The Value and Importance of an Estate Plan

If you speak to any self-respecting financial advisor, one of the key things they will tell you to do is to form an estate plan. The thing to note, however, is that an estate plan involves a few major components. The first, of course, is a Will. Wills are specific outlines for where your belongings will go after you pass away.

With a Will, you can name your heirs, highlight which of your family members will get a part of your assets, and how much they will get, or how your property is to be managed after you are gone. Many people often shy away from having a Will drawn up because it somewhat seems to suggest that they are preparing to die. But that is not necessarily so and should not be seen from that point of view.
Wills are incredibly important documents and what they essentially do is to help ensure that your wishes are adhered to, following your death. And given how no one can really know when one’s passing will come, it is a very good idea to prepare for it, insofar as your properties and assets are concerned and how you wish them to be disposed of after you are gone. Another benefit of having a Will or an Estate Plan is that it can help prevent messy arguments or legal battles between your children/spouse, which can often occur if you don’t have a Will.

In addition to your Will, signing a Healthcare Power of Attorney is another essential part of estate planning. This names one person as legally allowed to make any and all health-related decisions on your behalf, if you are unable to make them yourself. Often, the person you outline in this document will be your spouse or close relative. 

A Living Will is another aspect of estate planning, and it outlines your medical wishes if you are unable to vocalize them. (This is generally in regards to life support.)
Yet another part of estate planning is a Financial Power of Attorney, which highlights who you would like to make your financial decisions, in the event of your incapacitation. This is vital; if you are unable to pay your bills for some reason, having this document will enable your spouse (or whoever you name in the POA) to pay your bills on your behalf. It will also enable them to make any financial or investment decisions for you. 

The last part of any estate plan is a trust, which is a separate, legal entity that can assume ownership of your assets. This is a good way to legally protect all of your assets against misuse by anyone, including your family, regardless of if you are alive or not. 

Managing Real Estate as Part of an Estate Plan

The home is, for most of us, the largest asset we have. Regardless of if the property we are discussing is a primary home, a vacation home, or both, including them in your estate plan is imperative to the insurance that its inheritance and use will comply with your wishes. If you are questioning whether you really should include it in your plan, consider this: compared to a stock or a bank account, this asset is a much more complex asset in regards to inheritance.

The potential to incur legal fees, in addition to taxes, is high if the heir wants to sell the home. The potential for a tax benefit is also high if it is properly planned for. And, if there is an outstanding debt on the home, including mortgage payments, this becomes a much more complicated transaction.

In terms of best managing your properties within your estate plan, there are a few routes you can take.

Create a Will
The first is through your Will. You can easily outline which of your heirs will inherit which of your properties in your Will. The only problem with this is that your Will goes through a Probate process, which is a public, legal review of your Will, that can be expensive and time-consuming, in addition to possibly violating privacy concerns. 

Revocable Trust
The second method is through a Revocable Trust, which allows you (the trustee and the grantor) to control your assets during your lifetime, and dictate specifically where they will go when you die. In the event of your death, the trust acts as a Will-substitute, enabling your beneficiaries to quickly and privately obtain the assets that you wanted them to inherit. In setting up a trust, make sure to contact your lawyer and your financial professional; this is a complicated legal process and it must be set up properly and thoroughly.
 

Transfer on Death
The third option is a Transfer on Death (TOD). This, which is only allowed in some states, allows you to name a beneficiary to your property, on the deed of your property. In this, Probate is avoided, so the transaction is fast and private, and likely less expensive than setting up a revocable trust. The big drawback with a TOD is that you are only allowed to name individuals - you can’t name trustees. This is only an issue if your kids are too young to actually own a property - with a trust, you can name a trustee to own the home in their name until they are old enough.

Homes are big assets, and they can provide major issues in the event of your death. The same goes for all of your assets, but as a home is generally worth several hundred thousand dollars, it is the most valuable, and therefore, the most important, to properly manage within your estate plan. Talk to a real estate lawyer in addition to a financial professional to determine which method best suits your needs. Definitely avoid trying to make this decision on your own. Whatever you might have to pay to hire a lawyer for advice will be worth it in the long run, as it will ensure a smooth, easy inheritance of your most valuable (monetarily and emotionally) asset.