Estate Planning: Streamlining the Transition

Designing the transition of your wealth is about much more than just maximizing your legacy or simplifying the eventual handover. It is fundamentally about ensuring that your support, love, and guidance continue long after you are gone. A carefully crafted estate plan anticipates and removes future obstacles, acting on your behalf when you are no longer there. Relying on the court system to execute your will, also known as probate, turns your most private family details and financial information into public record.

Luckily, there are highly effective ways to bypass this slow, costly, and public ordeal. While you must partner with an attorney to establish the legal framework of your plan, your financial advisor can concurrently implement strategies on your investment accounts to reduce expenses and ensure a seamless wealth transfer when the time comes.

There are three foundational elements to consider when planning your estate transition:

• Asset-based strategies to avoid probate
• Wills
• Living trusts

Minimizing Probate

Probate is the formal legal procedure where a court reviews a will to confirm its validity and authenticity. During this time, a judge appoints the executor designated in your will to manage the estate, which includes gathering assets, settling debts, and distributing what remains to your heirs. Unfortunately, this process is notoriously lengthy, expensive, and entirely public.

However, assets that permit you to designate a direct beneficiary completely bypass probate and transfer to your new owners relatively easily and quickly. Common examples include life insurance payouts, IRAs, 401(k) accounts, and annuities.

Additionally, establishing co-ownership of an asset can also avoid the probate process, provided it is titled as “Joint Tenants With Rights of Survivorship” (JTWROS). Because specific legal conditions must be met to do this correctly, consulting an attorney is highly recommended. The primary benefit of this titling is that ownership of the property passes immediately and automatically to the surviving owner. A vast array of assets can be held this way, including real estate, vehicles, bank and brokerage accounts, and valuable collections, and you are permitted to have more than one co-owner. When one owner passes, transferring the property usually only requires an affidavit, presenting the death certificate of the decedent, or otherwise taking control of the property. This strategy works very well for the family home and liquid financial assets, ensuring surviving spouses or children retain immediate access. It is vital to note, though, that all listed co-owners share equal shares and have the right to control the accounts.

Wills and Living Trusts

A will remains the most common estate planning instrument. It is the only legally binding way to name a guardian for your minor children, and it provides a great deal of control over how your assets will be distributed and who your beneficiaries will be. The primary drawback of using a will for passing on assets is that they are subject to probate.

If avoiding probate is a priority, a living trust (also called a revocable trust) is an excellent option that allows you to access the assets in the trust during your lifetime, with the remainder passing to your beneficiaries. Because it avoids probate, the assets will be distributed more quickly, without additional expense, and with privacy. While a standard will requires an executor, a living trust relies on a successor trustee. If you have minor children, you will still need to create an additional document called a pour-over will and designate a guardian.

Because a living trust is a more complex document than a will, the expense of creating it will be greater. Furthermore, a trust must be funded; the assets named in the trust document must be transferred into the trust through separate processes. Depending on the overall size of your estate, the complexity of your bequests, and your own desire for speed and privacy, it may still be the right choice.

The Takeaway

You’ve worked hard to build a life for yourself and the people you share it with. To make sure your wishes, both for yourself and everyone you care for, are carried out, it’s important to put some thought to your estate planning. Your financial advisor, working in conjunction with an attorney, can help you map out an estate plan that safeguards your assets, your wishes, and your loved ones.