Trust and Estate Planning – It’s a Piece of Cake!
Written by Andrea Chomakos , Bank OZK Chief Fiduciary Officer
Estate planning is a complicated topic that can cause eyes to glaze over and minds to wander. After all, it is about death and taxes — two certainties in life that no one wants to think about. Here’s the good news — having your affairs in order is important, but it doesn’t need to be intimidating!?
There are many analogies that advisors use to help simplify estate planning. One that most people can easily digest is the “cake” example (or pie, if that is what your palate prefers). When you pass away, the size of your estate and assets composing your estate are set, and so is the size of the slice each beneficiary receives, as well as the size of the slice that goes to the IRS for estate taxes. If you think of your assets as ingredients, they come together and make the cake — which gets sliced up and handed out to your spouse, children, grandchildren, charity, and the government. How the cake is cut, the size of the pieces, and what is in each slice depends on how your estate plan is structured.?
To help demystify the estate planning process, let’s take a look at a solid cake recipe before we delve into slicing the cake and handing out the pieces.?
Making the Cake: The Recipe
Every good baker knows that you cannot bake a quality cake without the right ingredients and a solid recipe. The same is true for an estate plan — you need to know what assets you have, and how to mix them into your plan to bake the perfect cake.
In any good cake recipe, there are two categories of ingredients: the dry ingredients and the wet ingredients. Similarly, most estates have two categories of assets: probate and non-probate assets.?
The Dry Ingredients (Probate Assets)
Probate is the process by which title to an asset owned solely by the decedent transfers when someone dies. Generally, probate is a court supervised process and requires publicly accessible reports, filing fees, and detailed accountings. The decedent’s will is submitted to the court and an executor or personal representative is appointed to gather assets in the decedent’s name and subject to probate administration.
The primary category of assets subject to probate administration is any asset that is titled solely in the decedent’s name and that is not controlled by beneficiary designation, such as:?
For example, Johnny is named in the will as the beneficiary of the stock, and Jane is named to receive the bank account and car. The executor will re-title and distribute the stock to Johnny; re-title the car in Jane’s name and hand her the keys; distribute cash in the bank account to Jane.
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The Wet Ingredients (Non-Probate Assets)
Non-probate assets are those that are inherited outside of probate administration. An executor does not have any access to non-probate assets, and, more importantly, a will does not control the distribution of non-probate assets. There are several sub-categories of non-probate assets:?
Assets controlled by beneficiary designation, which commonly include:
Assets owned jointly with rights of survivorship, including:
Assets owned in a trust (generally referred to as a revocable or living trust)?
It is important to understand how non-probate assets are inherited. Regardless of what a will may provide, it cannot override ownership or beneficiary designation of these types of assets.?
Just like a solid cake recipe needs the right ingredients in the right amounts, so does planning your estate. It’s all about careful evaluation of assets, effective tax management, and selecting the right “chef” to transform your valuable ingredients into a well-planned legacy.
Ready to discuss planning your estate? Get in touch with our expert fiduciary officers to get started: Trust & Wealth | Bank OZK
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