When it comes to planning for what happens to your family after you die, it’s never going to be an easy conversation. But weighed against the possibility of what can happen if there is nothing in place, it’s a necessary one. If you have assets, whether they total $20 or $20 million, the first place you want them to go is to your family, not the state.
Think About a Last Will
When a person dies without a living will in place, that person dies intestate, meaning that he or she died without giving voice to his or her wishes. While each state has its own laws of intestacy, typically the financial assets of an estate are passed to the living spouse. If there is no living spouse, it’s passed on to the children. If neither exists, the state will attempt to find any blood relative. If none exist, the estate becomes the property of the state. Being able to tell the state where you want your assets to go after death is one of the main advantages of having a last will and testament. The major downside will be that depending on the amount of the assets, family member will have to wait for months or years for probate court to dispense the will and could be taxed as much as 40 percent.
Combining a Living Will with a Last Will
A living will tells family members if you want your life prolonged medically. It’s also known as the physician’s directive and can be used in conjunction with the Last Will and Testament. If a medical setback leads to life-prolonging measures, such as being on a respirator or otherwise incapacitated, the living will comes into effect and states your wishes for prolonged medical treatment. If you are alive but not incapacitated in a way that renders the living will in effect, a health care proxy would allow a designee of your choosing to make health decisions on your behalf. This simple form is also available from LegalZoom and should be a part of your living will documents.
The Advantages of a Living Trust
A trust is a legal entity that can own property. All of your assets are placed in a trust, while you are alive to be distributed upon your death to your beneficiaries. The trust is overseen by a trustee, which is usually the owner (grantor) of the assets in the trust. The property is under the trustee’s control but it is owned by the trust, not an individual. One of the major benefits of a living trust is not only does the trust keep track of the property, but the beneficiary pays less inheritance tax. Depending on the structure of the trust, the beneficiary only pays tax when the assets are disbursed. If the trust generates income, the tax is only assessed on the amount received by the beneficiary, not on the total asset.
Laws vary from country to country but of all of the estate planning vehicles, the living trust provides significant tax advantages and may even be subject to tax exemption. A savvy estate planning attorney can advise clients on how to take full advantage of the tax vehicles while still complying with the law.