An estate plan allows people to instruct how their assets are handled after they pass away.
There are many things people should know before they plan their estate. Here are a few estate planning facts you should know:
Fact 1: Beneficiaries and heirs are different
Many people believe there is no difference between a beneficiary and an heir, which causes people to use them interchangeably. However, there are some key differences between beneficiaries and heirs.
A beneficiary is someone who is chosen in a trust or will to receive assets from the deceased. A will or trust can include a primary, contingent and residuary beneficiary.
An heir is a family member who would receive assets if there is no valid will and the deceased died intestate. An heir is someone who is, typically, related by blood. A spouse, biological or adopted child, parent, sibling or extended family would likely benefit from an estate in that order.
Fact 2: You can update your estate plan
An estate plan is often best made early in life. Over time, however, testators can likely grow their estate and make new investments. An estate plan may need to be updated to include these new assets.
Many people update their estate plans every few years. However, people can update their estate plans after a beneficiary passes away, childbirth, marriage or divorce.
Fact 3: There are many different kinds of trusts
A trust allows a grantor to give assets to a trustee who is responsible for distributing assets. People often make trusts with special instructions on how their estate should be handled. Furthermore, a trust can help avoid estate taxes, disputes and probate.
A revocable trust is the most common. Grantors can alter the contents of their revocable trusts at any time. There are also many other trusts with unique wording to specialize how an estate should be handled.
For example, a grantor could set aside assets in a pet trust to help care for their dog or cat. Or, a generation-skipping trust could help financially support grandchildren or great-grandchildren.
Before you plan your estate, you may need to reach out for legal help to learn about your options.