Estate planning is when you determine exactly how your assets and wealth by handled after you pass away. Estate administration is the act of managing and overseeing the estate plan and seeing your plans come to pass after you die.
Smart estate planning and administration help you protect all your assets and see those precious things carried out after your departure. An estate plan, when done properly, can protect those you love and relieve the burden on the ones that are left behind.
Our goal with this article is to give you a firmer grasp of these two key pieces of the estate planning procedure.
Understanding Estate Planning
You may associate estate planning with trusts or LLCs. And while that’s certainly a part of it, the term “estate planning” can mean a multitude of events.
Benefits of Estate Planning
Estate planning is the act of preparing a person's estate after their death. It involves how your assets are distributed but also includes what happens to your assets during your lifetime as well. You might want to create an estate plan to manage your health care and financial matters if you lack the capacity to do so.
If you have an estate plan, you get to decide how your assets will be handled and split up. This also protects relatives from any unexpected financial obligations, and this way you know exactly what you would like to happen.
In addition, an estate plan can provide peace of mind — knowing that your house is in order and your family will be provided for in the event of a difficult life situation. This proactive approach also removes a burden from loved ones feeling paralyzed by responsibility during what is already an often overwhelming time of grief.
What Is In An Estate Plan
The elements of a solid estate plan typically include:
- Will:
A legal contract of how you want your wealth to be assigned after you die. It does pass through probate, which can delay the distribution. It also becomes public so everyone knows the assets in your estate. - Trusts:
Tools holding assets for beneficiaries, providing both financial support. Can be targeted for asset protection, success planning, charitable donations, tax minimization, and flexibility and control of asset distribution.
- Powers of Attorney:
Legal names that give someone else the right to make decisions for you, in case you become incapacitated. - Health Care Directives:
Directive concerning any treatment preferences if you are unable to communicate. Could include nursing homes, aged-care facilities and DNR orders.
You also need to keep life insurance in the mix of what you will use as your plan for estate planning. Life insurance is designed to help your loved ones and ensure their financial security. It pays for expenses you leave behind, such as burial costs or funeral expenses, and any outstanding debt you might have had.
You might also want to be charitable with your assets once you’re gone. You can include this in your estate plan as a reflection of who you are and what is important to you.
Estate Planning Mistakes
People accidentally make errors with their estate planning, even if they have good intentions.
Not having a will - No will means the state decides how your assets are distributed, and its laws may not coincide with your desire.
Ignoring estate taxes - Many states have an estate tax, and you need to account for that potential liability when you think about the inheritance that will go to your beneficiaries.
Not updating the estate plan - Major life changes like marriage, divorce or having a child should also prompt an estate plan check-up.
Lack of communication - You need to share your estate plan with family members. Start conversations with your loved ones about what you plan to do to avoid misunderstandings and conflicts upon your death.
Similarly, many also forget about digital assets (social media accounts, cryptocurrencies, online banking) as these can become difficult to settle during the post-mortem periods.
Estate Planning From The Beginning
The initial step in estate planning is to collect and assess your information about what you have – the assets, liabilities, and understanding of your finances.
- Document your Assets: This includes real estate, personal property, investments, business interests, patents, cars, collectibles, bank accounts, and more.
- Take Inventory of Your Debts and Liabilities: The debts and liabilities you leave behind may impact what is available to leave behind to your estate beneficiaries.
- Analyze your family dynamics and think about how the estate plan might affect them after you’re gone.
In addition to these basics, you can think about what types of sentimental items there might be that may not be worth much money but family members really want to have. This could include heirlooms, family photographs, or personal letters.
Having documentation of these things and discussing them with family members can help prevent conflict and make sure your final wishes are carried out. You should also speak with a financial advisor or estate planning attorney to research what makes the most sense for you and how the laws surrounding estates can impact your decisions.
Choosing The Right Estate Planning Tools
After you have a good understanding of your financial position you can then decide which estate planning tools are suitable. The choice could be different based on things like your money situation or how you want to support the rest of your family. A few examples of tools include:
Simple Wills:
Ideal for the person with only basic estate planning needs. Small estates don’t need administration, so a will can easily pass along assets, although they pass through probate first.
Trusts:
Good for people who want to avoid taxes, protect their assets, and plan how their beneficiaries will receive their distribution of assets.
Living Wills:
Useful for delineating care preferences in particular circumstances if you become incapacitated.
You may want to consider setting up a healthcare proxy that allows you to designate someone to make medical decisions for you if you are unable to. Estate planning isn’t just for later on. You want a plan about how to administer your goals right now as well, including health challenges and directives.
Updating Your Estate Plan
Your estate plan is not a static document, but it requires periodic reviews and updates. Major life changes often require adjustments, like:
- Change in marital status—marriage or divorce which will affect beneficiary designations.
- The birth of a child/grandchild which requires an amendment about asset allocation.
- Substantial increase or decrease in net worth.
Occasionally it can be useful to re-align your strategy with the current reality. Similarly, stay on top of any changes in estate tax laws or regulations that could influence how you should approach your planning strategies.
Lastly, keep communication open. Talk about your estate plan with your family, Let them know what to expect and how it will happen. Estate planning and administration isn’t a secret. It should be honestly talked about to avoid any legal contentions later on.
Estate Administration 101
Practically, what does it take to run an estate? How do you take your plans and set them in motion once you’re ready? This is what estate administration and estate planning mean.
Estate Administrator Role
The person in charge of managing the estate of a deceased individual is known as an estate administrator. When someone is named in the will to fulfill this role, that person is referred to as an executor or administrator if there is no will. If the estate plan uses a trust, the administrator is called the trustee.
The primary purpose of the administrator is to oversee the process of paying off creditors paying taxes, and distributing assets according to the estate plan. This can be tough to oversee. It takes good organizational skills and an eye for accurate work. In addition, the administrator is often a central source of communication for beneficiaries who might be in grieving states.
Estate Administration Duties and Responsibilities
Here is an overview of the duties of an estate administrator:
Filing the will - If they have a will, this must be lodged with the probate court.
Inventorying assets - The administrator must make a record of property, bank accounts and personal belongings.
Paying debts and taxes - Administrators must pay appropriate taxes and clear outstanding bills before they can distribute any assets.
Distributing assets - All remaining assets are passed along to beneficiaries as directed in the will or trust.
Estate administrators should also effectively communicate with beneficiaries, financial institutions and attorneys. This can mean having to go over sometimes difficult legal jargon and steps with people who may not have a background in estate law. Additionally, the administrator could have to mediate any disputes that occur among beneficiaries.
Most importantly, the administrator must keep thorough records of each step along the way. They must prepare estate accounts, keep records of all dealings, and communicate with beneficiaries, creditors, and the courts regarding the estate; It is this type of diligence that protects the administrator from legal challenges or claims of mismanagement.
Guiding You Through Estate Administration
Probate And Estate Administration
Probate is the legal process which takes place after someone has died where a will is established. If there is no will, someone is hired to establish and distribute the deceased estate. This process can normally take several months or even years. The complexity of your estate and its assets will increase the probate time.
Your estate will be in probate and the executor in charge of distributing assets oversees protection and supervision of the assets until a resolution is made. This usually includes dealing with the court, communicating with heirs and keeping good records.
The administrator will also have to locate and list all assets owned by the party; real estate, bank accounts, personal property and investments. The construction of this list is very important as it will be a foundation for assessing the total value of the estate, making sure that all assets are taken into account when distributing the estate.
Dealing with Estate Taxes
The administration must deal with estate taxes. There are both federal and state estate taxes. Although some states have minimal tax rates. The administrator of the estate is responsible for paying all taxes due, which might require hiring accountants or tax specialists.
The rules around estate taxes will vary by jurisdiction, as well as depending on the size of the estate itself. There are additional chances for deductions and credits regarding your taxes that will lower the total tax you owe. As an example, your estate plan could include some charitable giving, which will lower the taxable estate substantially.
Passing on Assets to Beneficiaries
After the debts and taxes are paid, the estate administrator can disperse assets to the beneficiaries. This process is subject to instructions given in the will or trust (or state laws if no will exists).
Beneficiaries need to be informed so the administrator can manage expectations and address any potential issues. Timely updates and records of communications/milestones will also help keep things organized.
The administrator will also need to know of any specific bequests contained in the will (sentimental items or family heirlooms that a loved one might want to inherit). In some cases, the administrator may need to play the role of family peacemaker by mediating conversations between siblings or other beneficiaries.
The decedent may have died also owning digital assets, like social media accounts, digital currency or online subscriptions that would be administered separately. Digital assets require a certain level of care and can come with unusual legal concerns; the administrator needs to keep abreast of current laws, regulations, and best practices when dealing with these types of assets.
Estate Administration and Planning: Done For You
If all this sounds a little too much, don’t worry. We can help you through it. We’ve worked with countless estates to provide a plan to administer their assets and take care of their families.
And we can do it for you too. Fill out the form below to get started on your estate plan. We’ll talk with you about your goals and desires, and in the end, design the perfect estate plan for your situation.
Why wait? Start your estate plan today.
