What Does Estate Planning Really Mean?
This article was written by Tulsa Estate Planning Attorney Breanna Grove
When most people hear the term “estate planning” thoughts of the ultra wealthy trying to pass on a legacy to their heirs is often conjured up. However, while occasionally that is the case, the vast majority of my clients are average people of moderate means simply trying to make sure that their children will be taken care of, that their family will not be tied up in probate, and that things will be distributed and wound up as quickly and effortlessly as possible upon their passing or incapacitation.
An Estate Plan is defined as “Written document setting out an estate owner’s instructions for disposition and administration of his or her property at his or her death, incapacity, or total disability”.[i] In simple terms, this means a piece of paper (or papers) that states who will get what and how things are to be taken care of when a person dies or can no longer make their own decisions. An estate plan allows a person to clearly set out what will happen to their belongings and children when they pass. If a person dies without an estate plan (intestate), then their property will be distributed according to the laws of the state(s) where they reside and/or own property. People are often very surprised how their property would pass under state law. [ii]
One of the most common documents used in estate planning is a will. A will allows a person to state how their possessions will be managed and distributed upon their death. Additionally, a will can contain guardianship provisions which states who will care for their minor children if something happens to both parents. Wills are great planning tools for young families who do not have a lot of assets and do not have the financial means to get a trust set up. However, the major downside of wills is that they have to be probated.
Probate is the process wherein the Court concludes your affairs upon your death. If you have a will, the Court oversees the administration of your will and makes sure that your creditors are all paid and that your assets are distributed according to the terms of your will. There is an opportunity to contest the will during probate. Probate is a very time consuming and costly process. On average probate takes from 6 months to 2 years to complete and costs 5% of your estate value. So, for example, a $200,000.00 estate would cost $10,000.00 to probate. Additionally, probate is a public process. Anyone can see exactly what assets you had and how they were distributed.
Another common document used in estate planning is a Revocable Living Trust. A Revocable Living Trust is created while a person is living and can be changed at any time during the lifetime of the person who created the Trust. The person(s) who set up the Revocable Living Trust can continue to use the trust assets during their lifetime and can set the rules for distribution of the assets to the persons of their choosing upon their death. Revocable Living Trusts are flexible, offer many options, and avoid probate. Additionally, pour-over wills almost always accompany a Revocable Living Trust and can contain guardianship provisions to determine the care of minor children.