In this article I try to explain the basics of “estate planning” which is the term lawyers use for arranging for the distribution of your property upon your death. When I first heard this term I thought of mansions and walled “estates”. However, an estate can be a mobile home or just some furniture. Before getting into the subject, I want to explain what happens to your estate when there has been no planning.
One misconception some people have is that if you don´t have a will or a trust, the state takes your property. This is only true if you don´t have a will or a trust and you have no heirs who come forward to probate your estate. If you have a spouse, child, brother, sister, parent or even uncle or aunt or grandparent who survives you, even with no will or trust, anyone of those can inherit your property. The following are the rules for who gets what if you have no testamentary disposition, i.e. no will or trust:
If you are married your spouse gets all the property that was community property. With a will you can give your half of the community property to your kids or whomever you want. If you are married you may also have separate property that is not community property of the marriage. If you make no will or trust for that property, your spouse will get one fourth of the separate property and the rest will go to children. If you have no living children then it will go to your parents. If your parents are not living it will go to your brothers or sisters. If there are none living it will go your aunts or uncles. It’s a little more complicated than that when it gets to grandparents and uncles, but for the purposes of this article that’s as far we will go.
If you are unmarried and without a will, property will be inherited in the same manner as your separate property if you were married described in the last paragraph.
Assuming you would like to have some say in how your property is distributed when you die,
you have three basic options, a will, a trust or a combination of other means which I will explain later on. There are advantages and disadvantages to all three.
Before I go any further, I am assuming you are not a multimillionaire. If you have more than 5.43 million dollars, you will have to pay inheritance taxes and estate planning becomes a different ballgame. For the 99.5 percent of us who do not have this kind of money, the following will be relevant.
Wills are simple and inexpensive and that is their biggest advantage. The only real downside of wills is that if they transfer real estate and, in many cases, vehicles, it has to go through a probate court. If the Executor or Personal Representative (that is, the person whom you choose in your will to deal with your property when you die) is willing to use it, there is a procedure for going through probate without a lawyer. But, hiring a lawyer to handle the probate is what most people do. This expense is the reason some people opt for a trust or for the third method I have yet to explain. However, some lawyers will tell you that a trust will cost about the same as paying a lawyer to do the probate which I think is true. Although, it all depends on the lawyer.
Trusts are more complicated than wills. With wills you own everything until you die. With trusts you generally give your property to the trust which becomes the legal owner. Until you die you can make yourself the Trustee, the person who controls the property and you can make yourself the Beneficiary, the person who gets to use the property or spend the money of the trust. So you still in effect own it. But, some people don´t like to deed their house, transfer their cars´ title to a trust or put bank or other money accounts in a trust´s name. However, there are some advantages to doing so. In some types of trusts, it may protect the property from creditors or lawsuits. Another advantage to a trust is that it may protect you from Medicaid in the situation where Medicaid has paid for nursing home care and then seeks to be reimbursed from a home owned by the person who was cared for.
One more advantage to a trust I will mention is that you can better control how and when your assets go to the people you want them to go. For example, you can make provisions that a certain amount of money is released to a child or someone else every year or when they reach a certain age as opposed to all at once when you die.
The third way to pass your property which I mentioned earlier is a kind of grab-bag of methods for different kinds of property. For example, you can do a Transfer on Death Deed for your home and land. This will transfer real estate to someone once you die and avoid a probate. They are revocable, just like a will is. With bank accounts and other money accounts, you can usually place a beneficiary on them so that if you die it will go to the person you choose. For vehicles, you can place a person on the title with you, although that does give them rights you might not want them to have.
This above is a very basic explanation of estate planning. There are details I have left out and my experience and understanding may be a little different than the next guy. I am a general practitioner and do lots of different kinds of legal things for people. I do wills and trusts, but I am not an estate planning specialist. In the next issue of the Catron Courier I plan to write an article about the state of the courts in New Mexico and what can go right or wrong in lawsuits and court battles. I am also planning to come to Reserve to meet with anyone who would like a short free consultation. You can reach me at (575) 535 - 2760 or jonmdiene@gmail.com.