Studies are conducted periodically to gain an understanding of the estate planning preparedness of adults in the United States. Unfortunately, the results are never encouraging.
Most people that are over 65 have a will or some other estate planning document, but a significant percentage of people in this age group do not. The vast majority of Americans that are under the age of 40 are completely unprepared.
If you are a young adult and you are single, you should have a will or a trust, but it could be argued that it is not absolutely necessary. However, younger parents with dependent children that do not have estate plans are ignoring a big responsibility.
An estate plan for young families should certainly include the choice of a guardian for the children, and there should be ample life insurance to serve as an income replacement vehicle.
Regardless of your age, when you finally decide to take action to put a plan in place, you have to determine which asset transfer vehicle to use as the centerpiece. Though there are other options that are more appropriate under some circumstances, it will often boil down to a last will or a living trust.
If you were to use a last will instead of a living trust, there would be drawbacks. For one, you would not be able to easily facilitate protected, measured distributions over an extended period of time. This can be a source of concern if you have someone on your inheritance list that is not very good at handling money.
There is also the matter of probate. A will must be admitted to probate, and there are pitfalls that go along with it. No inheritances can be distributed while the estate is being probated by the court, and it will take eight or nine months to a year at minimum.
A loss of privacy is another negative, because probate records are available to the general public. Thirdly, probate expenses can accumulate to consume a significant percentage of the estate.
If you use a living trust instead of a last will, you avoid all of these negatives. When it comes to spendthrift protections, you could include a provision that protects the principal from the beneficiary’s creditors. The trustee could be instructed to distribute assets in any way that you choose, and the beneficiary would have no direct access to the trust.
Another major benefit that comes along with the creation of a revocable living trust is the avoidance of probate. After your passing, the trustee would be allowed to distribute resources in the trust in accordance with your wishes, and the probate court would not be involved. As a result, the drawbacks that we touched upon above would be avoided.
In addition to the inclusion of a will or a trust to facilitate postmortem asset transfers, a well-constructed estate plan will also have an incapacity component. This is important, because many elders become unable to make sound decisions at some point in time.
Alzheimer’s alone is enough to make incapacity planning a must. The disease strikes about 40 percent of people that are at least 85 years of age, and Alzheimer’s is not the only cause of incapacity.
If you do nothing to prepare for possible incapacitation, the state can be petitioned to appoint a conservator to act on your behalf. This individual may not be the person you would have chosen yourself, and people in your family may disagree with regard to the appropriate representative.
To prevent this, you could include a durable power of attorney for health care, and another durable power of attorney for financial decision-making. The agents that you name in the documents would be empowered to make decisions on your behalf if you ever become unable to make them for yourself.
It should be noted that you can account for incapacity if you establish a living trust by naming a disability trustee.
Your incapacity plan can also include a living will, which is a document that is used to state your preferences with regard to the utilization of life-sustaining measures.
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