance policy. Many organizations, such as the Community Cancer Center, have established foundations to help donors structure gifts through their estate. You should also talk to your attorney and/or financial planner about the best way to give to a charity based upon your specific assets and overall estate plan.
This article is a service of Attorney Chad A. Ritchie and the Ritchie Law Office, Ltd.
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