Estate Planning Importance - Research Paper Example

Your E Planning: Are Trusts and superannuation more important than wills for high net worth individuals Introduction Every individual is considered a steward of all that is entrusted to him: whether time, talent, wealth, people and anything of value. Most individuals are blesses with resources but go bankrupt and poor because of the failure to plan and foresee things. Estate planning is very important, especially for those who have family and heirs. More often, failure to plan and consequently relinquish estates properly lead to family feuds. For those who grow old, life after retirement sometimes becomes financially miserable, thus the necessity to find work again. Practically, not a lot of people plan their estates as much as they plan their vacations probably because the latter is much more fun and will happen soon (InvestorGuide.com). "However, estate planning is much more important but requires more time and effort. Without a comprehensive estate plan, a significant part of the work you've done throughout your life, both at your job and with your investments, can be lost or given to unintended beneficiaries" (InvestorGuide.com). Estate planning is also important for recipients of social security benefits as "receiving an inheritance may alter his/her social security entitlement. This is particularly prevalent when one member of a couple dies as the survivor is then treated as a single person with lower thresholds under income and assets tests. This means that the levels of assets and income at which the pension starts to reduce and ultimately ceases are reduced which may result in a lower pension or even a complete loss of pension for the beneficiary" (Social security estate planning implications ). Main Body Now there are more than one way of planning your estate, especially what to expect after death. The most popular of which is the last will and testament. However, recent developments in finance provides estate planners a better way of handling their estate, that which entails lesser cost, direct or indirect to the heirs: trusts and superannuation. In this particular paper, we will show the many ways in which trust and superannuation supersedes the benefits of the estate planner and their heirs; both through current literatures and through analysis. "A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust. A 'living trust' (also called an "inter vivos" trust) is simply a trust you create while you're alive, rather than one that is created at your death" (Nolo). One good thing about living trust is it helps one evade probate, helps reduce taxes and also sets up a long-term property management (Nolo). Trust Versus Will "The Trust owns the legal title to the property in it while you are still alive, and since a Trust does not end at your death, it will still own the property when you die. You put instructions in the Trust for how the Trustee, or person controlling the Trust, should distribute the Trust property, and the Trustee will carry out those directions" (FreeAdvice.com). One important feature about the trust is it can be distributed without necessarily going through the probate process - a "legal process which inherited property goes through in order to transfer the title of the property from the decedent to the beneficiary" (FreeAdvice.com). The main reasons why trusts are advantageous especially for the high net worth individual is it is far less expensive to administer (FreeAdvice.com). On the other hand, "a will is a document that transfers property to others after your death. Because you still own the property at the time you die, all the property transferred in the Will must go through the probate process, which is often slow and costly" (FreeAdvice.com). Below is a summary of the advantages of a trust over a will: Avoid probate - Unlike the will, leaving a trust allows the heirs to evade the unnecessary process of probate, which then spells savings in terms of time and money. Save Money - "Generally it will cost more up front to have a living trust prepared than a simple will. The savings are on the back end. The real savings that a living trust potentially offers only applies if the living trust is funded during your lifetime and thus its assets avoid probate" (Free-Living-Trust-Information.com). The weighing includes computing for the cost of probate na dthe cost of a living trusts. Therefore, it is not advisable that anybody just applies for a living trust rather than a will. Only those with very large estates will very much likely enjoy a saivngs through a living trust. A person with a net worth of around $1,000,000 can opt for the living trust instead (Free-Living-Trust-Information.com). Asset Management Upon Incapacity - "A living trust offers all of us a nice option, to avoid a guardianship proceeding, in case we become incapacitated and unable to manage our assets. Even if the living trust isn't funded until after our death, having it available in case needed while we are still alive is a useful benefit" (Free-Living-Trust-Information.com) Privacy - Living trusts offer privacy advantage. Specifically, it can be used to make it more difficult "for disgruntled heirs and creditors of you or your beneficiaries to challenge the distribution of your assets" (Free-Living-Trust-Information.com). Flexibility - Living trusts provide more flexibility than a normal testamentary trusts. The testamentary trusts are created by a will therefore should you wish to change it, you also need to re-write the will and "go through the formalities required to make a will valid" (Free-Living-Trust-Information.com). "A living trust, in contrast, is a separate document you are can amend at any time. There are very few formalities required to amend your living trust" (Free-Living-Trust-Information.com). See how estate plan works while still alive - "Another of the underestimated advantages of a living trust is that it gives you the opportunity to begin to implement your estate plan - BEFORE YOU DIE. You can move assets into your living trust and see your estate plan begin to work. You can see how your executor performs and get some idea if your distribution choices are the best. Maybe you will find that one of your intended beneficiaries needs more or less income than you thought" (Free-Living-Trust-Information.com). "A living trust offers you the chance to find some of those things out and make changes to your estate plan-before it's too late. Also, it's nice to know that your living trust is the same trust that will carry on your life's work - even after you are no longer around. This is a fundamental difference from a testamentary trust that does not come into being until after you die" (Free-Living-Trust-Information.com). Disinherit Relative - "The privacy of a living trust increases the likelihood that your desires will be accomplished and decreases the likelihood of a fight over the estate" (Free-Living-Trust-Information.com) Superannuation Versus Will A superannuation is "an organizational program created by a company for the benefit of its employees" and is usually referred to as "company pension plan" (Investopedia ULC). Unlike the trusts and the will, superannuation necessitates streams of payments which is usually made by either the employer or the member. The money "is invested on your behalf and is yours to use when you retire" (AustralianSuper). Superannuation also has death benefits. "When a member of a superannuation fund dies, the trustees are required by law to pay out the accumulated benefits. They must be paid as soon as possible to the member's dependants or to the member's executor or legal personal representative" (Superannuation and death benefits). Below are some of the benefits of superannuation: Tax-free for dependents - "all death benefits paid to a dependant are tax-free, so an untaxed element will generally only apply in relation to a death benefit paid to a non-dependant" (Superannuation and death benefits). Ease and savings - similar to the living trusts, there is no need to undergo the probate process for the dependants, thus there will be no much expenses needed. "A death benefit nomination is confirmed by giving a written notice to the trustee signed and dated by the member. It can be amended or revoked also by giving a written notice to the trustee signed and dated by the member, but the notice must be witnessed in the same manner as a new nomination" (Superannuation and death benefits). Maximize tax deductions - "The provisions of section 279 of the ITAA36 provide an opportunity for the trustees of many superannuation funds to claim what may be significant tax deductions for the provision of death or disability benefits to fund member(s) or their dependants and estate" (Superannuation and death benefits). Conclusion The recent financial innovations such as living trusts and superannuation generally provide ease and flexibility to estate planning. They help ease considerable amount of anxiety from the estate planners. One of the most important feature of living trust is the ability to see your heirs work on what you have entrusted to them while you are living, thus you can make the necessary adjustments. Indeed, this is something new and this creates a big difference between living trusts and wills. References AustralianSuper. http://www.australiansuper.com. 26 May 2010 . FreeAdvice.com. http://law.freeadvice.com. 2010. 26 May 2010 . Free-Living-Trust-Information.com. http://www.free-living-trust-information.com. 26 May 2010 . Investopedia ULC. http://www.investopedia.com. 2010. 26 May 2010 . InvestorGuide.com. http://www.investorguide.com. 2010. 26 May 2010 . Nolo. http://www.nolo.com. 2010. 26 May 2010 . "Social security estate planning implications ." Lecture. n.d. "Superannuation and death benefits." Topic 9. n.d. Read More