Estate planning is the process by which an individual arranges the transfer of his estate in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries with the flexibility for the individual to decide during his lifetime.
An estate is the net worth of a person at any point in time. It is the sum of a person’s assets- legal rights, interest and entitlements to property of any kind- less all liabilities at that time. Wills, Trusts and Private Foundations are the primary tools which an individual can use to arrange for the distribution of his estate.
Trusts and Private Foundations, unlike wills, have the benefit of avoiding Probate.
Probate is a lengthy and costly legal process that oversees the transfer of an estate to beneficiaries.
A non-limitative listing of some of the arrangements, which can be made, using Trust or Private Foundations, would include:
A life insurance trust, is a trust that owns an insurance policy. At your death, the policy proceeds are paid directly into your trust rather than directly to your beneficiaries. The Trust receives the insurance proceeds after you die, which avoids probate. You will decide how and when the insurance money goes to your beneficiaries by providing for these matters in the trust deed.
A testamentary trust is funded when you die. In this case, you are leaving money to the trust rather than to the beneficiaries. You will decide how and when the money goes to your beneficiaries by providing for these matters in the trust deed.
If you have children or a spouse who depends on your income for their daily needs, you might want to consider a support trust. Beneficiaries of these trusts receive enough money to support them in comfortable pre-determined lifestyle- as long as the money lasts!
With an education trust, you put money into trust for the purpose of providing for your child’s (or other person) education. In this case the funds can only be used for educational purposes.
A spendthrift trust is designed for the person who feels that his or her child, spouse or other beneficiary is either inclined to spend money irresponsibly or is incapable of making educated financial decisions. In such a trust, you would set strict limits on how much money can be given out at any time. To protect against creditors you may expressively state that a beneficiary cannot mortgage his interest in the trust and cannot assign this interest to a creditor.
Every year, too many families go through unnecessary nightmares simply because someone didn’t believe in estate planning.
Fortunately, people are increasingly realizing that estate planning is an essential part of financial planning and is one of the most important decisions you will ever make for yourself and your family.