What is an "Estate"?
Before diving into the details of estate planning, it is important to first understand the basic question, what is an estate? A common misconception is that the word estate is singular in its usage, and that it only includes property or things somebody owns at the time of their death. Instead, it is more apt to define the word Estate, as used in estate planning, as a broad category that encompasses many types of property that may require simple or complex planning techniques depending on the nature and amount of assets owned.
Probate Estate
When the word "Estate" is used singularly, most are referring to a Probate Estate. A Probate Estate consists of assets that cannot be transferred to others after death without going through the probate/estate administration process.
The Probate process is very public, time consuming and expensive. Without proper estate planning in place, everyone that owns anything at the time of their death will have a Probate Estate that will need sorted out by an Executor, attorneys and a court in every state where property is owned.
There are estate planning techniques available to you that can reduce or entirely eliminate your Probate Estate which will allow your assets to be transferred more efficiently and with less cost and heartache to your loved ones.
Taxable Estate
One of the most important types of estates to take into account is the Taxable Estate. At its core, the Taxable Estate is property or things owned by someone that is in excess of the federal exclusion amount and is therefore subject to federal transfer taxes.
As you might imagine, not everyone will have a Taxable Estate. In 2020 the federal estate and gift tax limits were $11.58 million per person, and is set to increase to $11.7 million per person ($23.4 million per married couple) in 2021. This may seem like an outlandish limit that you don't need to worry about, but it's important to understand that the increased limits are set to sunset (expire) at the end of 2025, creating a taxable estate for some families that haven't done any tax planning. It's also important to note that with an ever-changing political climate, limits may change even sooner than we currently expect.
Through proper estate planning, it is possible to reduce, and in some cases eliminate, federal transfer taxes which may mean the difference between peace of mind or having a fire sale to cover a tax bill when a loved one passes away.
Guardianship and/or Conservatorship Estate
A little more rare than the first two types of estates are Guardianship and Conservatorship Estates which consist of assets owned by the ward (protected person) in a court-supervised guardianship or conservatorship proceeding. Guardianships and conservatorships are typically initiated when someone is incapacitated and does not have a proper estate plan in place.
Guardianships and conservatorships are often-times the most costly and the least efficient method for handling the assets of someone who is incapacitated. There will be significant legal fees and court costs incurred for almost all guardianships and conservatorships alike.
Through the implementation of various trusts, powers-of-attorney and other estate planning tools, it is possible to entirely avoid the need or possibility of opening a Guardianship and/or Conservatorship Estate for you or your loved ones, and allow a more efficient and cost effective way for your assets to managed should you ever suffer an incapacitating event.
Trust Estate
Trust Estates are unique from the other types of estates because through the proper formation of a Trust Estate, you can modify, limit, or eliminate the need or possibility of the other types of estates entirely.
A Trust Estate is made up solely of assets that are held in a trust. There are many types of trusts available to use in a variety of situations, and the Trust Estate consists of the assets transferred into such trust(s). It is common that multiple trusts, formed as part of a comprehensive estate plan, work together to carry out your wishes when you're unable to do so due to incapacitation or death.
Trust Estates have many flexible and efficient benefits that the other types of estates do not. A Trust Estate, when properly formed, can hold all of your assets during your lifetime during times of good health and incapacity alike, provide for the smooth transition of decision-making authority upon incapacity or death, reduce or eliminate certain types of transfer tax liabilities, and provide for ultimate privacy without the need for public court intervention.
Give us a call today to discuss which estate planning tools would most benefit you and your family!