First off, a quick reminder that estimated tax payments for the second quarter are due June 15th. This one always feels as if it came a little quick (2 months instead of the normal 3), so if this applies to you, you’ll want to make sure you have those payments all set up in time.
Secondly, I think I’m still in denial that we’re already into June. Our busiest season is behind us, and I always seem to expect that things will slow down in a massive way afterwards … but this year we’ve seen so much energy and growth around our practice, I’m putting in some very full days!
This, of course, is a very good thing. We are SO GRATEFUL to be able to play such a meaningful role in the lives of our clients. It’s all fun, because we really do love what we do around here.
I’d like to talk a little more about planning today. One of the areas that I’d like to see more of my clients moving forward with is in the area of planning for the future, and when the unexpected might strike.
In the case of the recently-departed musician, Prince, his loved ones and families are having to deal with a huge mess, on top of their grief.
Certainly, I’m under no illusion that any rock-and-roll legends are reading this Note, but all of us have many things that are precious to us, and we shouldn’t be under any illusion that we (or our loved ones) will be prepared for the unexpected … unless, of course, we prepare for the unexpected.
So, allow me to explain what it entails, and hopefully spark some thoughts for you about how best to prepare…
“Real World” Personal Strategy Note
What Really Happens To An Estate
“Walk while ye have the light, lest darkness come upon you.” -John Ruskin
There is some occasional confusion about what happens when someone passes away, and what happens to their assets. It will be handled in one of three ways:
(1) if the person had no will, their assets will be distributed as mandated by the state probate code through a court proceeding called probate;
(2) if the person had a valid will, the estate will still have to go through the probate process, but the court will carry out their wishes as stated in their will; or
(3) if the person had a valid living trust (and their assets were re-titled in the name of their living trust), their wishes would be carried out in private, without the court’s involvement.
So … why does it matter to you?
The answer to this question depends on how much you care about what your loved ones have to deal with after you are gone, and how much control you want to have as to who gets what, when, and how they get it.
If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friends/creditors who petitions the court will make these decisions on your behalf through a process called probate. Why do you care about probate? Often, the probate process can take 12-16 months, can be extremely costly, and the process is completely public. The probate process can often lead to squabbling between family members and airs the family’s dirty laundry.
If a person leaves a valid will, it will still have to go through the probate process described above, but the court will have the benefit of knowing how you want your affairs handled. Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you), the court will pass on your assets to the specific people you have identified in your will.
Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.
A living trust (that has been properly funded), on the other hand, gives you more control. If you are working with a professional who has expertise in this field, you can control WHO gets your assets, and WHEN and HOW they get the assets without the court’s involvement. Even better — with a living trust, it is a private administration and can generally be handled in a short period of time.
You may be asking yourself: why would someone ever choose a will instead of a living trust?
Typically, a person will choose a will over a living trust for one of two reasons:
(1) they don’t know the difference between the two, OR
(2) the “cost” of doing a living trust.
There are some obvious advantages to doing a living trust over a will, but starting with something is better than nothing. If you are not yet ready to make a leap into the world of living trusts, then a basic, will-based estate plan is a good starting point.
In addition to giving the court direction about how you want your assets distributed, a will-based estate plan should also include your advance healthcare directive (which identifies the person(s) that will make healthcare decisions for you, if you’re incapacitated) and a durable power of attorney (which identifies the person(s) that will make financial and legal decisions, when you can’t).
While we all care about what happens to our assets, every person over the age of 18 needs to at least have an advance healthcare directive and durable power of attorney.
We’re a phone call away: (410) 224-2600. We’d love to help … or we’ll point you in the right direction if we can’t.
Valerie McLaughlin, EA