What Happens if You Don’t Have an Estate Plan?

  • By:Sweat Law Offices

Estate planning is the process of getting your personal and financial affairs organized in the event of your death or mental incapacitation. By creating an estate plan, you can make sure your loved ones are protected.

 

Basics of Estate Planning

 

Estate planning is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation. The goal is to make sure your beneficiaries receive these things in the most cost-effective way possible.

 

Though it’s sometimes viewed as a task primarily for older people, estate planning can help young people establish a foundation that they can fine-tune as their personal and financial situations change. Regardless of your income level, it is important to create an Estate plan. The following is a simple process of how an estate plan works: (1) Take inventory of your assets; (2) Account for your family; (3) Establish directives; (4) Review your beneficiaries; (5) meet with a Lawyer to draft documents pertaining to your wishes; (6) Re-assess your Estate plan as life changes – children, death, grand-children, etc.

 

What will Happen if You Die Without an Estate Plan or Will?

 

The Commonwealth of Pennsylvania has developed what is commonly referred to as the laws of Intestate Succession. A person who dies without a will in Pennsylvania is said to have died “intestate.” The Law of Intestate Succession govern how your assets are distributed in the event you die without a Last Will and Testament. It is important to create a plan so you can determine who inherits your assets instead of the state and federal government.

 

Estate Planning Options to Suit Your Needs

 

There are several documents that are used to create your estate plan and protect your family. The following are a few examples:

§  Wills.  The Last Will and Testament will ensure that your assets, both personal and real property, are distributed to the right people based on your wishes.

§  TRUSTS: There are many types of trusts; a major distinction between them is whether they are revocable or irrevocable.

A. Revocable trust: Also known as a living trust, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor’s) lifetime. It is flexible and can be dissolved at any time, should your circumstances or intentions change. A revocable trust typically becomes irrevocable upon the death of the grantor.

You can name yourself trustee (or co-trustee) and retain ownership and control over the trust, its terms and assets during your lifetime, but make provisions for a successor trustee to manage them in the event of your incapacity or death.

Although a revocable trust may help avoid probate, it is usually still subject to estate taxes. It also means that during your lifetime, it is treated like any other asset you own.

B. Irrevocable trust: An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust.

An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. Also, since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets (although distributions will typically have income tax consequences). It may also be protected in the event of a legal judgment against you.
Other benefits of trusts include:

  • Control of your wealth. You can specify the terms of a trust precisely, controlling when and to whom distributions may be made. You may also, for example, set up a revocable trust so that the trust assets remain accessible to you during your lifetime while designating to whom the remaining assets will pass thereafter, even when there are complex situations such as children from more than one marriage.
  • Protection of your legacy. A properly constructed trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not be adept at money management.
  • Privacy and probate savings. Probate is a matter of public record; a trust may allow assets to pass outside of probate and remain private, in addition to possibly reducing the amount lost to court fees and taxes in the process.

No matter how you choose to handle your estate planning, it is essential to have a plan in place to make sure your assets and family are protected. Having a plan allows for a smoother transition for your loved ones and eliminates the confusion that comes without the guidance of a will or trust.

 

Contact the experts at Sweat Law today to learn more about your Estate Planning options and how we can help you develop a plan to protect your estate and ensure your wishes are honored.

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