Estate Planning Basics That Everyone Should Know

Nobody likes to think about what happens when they die, but they do say that death is the only certainty in life. If contemplating your own mortality wasn’t exactly what you signed up for by clicking the latest blog post by your favorite wealth management team, we understand. Let’s pivot to more savory images. 

Your loved ones and their progeny are taken care of for generations to come, and most of their stressful decisions revolve around which new restaurant to try, or where to take vacation. The home that you invested in is well-kept, shielding your family from the variety of elements that a year of Austin weather can bring.

It’s comforting to imagine your family is well-taken care of, and this is the kind of pleasant feeling and security that NEST loves to deliver for their clients. Part of financial planning involves estate planning, and we recommend that every one of clients establish a will and / or a living trust at minimum. 

Why should I prioritize estate planning?

You’re young and you’ve got your health – what do you want with a will? 

Well, in the untimely event of death or incapacitating injury, it can do a lot for your assets – and for your loved one’s peace of mind. Regardless of your net worth, it’s important to have a document in place that establishes how your assets will be handled in a worst-case scenario. 

A will can save your loved ones stress, time, and money – and in some cases, lessen the impact of gift or estate tax liabilities. Yes – the tax man comes through even after your soul has left this realm, collecting the “death tax,” also known by its less-grim moniker, the estate tax. 

If you do not have an estate-transfer plan, the government will have one for you – so it’s better to take the reins while you can. 

Here at NEST, we are among Austin’s most qualified, experienced, and dedicated wealth management professionals – and part of being good at our job means being upfront about what we are NOT. We are NOT attorneys, estate or otherwise, and when we do recommend that our clients establish a living trust and/or will, we couple that recommendation with the clause “consult a legal professional.”

With that being said, let’s skim the surface of the difference between a will and a trust, and the role they play in the afterlife of your assets.  

Why do I need a will?

A will is a legal document that expresses a deceased person’s wishes. It becomes active only after the person who wrote the will dies. Unlike the scenes in movies where  family members in cocktail attire gather in a high-ceilinged fancy sitting room to argue about who gets what, a will must go through a legal process called “probate.” This means that it is examined by a court administrator, and all contesting of a will happens in legal settings. 

In addition to naming your heirs, the beneficiaries of your insurance policies, and retirement or other financial accounts, your will also designates an executor who will administer your estate. A will can also delineate advance directives, which name who will take responsibility in certain areas of your life in the event you are mentally or physically unable to advocate for yourself.

For example, wills can name a guardian for your minor children, or a durable power of attorney and a health care proxy to determine who will make financial and healthcare-related decisions for you in the event you are incapacitated. 

There are a lot of specificities that laymen wouldn’t consider when drafting a will – such as what will happen if one of your children gets divorced or passes away, for example. This is just one of many reasons to consult a qualified estate attorney when drafting your will.

Depending on your needs, in addition to a will you may also want to establish a trust. 

What is a trust?

A living trust provides a mechanism to protect, manage, and distribute your assets by enabling a distinct entity to handle your assets for the benefit of a third party, or your beneficiaries. There are different types of trust, but in the case of a living trust you are able to alter the trust at any time and retain full control of your assets. The trust becomes operational at the time of your death. 

In a trust you are able to distribute assets before death, unlike with a will. A trust is a more private option as it does not have to go through the probate process. It is generally more expensive to set up and requires active management, but in exchange you have more control of your assets. 

Unlike a will, a trust does not name guardians for your minor children or other legal details like that. It is concerned with the management of financial assets only. 

The primary differences are that trusts are private while wills are public record. They can both be revised, assuming the trust is a revocable trust. Wills can be challenged in court while trusts generally can not, and wills cover more legal territory while trusts focus on assets only. 

Covering the Basics 

In addition to consulting a legal professional to establish a will and / or trust, there are other things you can do to make things easier on your loved ones in the future, including owning property jointly so that titles are easier to transfer, and incorporating life and disability income insurance into your budget. 

There’s a lot that goes into establishing long-lasting financial security – and here at NEST, we are eager to give you this confidence with a financial plan, so that you can look ahead at the future with excitement and peace. Reach out at info@nestfinancial.net so that we can start manifesting your goals today. 

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DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.