ESTATE PLANNING is the preparation of a plan to carry out an individual’s wishes as to the administration and disposition of his/her property before or after his/her death. Planning also covers management of personal affairs in the event of incapacity.
Simply put, Estate planning entails making a plan in advance and naming whom you want to receive the things you own either before or after you die. It is a process that involves people — your family, other individuals and, in many cases, charitable organisations of your choice. It also involves your assets (your property) and the various forms of ownership and title that those assets may take. It also addresses your future needs when you are unable to do it yourself.
WHO NEEDS AN ESTATE PLAN?
- Estate Planning is for EVERYONE.
- It is not just for “retired” people, although people tend to think about it more as they get older;
- It is not just for “the wealthy,” either, although people who have built some wealth often think more about how to preserve it. It however means more to families with modest assets, because they can afford to lose the least.
ISSUES TO CONSIDER IN CREATING AN ESTATE PLAN
- What are my assets and what is their approximate value?
- Who should make decisions on my behalf concerning my care and welfare if I become unable to care for myself?
- Whom do I want to receive those assets — and when?
- Who should be responsible for taking care of my children (particularly if they are minors) if I become unable to care for them myself?
- What do I want done with my remains after I die and where would I want them buried, scattered or otherwise laid to rest?
- Who should manage those assets if I cannot — either during my lifetime or after my death?
ESTATE PLANNING INSTRUMENTS
WILLS AS AN INSTRUMENT OF ESTATE PLANNING
- A Will is an instrument that directs how your assets are to be distributed and your debts, taxes and expenses are paid after your death.
- Also referred to as a Testament, it is a legal declaration by which a person, (the Testator), names one or more persons (the Executor(s)) to manage his or her Estate and provides for the distribution of his or her property at death. Wills remain the traditional way of gifting property to loved ones.
- When an individual die without a Will, it would be necessary to compile a list of the dead person’s assets in addition to identifying beneficiaries to the assets. Unfortunately, until this process is complete, assets cannot be distributed, even to the already identified beneficiaries.
ESSENTIAL CHARACTERISTICS OF A WILL
- Legal Declaration: The documents purporting to be a Will must be in legal form, i.e. in conformity with the law, and must be executed by a person legally competent to make it.
- Disposition of Property: The declaration should relate to the disposition of property of the person making the Will.
- Death of the Testator: The declaration as regards the disposal of the property must be intended to take effect after the Testator’s death.
- Revocability: The essence of every Will is that it is revocable during the lifetime of the Testator.
- Execution: An unsigned Will is a worthless paper and its contents are not enforceable. Consequently, it is important for a Will to be duly signed by the Testator in the presence of at least two (2) witnesses; and by the witnesses in the presence of the Testator.
- Probate: Details below
THE PROBATE PROCESS OF A WILL
- Probate usually refers to the legal process whereby the deceased’s assets are collected together and, following various legal and fiscal steps and processes, eventually distributed to the beneficiaries of the estate.
- Roughly speaking, the probate process begins with an application by interested parties, to the Probate Registrar for the Will to be read upon the demise of the Testator.
- The will is usually read at a designated time or day as may be determined by the Probate Registrar.
- Afterwards Probate is usually granted upon another application made to the Probate Registrar by the named Executors of the Will.
- This grant is the authority that the Executors of the Estate have to deal with the assets of the Estate in accordance with the Will. Until this point, the Executors can hardly deal with the assets of the Estate legitimately.
TRUST AS AN INSTRUMENT OF ESTATE PLANNING
- Trust is a legal instrument or device whereby a person called a Settlor delivers part or all of his properties to another person called Trustee who administer and manages the property/ies for the benefit of designated person/s called Beneficiaries.
- The term “person” may refer to an individual or natural person or a juridical person like a corporation.
- It is a transaction usually composed of three parties (Settlor, Trustee and Beneficiaries), each with his own obligations and rights, and involving properties and property interests to address various kinds of purposes.
- The most notable feature of Trust is grounded in the fact that the legal title to the property is in one person while the beneficial interest which is referred to as the “equitable title” is in another person.
- The legal right ownership and control are in the trustee, subject to the duty of applying and using the property as directed by the Settlor, while the right to enjoy the benefits from the property is in the beneficiary of the trust.
TYPES OF TRUST
- Living Trust is a Trust created during a Settlor’s lifetime and which is expected to take effect during the lifetime of the Settlor.
- Unlike a Will, which comes into play only after a person dies, one can start benefiting from the Living Trust while one is still alive. Hence, a Living Trust covers three aspects of a Settlor’s life: when the Settlor is alive & well, when the Settlor becomes incapacitated and when the Settlor dies.
- It basically ensures that the Settlor’s assets are managed and distributed according to his wishes and directives, without court supervision and involvement. This saves the beneficiaries time and money and ensures that the Settlor’s assets and their values are not matters for public record.
- The basic goal of a Living Trust is to avoid probate. In a Living Trust, assets must be re-registered, retitled or otherwise validly transferred to the Trustee. This is particularly necessary to prevent the probate process on the Settlor’s demise.
TYPES OF TRUST
- A Testamentary Trust is created as part of a Will and becomes active after the Settlor’s death.
- With a Testamentary Trust, properties must go through probate before they become subject to the Trust.
- A Testamentary Trust is often created for a minor or young adult child where assets become distributable upon the death of the parents.
- Often, people who create Testamentary Trusts do so to protect minor children or children with disabilities who will inherit the proceeds of the Trust.
- In practical terms, Testamentary Trusts are essentially driven more by the needs of the beneficiaries (particularly infant beneficiaries) than any other considerations.
WILLS VS LIVING TRUST
|Avoidance of probate||√|
|Cut-off of creditors/claims in probate process||√|
|Orderly administration of property prior to death||√|
|Protection of minors and spendthrifts||√||√|
|Expense prior to death||√|
|Expenses after death||√|
|Immediate and continuous access to cash flow||√|
|Provide for method of management of client’s
assets prior to death but after mental deterioration
|Avoidance of Will Contest||√|
MISTAKES IN ESTATE PLANNING
- Not planning at all
- Believing the myth that Estate Planning is only for the wealthy
- Forgetting about little details
- Failing to fund or update a created trust
- Failing to provide information regarding assets and documents
THE ROLE OF STL TRUSTEES
- Asset management, including selling assets to pay expenses and taxes.
- Distributing income and assets to your beneficiaries.
- Making complex tax decisions.
- Paying any debts and expenses.
- Collecting assets payable to the estate or Trust, including, in some situations, life insurance or retirement benefits.