This month I had the opportunity to attend an estate planning seminar put on by a company that prepares estate plans. To start off, I want to define: “Estate planning is the act of preparing for the transfer of a person’s wealth and assets after his or her death. Assets, life insurance, pensions, real estate, cars, personal belongings, and debts are all part of one’s estate.”
The particular cost of this company’s services to prepare an estate plan was $2495 for individuals and $3495 for couples. Not exactly cheap! They also used scare tactics in order to persuade you to use their services to avoid pitfalls. Here I’d like to share what I’ve learned thus far in regards to proper estate planning and to encourage you to create an estate plan without fear.
First off, why should you develop an estate plan? The answer is to avoid the costs and complications of probate court. Probate court is a section of the court system that transfers money and property from the deceased to heirs, beneficiaries or other entities. Even if you have a will in place, you or your family members will still have to go through the probate process.
Probate court is an opportunity for the assets of the recently passed or incapacitated person to go into limbo until the value of the estate is determined, creditors and lien holders are paid, and the tax authorities get their fair share.
Here in Virginia where I live, if the total value of the assets of the deceased person does not exceed $50,000, then probate court will not be necessary. This excludes certain assets as well including life insurance policies with named beneficiaries and also payable on death (POD) accounts or Transfer on Death (TOD) bank or brokerage accounts.
Also “jointly” owned property does not have to go through probate. Instead it is passed from one owner to the other joint owner. But if your relative is the sole owner of their own house, especially with the current value of most real estate in VA, then most likely you will still be headed to probate court if you are the intended recipient.
Fortunately, probate court in Virginia is usually a rather smooth process. However the process can become lengthy with offers the opportunity for creditors to make claims to compensation through the transfer of estate. This can become complicated if you or your family members carry a lot of debt (another reason to eradicate debt as soon as possible).
Proper Estate Planning
There is no doubt that creating an estate plan is a daunting challenge considering it is one of those things we tend to put off. Unless you or someone you love are facing imminent death, it is safe to say that most of us do not have our protections in place… including me!
Here is what I have learned so far… you don’t always have to hire an attorney in most cases to create your own estate plan. That of course saves you money right off the bat. Forms with the proper legal terminology are available online to fill in the specific information pertaining to your unique situation. These can be obtained inexpensively, usually for less than $100.
One way that you can avoid probate in its entirety is to move your assets into a revocable living trust. A revocable living trust is a way to protect your assets into ownership of a “trust”. The “revocable” terminology comes from the fact that it is changeable by the “living” owner of the trust.
The sole trustee of the revocable living trust is the person who presently owns the property and is currently alive and competent. In other words, it is us, the people who own the house, cars, and other assets. Under the trust, a successor trustee can be named who assumes control of the trust if the sole trustee were to become incapacitated or dies. The successor trustee then manages and distributes the assets as described in the trust.
Unfortunately for all of us, this will be the case sooner or later. That is why it is important to take these steps now before that happens to you or your loved ones. I am in the process of researching and implementing my own estate plan and those of relatives. As I do, I will update this post which will hopefully save you time and money both now and in the future during the transfer of assets.