This guide is presented by Advantage Estate Planning and intended to help you understand the basic principles of estate planning, as well as lifetime personal planning. This guide is for clients whose personal and financial situations vary greatly and is not a substitute for the personal guidance and attention we will devote to your individual estate plan.
While the term “Estate Planning” may have many different interpretations as unique as individuals, most of us can agree that this process involves the desire to control one’s property while living, take care of self and loved ones in the event of disability, and upon death, to give what remains to desired beneficiaries, how and when it is best for the beneficiary’s circumstances. Most plans also include goals of avoiding taxes, court and legal fees, as well as simplicity of plan execution. Your estate planning may have individual tax and non-tax factors, special beneficiary issues, or personal preference limitations. It is important to select advisors, including an attorney, with experience in the area of estate planning.
About the Author
In private legal practice since 1995, Lisa Reeves is an accredited member of the National Academy of Elder Law Attorneys, maintains certification by the Veteran’s Administration, instructs advanced education in issues affecting the mature client and estate planning, and provides public informational seminars in her area of legal expertise.
If you don’t have a plan for your estate, the government does.
If you do not implement an estate plan, the State of Arkansas (or state of residence upon death) will provide for the distribution of your assets through the laws of intestacy.
Intestacy. When an individual dies without a valid Last Will and Testament, Trust, or other written estate planning document, the individual dies “intestate” and title to the property owned at death, both real and personal, passes to beneficiaries dictated by state law. Contrary to popular misconception, the property does not pass directly to the state or county; however, it rarely results in the distribution the owner desired.
Other methods of transferring title. In addition to intestacy, there are other intentional and too often unintentional methods of passing title to both real and personal property. Methods may include:
- Joint Ownership. Joint Ownership or Joint Ownership With Rights of Survivorship is ownership of real or personal property with another individual or individuals. Upon death of a joint owner, title (or ownership) passes automatically to the surviving owner or owners. Titling property in joint ownership is often used as a substitute for formal estate planning. While usually appropriate when held jointly between spouses (known as tenancy by the entirety in Arkansas), joint ownership may take precedence over the provisions in a Will or Trust, resulting in unintended ownership after death.
While perceived advantages to joint ownership may include avoidance of the probate process and of unsecured creditors, disadvantages include unnecessary tax liability, loss of control, loss of ownership, lack of a contingency plan, and potential disputes between family members.
- Pay on Death/Transfer on Death. Various accounts, such as certificates of deposit, bank accounts, savings bonds, securities and other similar assets allow designation of a beneficiary upon the owner’s death. Problems with this type of designation can arise when the beneficiary designation contradicts the terms of a Will, if there is an incapacity or disability issue, or a predeceased beneficiary.
- Beneficiary Designations. You may designate a beneficiary or beneficiaries on annuities, insurance contracts, or retirement plans, with proceeds to be paid upon death. Again, contingency or incapacity issues can result in unintended consequences.
- Gifts During Lifetime. Owners of property, either real or personal, can make an effective transfer of title by gifting an asset. However, gifting deprives the original owner of any future use of the asset and must be done within the limitations of gift and estate taxes to avoid any undesirable tax consequences.
Any of the above methods of passing title should carefully be considered, and if used, done so with planning to avoid problems, such as:
- conflicts with the terms of your Will or Trust;
- loss of control or ownership of assets;
- control or seizure by an unintended third party;
- death of the beneficiary, in which event the asset may revert back to your estate; and
- the unintended disposal or control of the asset by the beneficiary during your lifetime.
To avoid the pitfalls of intestacy and other methods of passing title, you need to make a plan. Read on to familiarize yourself with the basic principles of estate planning.