Estate planning is the process of arranging for the transfer of assets after death. In short, it’s how you prepare to leave your wealth to people after you die. This is usually done by creating a will, setting up a trust, or adding beneficiaries to your financial products.
Why do you need to know what your estate is?
If you don’t take a “full inventory” of your estate, you might not account for everything properly when creating your estate plan.
And if you don’t account for all the assets in your estate, this can cause a lot of headaches for your family after you pass.
What counts as part of your estate
Your estate includes everything that belongs to you — from physical possessions, financial accounts, investments, and intellectual property.
This can include:
Personal possessions: All physical objects you own are part of your estate. Even things that don’t seem like they would be worth much, such as clothes or furniture.
When making an estate plan, you should make a full inventory of things you own. In particular, make sure you’re accounting for valuable possessions like jewelry or electronics.
Vehicles: Cars, motorcycles, bicycles, boats — all the vehicles you own are part of your estate. And if you have an idea of what those vehicles are worth, that’ll help your estate planning even further.
Finances: Think about things like:
- Bank accounts
- Savings accounts
- Retirement accounts
- Any debts or interest you’re owed
Investments: Such as real estate, stocks, bonds, business equity, etc.
Intellectual property: Even abstract things you own are part of your estate and can have significant value. Think about:
Digital assets: “Digital estate planning” is increasingly important — our online accounts can have both financial and sentimental value. Think about:
- Social media accounts
- Email addresses and accounts
- Cloud storage that might contain photos or videos
- Websites you run
- Online investment platforms
- Domain names
Make sure you account for your debts, too
When your will goes through probate, your creditors can make a claim against your estate.
To plan your estate properly, you should have a clear sense of your debts so that your executor and beneficiaries know what to expect.
Accounting for real creditors also protects your estate from fraudulent creditors (sadly pretty common).
These things may include:
- Rent, mortgage, or insurance on your home
- Any unpaid bills or formal debts you owe
- Medical debt
- Other payments needed to protect your estate assets
When you pass, priority on your estate is given to creditors first, and beneficiaries second. Your beneficiaries will inherit what is left of your estate after the creditors have been paid. This is all part of the probate process.
Having an estate inventory will help you make an effective estate plan, and will make the probate process easier (and faster) to navigate for your family. It also means you’ll have a clearer picture of what you’ll be able to leave to your beneficiaries.
If you have trusts or transfer on death (TOD) beneficiaries, those assets will transfer to your beneficiaries before probate
When you make a will, you leave instructions for the distribution of your estate when you die. After your death, the will is filed with a probate court, which starts the probate process.
But some assets might transfer from your estate on your death, thereby skipping probate. Typically, these are assets that:
- Are jointly owned (in which case they pass to the other owners)
- Sit in a trust
- Have a “named beneficiary”
There are a number of reasons why you might want some of your assets to transfer from your estate on your death — usually, if you want to protect the asset from creditors, or if you want to keep them out of probate.
There are two ways to pass assets on and avoid them becoming part of the probate estate:
- Through “Transfer on Death” (TOD) provisions
- Through a trust
Transfer on Death
Transfer on Death (TOD) is a provision that automatically transfers assets to a beneficiary upon your death.
Assets that might have a TOD provision include::
- Joint assets (such as real estate with right of survivorship or joint bank accounts)
- Life insurance proceeds
- Financial property with named beneficiaries (such as bank accounts, investments, IRAs, 401(k)s, 403(b)s, etc.)
If circumstances change, you can update the beneficiary on these products. For example, you might put your parents as beneficiaries of a life insurance policy but change your priorities when you have children.
TOD assets can pass to your beneficiaries without going through probate — meaning that, instead of requiring an executor and court time, the asset will transfer ownership immediately upon death.
Trusts are separate legal entities that hold and manage your assets. You can use a trust to pass on assets to beneficiaries without that asset having to go through probate.
Trusts can be either “revocable” — you can change them during your lifetime — or “irrevocable” — you can’t.
Assets for an irrevocable trust are (during your lifetime) moved from your ownership to a separate legal entity — the trust — which a trustee manages.
This trustee will then have control over all legal decisions about the assets within the trust (as, technically, you won’t own it anymore), and will be expected to keep and use it solely for the benefit of the named beneficiaries.
Irrevocable trusts are protected from some creditors and estate taxes.
Revocable trusts are more flexible — they can be changed and added to while you’re still alive.
But revocable trusts are part of your “taxable estate,” meaning they’re not protected from creditors or estate taxes.
Estate planning made easy
Estate planning gets a bad rap for being difficult, costly, and time-consuming. But the truth is that not completing yours is far more likely to result in stress and unnecessary costs. When you do it with Snug, setting up your estate plan can be as simple as a one-off investment of $145 and a spare 25 minutes.
Designed to put the power of planning your estate back into your hands, Snug makes it easy for you to provide for your loved ones after your passing — in whatever way suits you best.
Want to know more? Check out our FAQs — or get started now.