Blog Author: Stephen C. Hartnett, J.D., LL.M. (Tax), Director of Education,
American Academy of Estate Planning Attorneys, Inc.
Estate planning contemplates two different general time periods: During life and after your death. Estate planning needs also vary based on the goals you are trying to achieve. For example, after death, do you simply wish to transmit your assets, or do you wish to provide your loved ones with asset protection, tax protection, divorce protection, or other benefits?
During both time periods, you could have a very simple estate plan: Do nothing. Let’s see how the simplest plan works.
If you did nothing, if you become disabled, nobody could handle your affairs without going to court. All assets in your name alone would be off limits until you were declared incapacitated and a court chose someone to handle your affairs for you. The court would have to make that choice without any guidance from you. So, someone with whom you did not get along could be named to manage your assets.
At your death, your simplest plan would rely upon the laws of your state to distribute your assets. Every state has a default estate plan—it’s called intestacy. Intestacy is the plan set forth in the statutes of each state providing what happens to the assets of someone dying without leaving instructions. Typically, the intestate plan divides the assets among the spouse, descendants, and family of origin in some proportions. Let’s say you have a spouse and two adult children. Your state may give half of your assets to your spouse and divide the other half between your two children. If you lived in a state with such an intestacy law, and you died with a spouse and two 18-year-old twins, the twins would get one-half your assets outright. Your spouse may be forced to sell the house to fund the twins’ inheritance. Since the twins would inherit outright, they could drop out of school, buy fast cars, party with hangers-on, and squander the money before they gained the maturity to manage it.
There are better ways, both during life and at death. A good solution can be a revocable trust. With such a trust, the trustee you select can manage the assets if you become incapacitated during life.
At death, the trustee of the trust could continue to hold your assets on the terms you specify. For example, the trust could provide for your spouse and children until your spouse’s death. Then it could split into separate trusts for your two children. It could continue as long as you think is appropriate. While the trust exists, it could provide management of the assets and even divorce or asset protection.
The simplest estate plan is to do nothing. But, that is rarely the best way to proceed. A revocable trust is flexible enough to meet your needs during life and after your death. In my next blog, I’ll examine other “simple” solutions for estate planning.
The Litherland Law Firm is a member of the American Academy of Estate Planning Attorneys. If you would like to learn more about the importance of estate planning, we invite you to attend one of our free estate planning seminars.