Here are some of the key concepts relevant to estate planning.
It may surprise you, but estate planning is not just about what happens to your property after you die – it also involves preparations for your financial and medical needs in the event you become incapacitated and unable to look after things for yourself.
As you read, consider whether you’ve put sufficient plans in place for yourself and your family.
Distribution of Property on Death
Four ways to give what you have to those you love: There are four basic ways property passes on someone’s death:
- Joint Ownership: Property passes automatically to a joint tenant (or joint tenants) on the death of another. For example, Pat and Sam own a home as joint tenants. If Pat dies, Sam automatically becomes the sole owner of the home.
- Named Beneficiaries: Property passes automatically to a named beneficiary. For example, you named your daughter as the beneficiary on your life insurance; on your death she would automatically receive the proceeds of the policy.
- Revocable and Irrevocable Trusts: Trust property passes via the trust document to the person named as a trust beneficiary.
- Wills: Property passes according to the terms of a will. For example, if you die with a valid will, all your property (other than property that passes to a joint tenant, to a named beneficiary, or to a trust beneficiary) will pass according to the terms of that will. So, for example, if you specify in your will that you want your stock portfolio to go to your daughter, your stamp collection to go to your son, and your wedding ring to go to your niece, that’s who will get those things after you die.
If you don’t have a will, then you are intestate: When you die without a valid will, you are said to have died “intestate.” In that case, other than property that passes automatically to a joint tenant or a named beneficiary, your property will get distributed based on provisions set out under state inheritance law. So, for example, if you die intestate and you leave a spouse and three children, under Maryland law your spouse and children each receive your property, even if you would have preferred to give it all to your spouse.
Estate Administration
When someone dies – with or without a will – the survivors must complete paperwork within certain time limits. For instance, the survivors must complete final tax returns and other documents for the IRS, along with filings for the county probate court and the Registrar of Wills. Lawyers refer to this process as probate.