Basically, the differences come in how much court involvement you want or need. Informal is the easiest and you want it all the time. But, there are reasons why you want to go formal.
If there is real estate in the probate estate, then you might want to go formal. If the will is lost or if you only have a copy (not the original) then you might want formal probate.
Can’t find the heirs? Probably need formal probate.
Was it a blended family? If there are kids from different relationships then its probably a good idea to do formal probate. The more chance that there might be a dispute or a fight then you should go formally.
It’s important to choose the right kind of probate. If you make a mistake then you might have to pay for it. With your own money. That’s right, the bills of the deceased can become your bills.
This is also possible if you don’t pass assets onto heirs correctly.
We call these things trust because they involved trusting someone to take care of our property for us. We trust them to basically manage it and have possession of it for our benefit or another person’s benefit. Here is a basic arrangement that is a trust:
If I give you $10,000 and ask you to hold on to it for me and give it to my kids in 5 years, this is the basic concept of a trust. You can invest that money and do prudent things with it, but you are being trusted to take care of that $10,000 for my kids.
I was the trustmaker (sometimes called the settlor). You are the person that I am trusting, so you are the trustee. You are being trusted to benefit my kdis with the money later. The kids are the beneficiaries.
Every trust has to have a trustmaker, a trustee, and beneficiaries. (Trusts need to have some property like the $10,000 that you are being trusted with too)
You can provide almost any kind of instructions that you can dream of for the trustee to do with the money. You can also instruct them on how to invest it and the like. The key is that you are trusting someone with property to benefit someone.
Trusts in some states can last forever. Every state has them last at least 100 years. You can have them end before that though.
If you have any questions or comments, leave them below.
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Most Americans will not have to pay the estate tax under the current laws. But what if you are taxable? What if you’ve acquired enough wealth to be at risk?
The three basic strategies are:
1. Delay the tax until the second death
2. Remove things from your estate during life
3. Make someone else pay the tax Nothing is taxed that is given to our spouse.
So we can leave everything to them and then hope they spend enough money during life to not have to pay the tax. The spouse could also do some planning as well and deal with it in other ways. You can leave it in a trust to benefit your spouse if you worry they will remarry. The next strategy is to get things out of our estte. We are only taxed on the value of our estate. Anything that we remove from our estate within 3 years of our death is not counted in this total. The most common ways to do this would be to give them to heirs (or in a trust for heirs) or to sell them to a trust or an outsider. This is most common for businesses and real estate.
This way, we can either get them out of our estate in the form of a gift or minimize their value. If we sell them, then only the purchase price (even if it is financed and the buyer pays us payments) is included in that overall estate amount. The final method is to make someone else pay for it. This is usually an insurance company. Most commonly, a life insurance policy is used. This policy is placed in a trust so that it isn’t included in the estate. The premiums are cheaper than the tax. The death benefit that comes in once you die is used to pay the taxes.
Did you know that you can go through probate while you are alive?
It is probably the most common kind of probate. If you can’t take care of yourself, someone must take care of you. This is most common with memory care once we get older.
This can lead to it being necessary to have a judge declare you incompetent, limit your rights, and give someone the power to take care of you. The risks of this can be limited with a living trust, a power of attorney, and an Advanced Healthcare Directive. This is a foundational estate plan.
The risk can’t be eliminated though. If we don’t cooperate with our Power of Attorney, they may still have to take our rights away.
This is most common when we resist their efforts or if a predator takes advantage of us.
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Chances are that you won’t have to pay the Federal level estate tax. Most Americans will not have to pay it. This law changes a lot though. It is one of Congress’s favorite things to tinker with so you must stay up to date. State level estate tax is different.
Minnesota changes its tax often as well, but, as of right now, you will pay tax if your estate is worth over $3 million. Many folks will hit that. You add your house, your IRA/401k, and life insurance proceeds together and many have that amount.
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Many people will do this because they think they are making things easier. Often, these things make things worse in the long run. Especially when it comes to government benefits.
A Power of Attorney and an Advanced Healthcare Directive are often the legal documents needed to solve these problems.
Changing title isn’t necessary and can often lead to more problems. You could end up making a gift that you didn’t intend. You could expose your assets to the other loved ones creditors. You could expose them to your child’s divorce. You can disqualify yourself from government benefits.
This video explains more.
If you have questions or want to plan with me, click here to schedule a planning session.