Springtime in Wisconsin is a great time to start organizing yourself and getting ready to update, or create, your estate plan.
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The ultimate goal of estate planning is to distribute property and minimize tax liability. How these goals are accomplished depends upon many different factors: estate size, types of property owned, the state of residence and the number of heirs, to name but a few.
Probate and Non-Probate Assets
When the person uses a last will and testament, they are planning on their estate to pass through probate, a court-supervised process. This process begins with the validation of the will by the court and the court’s approval of the personal representative or executor nominated in the will. There are court fees, and court appearances are usually required.
The personal representative is in charge of managing the estate. Some of the tasks include creating an inventory of assets and liabilities, filing the decedent’s last tax return, obtaining an EIN for the estate, filing the estate tax return, paying creditors, distributing assets, securing the home and notifying heirs of the decedent’s death.
During the process of probate, the will becomes part of the public record. Anyone, from disgruntled relatives to creditors and thieves, may view the will’s contents and inventory.
Probate is often confused with estate administration. Even if most or all assets have been taken out of the estate to avoid probate, there are still some administrative tasks, including filing the decedent’s last tax returns for state and federal taxes and, if necessary, filing an estate tax return.
Depending upon the jurisdiction and the complexity of the estate, probate may take a few months or several years.
What is Trust Administration?
Many people chose to place their assets in trusts to avoid having their estate pass through probate and exposure to the public record. Trust administration refers to the actions taken by the trustee: the person appointed in the trust to be in charge of managing assets. If the trust was created to distribute assets after death, the trustee follows instructions for property distribution to beneficiaries. Trust administration responsibilities vary greatly. One trust might instruct the trustee to make sure beneficiaries reach certain milestones before receiving all or part of their inheritance. Another trust may direct a percentage of the inheritance to be released at certain ages. Still other trusts continue to administer the inheritance for multiple generations.
Trusts are preferred by many because of privacy. Information about assets is solely between the trustee and the beneficiary. No information appears in the public record and the court is not involved. The use of trusts may minimize the likelihood of lawsuits brought by heirs and creditors.
Trusts are also used in cases where incapacity is a concern, although they must be created before the person becomes incapacitated. They can also be used to minimize elder financial abuse, since the only person who can access the trust is the trustee.
Some Assets Pass Through Beneficiary Designations
Even without a trust, many assets do not pass through probate. Accounts with beneficiary designations, including pensions, retirement accounts, insurance policies and financial accounts with TOD ownership (Transfer on Death), joint bank accounts and any account bearing a beneficiary designation (POD or Payable on Death) are transferred directly to the beneficiary, after proof of death and identity has been accepted by the financial institution.
Whether passed through probate, trusts, or beneficiary designations, a well-organized estate plan and communications between the appropriate family members will make the process of distributing assets post-mortem an easier process.
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