When someone asks, “do I need a will?”, what they really want to know is, “do I need an estate plan?” Before you know whether you need one, you need to know what an estate plan is. You also need to know what it is used for. In this article I will be discussing: 1) what your estate is; 2) what happens to your estate after you die; 3) what an estate plan is; and 4) why one might be needed.
What is an Estate Plan?
I’ve have talked about this before, but simply put an estate plan is a plan for what happens to your estate when you die. Of course this begs the question, “what is my estate?” The straight forward answer to that question is – your estate is all the property that you own. This includes land, personal property (i.e. your dining room table or lawn mower), cash, stocks, a business, in short – everything. So, an estate plan is a plan that you have in place before you die for what happens to your property after you die. A Will (also known as a Last Will and Testament) is usually just one part of an estate plan.
What is My Probate Estate?
Just to confuse things for a minute, let’s talk about the law. Broadly speaking, when you die the state (Arkansas for instance) has laws that divide your property into two categories. One category is known as your probate estate. The other is your non-probate estate. Property that is in your probate estate has to pass through a court process (known as probate) before it is distributed. Property that is in your non-probate estate does not have to go through the probate court process.
Probate Estate or Not, Which is Which?
You are probably now asking, “how do I know what category my property falls into?” There are laws that determine whether property is in your probate estate. The laws aren’t necessarily concerned with the type of property (i.e. whether it is land or a car), but how it is titled and whether you have designated a beneficiary on certain types of property – such as retirement accounts or bank accounts. (Here is a short but good article on beneficiary designations)
Property that is owned jointly with another (or others) with a right of survivorship designation passes to the surviving owners after your death. Land, autos, and bank accounts can all be owned jointly with a right of survivorship. Upon your death the property passes directly to the surviving owners without the need for probate court. In other words, jointly held property with a right of survivorship is in your non-probate estate.
Further, property that you have put in trust for another or listed a beneficiary or pay on death designation for also is in your non-probate estate (assuming the beneficiary survives you). This article does not go into great detail about trusts. However, generally speaking, any and all property can be put into a trust. (Here is an article on what a trust is and how it works).
In broad terms, your probate estate consists of any property that you own at your death that: 1) does not have a right of survivorship designation; (2) does not have a beneficiary designation; and (3) is not being held in trust for another. The property in your probate estate generally has to go through probate court to transfer title (for land) or to be distributed (for personal property).
How Do Beneficiary Designations Work?
Beneficiary designations set out who gets your property after you die, just like a Will. However, if the beneficiary survives you, the property passes to them directly without the need for probate. For example, if you list your son and daughter as the beneficiaries of your 401(k) retirement account the funds in your retirement account will automatically pass to them upon your death. The funds will not need to go through probate. However, if you do not have a beneficiary listed for your 401(k), upon your death the funds go into your probate estate. They will then have to go through the probate court process. Generally speaking you can designate beneficiaries on any financial accounts. In Arkansas, you can also designate beneficiaries for land with something known as a beneficiary deed.
Estate Plan, Do I Need One?
This brings us back to the beginning of the article and the question, “do I need an estate plan?” First, let me point out that, unless you have absolutely no property or you absolutely don’t care what happens to your property when you die, you should have some type of estate plan. Second, if you have ever thought about what will happen to your property when you die (and chances are you have, since you are reading this article), then you probably already done some estate planning. If you have listed someone as a beneficiary on your life insurance policy, you’ve done some estate planning. If you have filled out a Pay On Death form with your bank, you have done some estate planning.
The type of estate plan that is right for you depends on the amount and type of property that you own and the ways you want it distributed after you die. An estate plan can be relatively simple and inexpensive or it can be complex and cost thousands of dollars to prepare. Regardless of the complexity or cost of your plan, what is important is that your estate plan fulfills your wishes and passes your property to the persons or entities that you want to have it after you are gone.
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