Which Assets Should You Include in Your Estate Plan?
Having a comprehensive estate plan that includes a legally completed will and trusts helps protect your family and assets should you pass away.
Of course, defining your most important assets and which ones belong to what document can be a bit cumbersome. It’s not easy sifting through money, investments, real estate, etc. — over the years, evaluating their worth, and deciding where they’ll go when you’re gone. It becomes even more complicated when you have minor children to care for.
Many people don’t know where to begin or what even counts as an asset.
Regarding estate planning in Huntsville, AL, it’s important to understand two things: Your will controls less of your property than most people assume, and essentially, anything of value can be considered an asset.
In this article, we’ll talk about the assets you absolutely need to include in your estate plan — and which documents they belong in.
What Are Estate Assets?
To help clear up any confusion, let’s talk about what an estate asset is:
An estate asset is essentially property that you own at the time of your death. Now, property is a loose term here as it refers to anything of value. This would include (but is not limited to) the following:
Your home
Your vacation home or other real estate
Bank accounts (savings and checking)
Retirement accounts
Investments and stock options
Cars
Artwork
Jewelry
Household furnishings
Computers and smart devices
Your business (whether you’re the sole owner or partner)
Family heirlooms
Intellectual property and copyrights
Any debts owed to you
There are a few exceptions to be aware of as well. For example, some of your accounts may already have a designated beneficiary, such as a retirement account or payable-on-death bank account. Accounts with a living named beneficiary pass outside probate, though they still count for federal estate tax purposes. Always name a contingent beneficiary.
Exceptions like the above are where estate assets can become complicated. However, your Huntsville attorney can help you identify your estate assets and guide you on how to map them out within your estate plan.
Which Assets Are Essential to an Estate Plan?
Now let’s talk about the estate assets that are 100% essential to your overall estate plan:
Money to Pay Any Outstanding Debts and More
When it comes to estate planning, the first thing you’ll want to think about is money — how much of it you have and how much it’ll cost to cover any outstanding debts you owe.
These outstanding debts can include mortgage payments, credit card payments, medical bills, and so on. The other expenses you’ll need to think about are what your funeral costs will be, probate court costs, and the cost of supporting your family in various ways once you pass on.
If your retirement account names a living beneficiary, it passes to that person outside probate, and your debts are paid from your estate. If your estate is the beneficiary, the account becomes part of the estate and can be used to pay your debts. Your spouse is not personally responsible for debts in your name alone, but a loan secured by property your spouse inherits, like a mortgage, stays attached to that property.
In the instance that your monetary assets aren’t enough to cover your debts, you’ll want to sit down with your Huntsville attorney and talk about your options. The last thing you want is to leave your family with the burden of your debt on top of figuring out how they’re going to support themselves.
Real Estate
Whether you own only one home, a vacation home, or multiple properties, you need to be clear about who will receive these properties when you pass on. This is especially important when it comes to your family home where your surviving spouse and children will live.
If you plan to leave the family home or vacation home with your now adult children, you’ll want to include instructions on how they may divide up ownership if you want to ensure it remains in the family.
If you’re still tied to a mortgage on any of your properties, think about how you would want those properties and their mortgages to be managed. Think about whether you’ll have enough life insurance to pay off the mortgage on at least your family home and whether or not it’s an affordable situation for your spouse on their own.
Real estate you own with your spouse passes to your spouse automatically only if the deed says it is held “with right of survivorship.” If this is the case, you won’t have to include the property in your will.
Stocks, Bonds, and Mutual Funds
If you own any investments outside of having a 401(k), IRA, or another retirement account, you’ll need to think about how you want them handled as part of your estate.
Stocks, bonds, and mutual funds can be allocated individually or pooled together and divided among your heirs. You can even put them into trusts for your heirs to ensure they keep maturing. The choice is yours, but without a plan, Alabama’s inheritance laws decide who receives them, and you don’t want to leave that decision in the hands of the state.
Business Ownership and Business Assets
If you own a business as a sole proprietor or partner, even if it’s a small business, you’ll need to address it in your estate plan. It doesn’t matter if you have a lot of business assets, your business is an asset all on its own.
Most importantly, you’ll want to be sure to designate who will receive your share in the business. This will help prevent any confusion regarding the transition of ownership as well as ensure that your business stays in the family if those are your wishes.
If it’s not a family business but you’d prefer that a certain family member take over your interest in the business, you can create a plan to bequeath your share to this person in your last will or through a trust. Conversely, suppose you don’t want your business to continue after you’ve passed. In that case, you can indicate your wishes for its dissolution, the assets liquidated, and the proceeds distributed equally among your heirs.
Keep in mind that you would have to ensure that your last wishes for your business coincide with its documentation to ensure that it follows the instructions in your business agreements. Of course, these things can be changed if they don’t suit your current wishes, but they can be seen as conflicting in the eyes of the court, which could pose a challenge for whoever is next in line to receive business ownership.
Your Cash
While we’ve already mentioned money as an actual estate asset, it’s not the same thing as cash. At least, not for estate planning purposes. When it comes to your finances, you need to ensure that you have the means to cover any debts, funeral expenses, and the other things we mentioned earlier.
However, you also need to think of your personal finances. This would include checking accounts, regular savings accounts, money market accounts, and physical cash on hand. You want to make sure that you don’t leave behind any cash without a designated beneficiary.
You can go about this two ways: Make your accounts payable on death (POD) or clearly state how you want your cash assets distributed in your will. Of course, if you have the funds, you can create trusts for your loved ones to ensure they’re provided for in the long run.
Keep in mind that POD accounts don’t have to pass through probate, but as long as your cash is distinguished and given instructions through your will, it’ll help your family out tremendously.
Physical Possessions
You may not have a whole lot, but there are likely a few worldly possessions that you want to go to someone or several people. Make sure you take the time to evaluate what you have and what you would like to happen to it once you’ve passed away.
Your physical possessions can range from an old record collection to a vintage car — it doesn’t matter how much it’s worth. What matters is how you value these things and who may love to receive them in your memory.
Whichever items you want to be passed on to any of your heirs or other loved ones, be sure to list them along with who they will go to in your will.
Guardianship of Young Children and Pets
If you have minor children, naming a guardian in your will is arguably the most important thing you can do.
Take the time to think about who you would want to take care of your children or pets in the event of your passing. Remember that the responsibility for pets and children is wildly different, so you’ll need to give this some thought.
You’ll also need to make sure you sit down and talk with your prospective guardians when making this decision as well. They need to be up to the task — and, it needs to be an ongoing conversation as you’ll need to update your estate plan every few years or as things in your life change.
You may not want to think about this, but you may lose a few people along the way. Others may grow too old to be physically capable of caring for another living being, and some may fall ill.
If you don’t keep this portion of your estate plan up to date and neither parent survives, the probate court will choose a guardian for your children without knowing what you would have wanted.
Things to Leave OUT of Your Will
More often than not, we talk about what to include in your estate plan, namely, your last will. But, it’s important to understand which assets should be left out of your will.
As stated earlier, some properties or assets may already pass to someone outside your will, such as a co-owner under a survivorship deed or the beneficiary of a POD account. Here are some other things that are necessary to leave out as well:
Property titled “as joint tenants with right of survivorship,” and joint bank accounts. In Alabama, two names on a deed are not enough by themselves, but a joint bank account passes to the surviving owner unless its terms say otherwise, and your will cannot change that.
Anything put into a living trust. These assets don’t need to go into your will because they’re already accounted for in another document. Assets you transfer to your trust pass outside probate; your successor trustee then administers and distributes them under the trust’s terms.
Your life insurance policy. It matters most if you have young children, a mortgage, or debts. However, your life insurance policy will pay out directly to your named beneficiary, and therefore does not need to be included in your will.
Your 401(k), 403(b), pensions, and IRA accounts. Again, these accounts already have designated beneficiaries and don’t need to be mentioned in your will.
There’s a lot more to learn when it comes to putting together your estate plan and the assets you’ll need to include. This is especially true for the assets you’ll want to keep as far away from probate court as possible.
We can help you with that. Get in touch with us today to schedule a consultation with Sarah S. Shepard. We’ll review your options with you and help you coordinate your will, trust, deeds, and beneficiary designations.