Estate Planning FAQ
What is estate planning?
Estate Planning is the process of considering alternatives for effective arrangements that meet your wishes in the event death or disability occurs. An estate plan has goals that are both financial and personal. Having an estate plan assures that your assets will be directed and used in accordance with your wishes. From a personal standpoint, a proper estate plan is a set of directions; a guide on how to carry out your wishes regarding your healthcare and financial matters as well as guardianship of minor children and disabled loved ones. A good estate plan will let you, not the courts, keep control of your assets and control your decisions about medical care and the care of your loved ones.
What is an estate?
An estate is everything you own, including real property (houses, buildings, etc.), personal property (bank accounts, stocks, bonds, mutual funds, furniture, automobiles, art, jewelry, etc.), business interests, life insurance polices, and retirement accounts.
Who needs to do estate planning?
Everyone. Naturally the older you get the more you begin to think about how to transfer assets to loved ones and grown children, but families with small children should also have an estate plan. An estate plan protects and helps guide the person you choose to care for your children in the event of your death or incapacity.
Individuals who have children from previous marriages also need estate planning. Without proper planning your assets will be divided up according to the statutory “Intestate” laws of Maryland.
Estate planning is not only for the wealthy; it is important for everyone who has family and/or loved ones, property they care about and concerns regarding their healthcare treatment in the event of disability or incapacity.
What happens if I do not plan at all?
In Maryland if one does not make any type of estate plan they will have died intestate. Intestate means without a will or other testamentary document such as a trust. In the situation with a spouse and minor children for example, the spouse would receive $15,000 and the balance would be split ½ to the spouse and ½ to the children (in trust until they reach age 18). Such a trust would have to be supervised by the court. If a person died intestate, leaving a spouse, no children, but a living parent, the surviving spouse would receive $15,000 plus ½ the remaining estate, the parent or parents of the deceased would receive the other half.
Why do I need an Estate Plan if I own all my property jointly with another person?
Joint Ownership is one of the most common plans used by families. In fact, if you are married you probably own most of your assets jointly with your spouse. The type of joint ownership most people use is known as Joint Tenants with Right of Survivorship. This means that when you die the survivor has full ownership of the property. Many people think that joint ownership will avoid probate when in reality it just postpones it.
For example, if A and B are married and A dies leaving B the property, no probate, the property will still go to probate when B dies, unless someone else is added onto the title of the property.
Owning assets jointly can also cause other problems. What if B remarries after A dies and holds the property as joint tenants with the new spouse. Is the new spouse under any obligation to give anything to B’s children? NO, even if B states in her will that she wants her property to go to her children, the property belongs to the new spouse and he/she can use it as he/she wishes.
Can’t I just name my loved ones as the beneficiaries of my asset accounts instead of estate planning?
Today, many assets including, retirement, IRA accounts, insurance polices and bank accounts let you name a beneficiary. The idea is that when you die those assets pass to the named beneficiary without probate. This is not entirely true.
If your beneficiary is incapacitated when you die, the court will probably take control of the assets for that person. If you and the beneficiary die at the same time, the assets will have to go through probate to be distributed to the rest of the estate. If a minor child is the beneficiary the court will again get involved to protect the child’s interests and disburse the funds according to statutory requirements.
So in effect, by just using beneficiary designations you leave your estate open for possible probate and court supervision of assets.
Can’t I just add my child’s name to the title of my home?
First of all, you are not just “adding a name” to a deed, you are, in effect, giving half of that property to that person. This person is now a joint owner of the property. The joint owner of the property can sell or transfer his or her half, or can force a sale of the property. The joint owner may be legally entitled to live in that property, or to require the person living in that property to pay rent.
Another problem with joint ownership is that you expose the property to the other owners’ debts, so if the joint owner has a significant unpaid debt, or is sued, the property could be seized or sold. Finally, there can be significant tax consequences to this action that could result in a tax bill that far exceeds any savings on probate costs.
Having another individual’s name added to the deed of your property is a step that should never be taken without consulting a professional who can advise you as to all of the applicable financial, legal and tax consequences.
Do I need an attorney to prepare my estate plan? Isn’t it expensive?
Often the expense of retaining an attorney to prepare an estate plan is minimal versus the money saved in taxes, probate and other administrative expenses. Tax, Estate and Property laws change very quickly and only an attorney who regularly practices in the area of Maryland Trusts and Estates is able to provide you with sound advice and a comprehensive plan that encompasses all of your specific needs. When dealing with your hard earned dollars and the future of your loved ones, a professional should be consulted.
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