7 estate planning terms to know

Estate planning is very important; however, it means coming to terms with your own demise.  Still, if you want to have a say as to who gets your assets after you’re gone, estate planning is a must. What follows are some common terms associated with estate planning and brief descriptions.

  • Probate – The judicial process whereby the will of a deceased person is presented to a court and an executor or administrator is appointed to carry out the will’s instructions. Probate can take many months (or years) depending on the size and complexity of a person’s estate.  Probate is also a public process, meaning you lose any privacy around your financial affairs.  Owning property in multiple states complicates matters further.  Fees associated with probate can be quite high, too.
  • Will – Also known as a last will and testament, a will is a legal document that spells out your wishes regarding your assets after your death and assigns guardians to any minor children. Wills must go through probate.
  • Payable on Death (POD) – Most commonly used on bank accounts. Assets transfer over to the beneficiaries named on the account by presenting a death certificate. No probate needed.
  • Transfer on Death (TOD) – Very similar to the POD but used on individual or taxable brokerage accounts. Beneficiaries are named and assets are transferred to them upon documentation of death. No probate needed again.
  • Primary & contingent beneficiaries – For any individual retirement accounts (IRAs) and other retirement accounts, it’s important to have both a primary and contingent beneficiary (or beneficiaries) named. Upon the death of an IRA or retirement account owner, and after a death certificate is presented, these assets will transfer over to inherited IRA accounts in the names of the beneficiaries and do not have to go through probate. If no beneficiaries are named or the assets pass through to the estate, this will fall under probate.
    • Naming a trust as a beneficiary to an IRA – While we prefer to see humans as IRA beneficiaries, please consult with your attorney if you or they want to name your trust as an IRA beneficiary.
    • Naming a charity as a beneficiary to an IRA – If you want to leave some of your retirement assets to a charity, and you have individual beneficiaries as well, talk with us to understand the potential implications.
  • Trusts – Assets left to a trust do not go through probate, but you’ll want to work with an estate planning attorney for this type of planning. Trusts can be very simple or very complex, depending on how one wants assets distributed and affairs handled.
  • Funding a trust – When you create a trust using an estate planning attorney you’ve taken the first step. The second step requires retitling assets in the name of your trust, otherwise, the trust document doesn’t fulfill its reason for being.

We suggest engaging the help of an estate planning attorney for wills and trusts.  PODs are easy to set up through a financial institution, and P&A can help you with TODs and beneficiaries for the accounts we manage for you.  The bottom line is that estate planning documents are essential if you value privacy or want to have a say in how your assets are divided.

 

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Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security. To learn more about our firm and investment approach, check out our Form ADV.

To view this article and others like it online, visit the P&A blog at https://pittand.com/blog/.

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Since 1995, Pittenger & Anderson has guided individuals and families going through money-in-motion events. We are a fee-only Registered Investment Advisor and a full-time fiduciary providing investment management, financial planning, and complimentary services to 700+ clients in over 30 U.S. states.

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