Estate planning describes the process of distributing all the assets of an estate. Your estate includes your entire net worth minus any liabilities you owe. An asset is anything you own that has value which can be converted into cash.
Types of assets that may be involved in your estate include:
- Mutual Funds
- Real Estate
These are some of the most common assets. Since an asset can be anything that converts to cash value, an asset may also be something as simple as a thimble or stamp collection.
During the estate planning process, you will:
- Create a will or trust, which provides for the distribution of your assets
- Assign a power of attorney, which allows someone to manage your finances immediately or if you become unable to do so
- Create a living will (also called a medical power of attorney), which determines who makes medical decisions for you if you become unable to make them yourself
As a parent of a child with cerebral palsy, you have some unique considerations when planning the distribution of your estate:
- What will happen to your child’s government-funded benefits?
- Who will be responsible for distributing the assets within your estate?
How do Trusts Work?
Trusts are agreements which spell out the precise rules you want followed for property held in the trust for your beneficiaries. Trusts help reduce the tax liability on your estate, protect any property in your estate, and avoid costly probate court.
Trusts work best in situations when you need to precisely control how and when your assets are distributed to beneficiaries. Special types of trusts of importance to families affected by cerebral palsy include:
- Inter-Vivos Trusts (“Living Trusts”), which take effect while you are still alive
- Special Needs Trusts, which help people with special needs retain their government benefits and assets received from the trust
When Should You use a Will?
Aside from the benefit of determining which assets are given to whom, a will helps your heirs avoid probate court. Probate court divides all your assets for you, costs anywhere from 5-7% of your estate, and may or may not distribute assets in the way you would have preferred.
Wills work best when you have no difficult family situations and would like to distribute your assets after death. If you simply want to leave all of your assets to a certain person or several people evenly, then use a will. Trusts work better for more complicated situations when you need to control how and when your assets are distributed. A “supplemental needs trust works particularly well” for families affected by cerebral palsy.
Questions? Speak with an Attorney!
If you have more questions regarding the estate planning process, be sure to consult with an attorney before taking any action.