Most Americans who die in 2011 or 2012 won’t be exposed to the federal estate tax, thanks to the $5 million federal estate tax exemption – but you may still need an estate plan in the form of a will and possibly even a living trust.
One goal of estate planning is avoiding probate, a court-supervised legal process that distributes a deceased person’s assets.
Probate typically involves red tape and legal fees, as well as your financial affairs becoming public information.
Having a will doesn’t help you avoid probate, but it is important.
If you die without a will, the laws of your state will determine what happens to your assets and your minor children. So, you’ll want to draft a will to name an executor for your estate, specify which beneficiaries should get which assets and name a guardian for any minor children.
However, whether your property needs to go through probate is actually determined by how that property is titled, not whether you have a will.
Therefore, in addition to drafting a will, you may want to consider a living trust.
With a living trust, you transfer legal ownership of certain assets to a trust.
Because a living trust is revocable, you can change its terms, or unwind it, at any time, as long as you are alive and legally competent.
But when you die, a trustee you have named to be in charge of the trust’s assets will distribute them in the trust according to your direction – bypassing probate.