5 Types of Estate Planning

Written by Will Worsham

How Do We Plan

There are several kinds of plans and in this blog I will lay out for you a few of the most common and add some personal thoughts.  In my experience, most people begin to think about Estate Planning when they want to transfer their assets to their beneficiaries after death and want to make the process smooth for their family.  Bruce Porter shares more about why people plan in the blog Why Should You Have A Plan? The 5 W’s Of Estate Planning.

One of the biggest concerns is avoiding probate courts.  Now, let me take a minute to share some context for what probate is. “Probate is a lawsuit you file against yourself after you’re dead with your own money for the benefit of your creditors.”  While your estate is settled in probate many fees and charges are incurred such as attorney fees, court costs, executor fees, income tax, death tax, appraiser fees, and CPA fees among many others THEN whatever is left is given to your family.  So, as you can imagine, I will prefer plans that keep people out of unnecessary visits to probate. 

No Plan

Some people would rather not bother with planning.  They tell me things like, “I don’t care what happens, I’ll be gone” and while they are not wrong, they tend to leave a mess behind for their beneficiaries.  When one has zero planning in place, they actually DO have a plan.  There is a plan assigned to an estate by the local government.  This plan varies by state but the estate must go through probate court and allows ample opportunity for family conflict. 

Will Plan

When people begin to consider Estate Planning, they usually call up a lawyer and say “I need a will.”  But what does a will actually accomplish?  A will is a legal document where a person specifies the management and distribution of their estate after death.  Many people have a will and think that they are all set.  In reality, the estate will still have to go through probate court.  A will is the direction of your wishes given to a probate judge.

Retitling Plan

One way that people might get around probate is by retitling their property to their beneficiaries. Examples of this are putting their children’s names on bank accounts, house, cars, etc.  This is not ideal though because it exposes all those assets to more liability.  Should that child, whose name was added to those assets, incur a massive debt of some kind (ie. a judgment from a car accident) everything with that child’s name on it is subject to that debt…including Mom and Dad’s house, cars, savings, etc. 

“Nonprobate Transfer Law” Plan 

This plan can be found in the Revised Statutes of Missouri, RSMo Section 461.073.  This plan consists of several steps that can be carried out to transfer assets to your beneficiaries, largely outside of probate.  You would execute this plan through beneficiary deeds on real property such as houses, farms, etc.  Beneficiary designations on investment and life insurance accounts. Transfer on death titles on automobiles such as cars, boats, trailers, etc.  Payable on death information on bank accounts such as checking, savings, CDs, etc.  A Durable Power of Attorney for the time of your incapacity.  And a small Estate Probate for personal property.  Now once all those steps are completed, this is a pretty ok plan. But let’s say that something unexpected happens.  There is a divorce in the family, massive debt is incurred by your or your beneficiary, someone is irresponsible and spends the asset inappropriately, or everyone you designated passes away in the same incident or near the same time?  This plan allows for no contingencies and you are left with “no plan” in place.

Revocable Trust Plans 

This is a trust that can be changed by the grantor at any time.  It avoids probate and leaves the grantor totally in control of the outcome.  The revocable trust allows flexibility of asset protection in the case of divorce and flexibility of asset protection from creditors.  You can include directions for a spendthrift provision to protect against wastefulness and responsibility.  You can also include planning for those with special needs and those who might need long-term care. 

The revocable trust also allows for you to detail contingency planning for unexpected events (ie. if your entire family dies on a vacation you could have detailed that you want your estate to go to a charity).  This plan is, in my opinion, the best because of the flexibility allowed during the writing of the trust and the ability to amend at any time in the future. 

Other Plans

Remember there are many other planning options out there.  Estate Planning does not have to be complicated, but it is not a one size fits all situation.  That is why it is important to know the outcomes you desire and visit with professionals for guidance to make sure the plan that you choose will accomplish your goals.  For more information about Estate Planning, join me and the team at The Resource Center for our monthly Estate Planning workshops. Click here for the next dates.

The Resource Center is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and The Resource Center are not affiliated companies. The Resource Center has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. Information and opinions contained herein that has been obtained from third party sources is believed to be reliable however accuracy and completeness cannot be guaranteed. 00820389 02/21