Estate planning is the strategy an individual uses to plan what will happen to their assets after they pass away. It’s an important piece of your overall plan that will help to make life easier for your family after you are gone. The primary advantage of using the two estate planning strategies that will be discussed in this article, is that they both can avoid probate. This is a lengthy legal process set up so that assets are distributed fairly and in accordance with the law. Not having an estate planning strategy in place can be stressful and expensive for your family and/or beneficiaries. To protect your assets and to preserve your peace of mind we recommend that you engage in one or both of the following strategies for distributing your assets after your passing: Designating your accounts/assets as Transfer on Death or by setting up a fully executed living trust.
Transfer on Death Accounts or (TOD) as they are commonly referred to are accounts that when designated as such transfer immediately to the stated beneficiaries without having to go through the probate process. Setting up a TOD account is simple to do and can be used for most financial accounts such as bank accounts and security investment accounts. Other assets like real estate, bank accounts, and even cars also be transferred on death immediately. Annuities, life insurance policies and retirement accounts like the 401k and IRA cannot be listed as TOD, but you can still designate beneficiaries in order to make sure these assets avoid probate. The only real downside to utilizing this strategy is that the assets that are passed along in a TOD account will not have any instructions or restrictions for how they are used and any expenses related to the estate won’t be easily paid using its assets. If this is something that you might need then you should consider setting up a living trust.
Living Trusts are a legal entity set up whilst the owner is still alive that ensures distribution of assets in accordance with the owner’s wishes. These trusts are highly customizable allowing a wide range of assets to be held such as real estate, collector’s items, and non-retirement investment accounts. Additionally, a living trust can be setup with rules and restrictions for the beneficiaries, such as: Restricting the assets until the beneficiary turns a certain age, allowing for periodic predetermined payments, and even choosing what money can and cannot be spent on. These rules can be changed at any time as living trusts are amendable, meaning you can adapt them as your situation changes. Another advantage of the living trust is that it can provide asset management in the event of incapacity/illness of the owner, while a TOD can only be utilized upon death. It’s Important to remember that assets must be retitled in the name of the trust otherwise they will not be protected. It’s important to coordinate your asset ownership to reflect the intension of the trust’s grantor. Forming a trust can be complicated so we recommend that you hire an attorney to help set one up and to discuss if it is a good fit for your situation.
Deciding what’s right for you
Our VP of Estate Planning Malia Haskins contrasting these two strategies: “When considering a living trust versus transfer on death (TOD), I typically recommend the living trust when clients have taxable estates, and they want to provide continued asset management and asset protection for beneficiaries. TOD should be used in situations where the situation is fairly straightforward, meaning there are a limited number of beneficiaries, and they are likely to be good stewards with the assets they receive.”
Conclusion
You worked hard for what you have and want to make sure that when you leave it behind that your family can avoid the stress and costs of the probate process. That’s why we recommend discussing estate planning as a part of your overall financial plan. Designating your financial account as Transfer On Death will help your beneficiaries avoid unnecessary stresses during an emotional time, and setting up a Living Trust can help to distribute your estate in the exact way you want. If you have any questions about setting up estate planning documents, please reach out to your Nepsis® Advisor for more information.
Advisory Services offered through Nepsis, Inc., an SEC Registered Investment Advisor.