An estate plan is the set of instructions on what to do about you after you’re dead. Since you’re dead, you can’t handle your own affairs yourself anymore, so the estate plan explains what you want to happen. The default outcome is that you and your loved ones pay for the privilege for all your finances to become public record for anyone to view. Learn the basics of estate planning here so you can easily avoid that outcome.
When you die, the default outcome is that you and your loved ones pay for the privilege for all your finances to become public record for anyone to view. You can easily avoid this by simply using a trust. Otherwise, your estate is submitted to a process called probate, where the state judicial system will publically gather your holdings, pay your creditors, and distribute the remaining assets (per your will, if you left one; to family members, per the state’s default rules if you did not). This process costs roughly 2-7% of your total probatable assets and delays the inheritance process by 12-18 months. Trusts allow you to bypass the entire probate process and have control over the distribution of your assets after death.
A significant part of estate planning is deciding how to transfer assets outside of your estate during your lifetime and after death. Federal gift and estate taxes in the United States are currently structured such that each citizen is given an amount that they can transfer free of tax, an amount known as the “lifetime exemption”.
If you expect to use your entire lifetime exemption (i.e., you think your estate will one day surpass ~$11.7M), you have a tax incentive to move assets outside of your estate earlier in your lifetime. One leading technique for transferring such assets without using up your lifetime exemption is to leverage a Grantor-Retained Annuity Trust (GRAT).