According to author Henrietta Newton Martin, “To curtail complications and help in the procedure of devolution of assets after death, a will has to be well prepared and written.” It is with this quote in mind that we aim to demystify the often confusing concepts of estate planning and administration. Whether you’re planning your own estate or preparing the administration of an estate as an executor, these matters are a fact of life, so it’s best to get a grasp on them.
To help you wrap your head around this sometimes convoluted topic, we first have to familiarize you with what estate planning and administration means, emphasizing the “why” and “how.” We’ll get into what estate planning and administration is, what forms it takes, and why Ms. Martin’s advice is so sound. By the end of this article, you’ll be far better prepared to work on your will or get started with probate administration.
What Is Estate Planning?
Contrary to the popular belief that estate planning is only for the wealthy, this legal process is not relegated to upper-crust society. Let’s say a person who owns property or assets dies without estate planning. That person is leaving germane decision-making regarding such estate asset or property in the hands of the state (intestate estate) rather than a trusted, self-appointed personal representative. This, of course, has its drawbacks, and that brings us to the question: What is estate planning in the first place?
Estate planning is defined as the preparation and arrangement an individual makes while alive towards the management and disbursement of their estate to avoid conflict and family issues. The estate plan goes into effect in the event of incapacity or sudden death.
You may want to ask: what makes up an estate? An estate comprises the individual’s real and personal properties, such as:
- Building structures
- Landed properties
- Intellectual properties
- Stocks and bonds
- Life insurance
- Bank accounts
- Businesses (for business owners), including family businesses or larger enterprises
- Digital assets
and so on.
Forms of Estate Planning
Having familiarized you with the meaning of estate planning, let’s go ahead and highlight its various forms. Generally, there are four forms of estate planning suitable for every class of beneficiaries: trusts, wills or codicils, a deed of gift, and power of attorney. We’ll explain these four forms of estate planning below.
Trusts: A trust, by definition, is a legal asset protection planning process. In a trust, one party (the trustor) grants rights to another party (the trustee) to perform fiduciary duties (take charge of properties or assets) for the eventual benefit of a third party (the beneficiary). The beneficiary or beneficiaries may include dependents or minor children, and this arrangement prevents estate tax issues and beneficiary tax future burdens.
There are two types of trusts. One is called a testamentary trust; it’s planned in the trustor’s last will and testament and kickstarted when they die (i.e. insurance trusts and asset protection trusts. The other is called a living trust and is prepared and planned during the trustor’s lifetime (i.e. revocable trust and charitable remainder trusts). Either type is often used in the administration of estates to prevent problems with estate taxes and guarantee proper beneficiaries.
Deed of Gift: A Deed of Gift is defined as a “gratuitous arrangement.” Its sole aim is voluntarily transferring legal ownership of a property (real or personal) from the original owner of the property (the donor) to a beneficiary (the donee) without the collection of any compensation or payment from the donee. There are several gifting strategies to choose from if one decides to make a deed of gift arrangement; these gifting strategies are dependent on the type of beneficiary (adult children, dependents, or family members).
Powers of Attorney: By definition, Power of Attorney (POA) is a legal arrangement in which basic estate planning documents grant an individual (the agent) the durable power to act and make decisions on behalf of another individual (the principal). This power can be used only in the event of the principal’s absence, disability or incapacity. Power of Attorney, which can be revocable or irrevocable, can give the agent limited or broad legal power to decide what happens when it comes to the principal’s estate, finances, or health care directives.
Benefits of Estate Planning
Sun Tzu, the legendary Chinese general, writer, and philosopher, said, “Plan for what is difficult while it is easy and do what is great while it is small.” His words go a long way towards explaining the benefits of a full range of estate planning.
Estate planning, sometimes with the help of an accredited estate planner or as a DIY project, can help you take control of what happens to your estate should you become incapable of making decisions about the administration of assets. A vast array of estate planning techniques also aids in the minimization of cost, distribution of assets to beneficiaries, minimization of estate taxes, avoidance of disputes, protection of beneficiaries, and more.
Estate Administration can be described as the act of taking the estate of a deceased person through probate. Probate is the general administration of a decedent’s will or the administration of the estate of a deceased person who has died intestate (without a will). Estate administration can therefore get further described as the legal process in which the assets of a deceased individual are reviewed and distributed to the right inheritors. In this section, we’ll explore how estate administration works.
Relationship Between Estate Planning & Estate Administration
The easiest way to explain the relationship between estate planning and estate administration is to say that, simply put, estate planning is done in preparation for estate administration. Let’s break that down further. Estate planning is carried out by you during your lifetime. You plan your estate for the sole purpose of stipulating what should be done with your properties when you are unable to make decisions or when you pass away.
On the other hand, estate administration is carried out by the person you appointed as executor or personal representative during estate planning after you have passed away. This person has the sole purpose of managing your affairs or granting your last wishes which got made during succession planning for your estate.
The probate court has the authority to make decisions on matters involving wills, conservatorships, and estates. The probate court must ascertain the originality of a will (and the death certificate), ensure the original documents got signed legally, and ensure that the stipulations of the will are adhered to per state laws concerning estate planning & administration.
Every probate cost incurred is paid directly to the probate court. The court also decides in situations such as:
- Will contests
- Litigations, and
- The provision of any legal advice regarding probate estates.
The Main Role of Probate Court
The main role of the probate court during a formal probate proceeding is to oversee the whole process of probate administration. It supervises proceedings, ensures the will is valid, and watches to make sure all players (the executor or administrator, the legal assistants, and the beneficiaries and survivors) adhere strictly to the probate laws of the state. This court-supervised process aims to ensure the effective delivery of justice and eliminate all inadequacies in the administration of the will. It also gives room for advanced estate planning & probate if deemed necessary.
Generally, the court’s roles vary depending on the nature of estate planning & administration. Major factors that determine the roles of the court are:
- Testacy and intestacy
- Will contests and objections, and
- Any litigation processes.
What Happens at a Probate Court Hearing?
The main event at a probate court hearing involves the judge appointing the executor of the will. Afterward, the judge lists and explains the duties and obligations that bind the executor to the legal services for the estate. These include:
- Asset appraisal
- Contact of beneficiaries and creditors
- Payment of debts and taxes, and
- Closure of the estate.
The judge does this so the executor understands exactly what they’re getting themselves into before agreeing to fulfill the role.
Probate Court with and without a Will
When an individual dies, the probate court first finds out if the deceased person has left a will behind. If there is a will, the court then moves to probate the will. If not, the process is quite a bit harder. Let’s take a look at both scenarios here.
Probate Court with A Will
Probating the will is the legal process undergone to determine the validity and authenticity of the will. If the will turns out to be valid and authentic, the probate court then moves to appoint an executor to administer the will. The executor then carries out succession plans and distributes the assets according to the decedent’s stipulations. The cost of probate also has to be met during this process. However, if the will turns out to be invalid, the court reviews the situation and rules on how the assets get distributed per state laws.
Probate Court Without a Will
What happens when an individual dies intestate, which simply means the individual has died without a will or any form of wealth transfer planning? The probate court rules for the decedent’s assets to get passed down to their immediate survivor or next of kin in what is known as the law of intestate succession. The court also stipulates the distribution of assets to family members and potential beneficiaries and rules on claims of creditors according to state laws. Some of the items not subject to probate in such scenarios include:
- Retirement accounts based on the deceased’s retirement plans
- Beneficiary designations (based on the existing beneficiary rights)
- Assets under the revocable living trusts and irrevocable trusts, i.e. charitable trusts and special needs trusts
- Any life insurance policy
- Any community property
When Do You Need an Attorney for Estate Planning and Administration?
In estate planning and administration, legal practitioners play a very important role. While it is true that the estate planning process is carried out during the lifetime of the planner and by the planner, it is still very important to ensure that the estate plans are effective and won’t cause any complications when they are to get executed.
While you may have learned a few things about estate planning and administration from this article, you might still need some help in making your own plans or probating an estate. Should you need more information about this topic or other topics that have to do with estate planning and probate, feel free to contact A People’s Choice. We are a legal document preparation service dedicated to making estate planning and administration as easy as possible for you. Contact us today to get started!
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