When most people hear the term “Estate Planning,” a few assumptions typically come to mind. Many people think that estate planning is something you only need to worry about when you reach a certain stage in life, such as reaching your senior years, upon being diagnosed with a serious illness, upon accumulating significant wealth. Additionally, many people also think that estate planning simply means getting a will prepared, and nothing more.
In reality, estate planning takes many different forms, and each form suits some situations better than others. Furthermore, estate planning is something that everyone needs to think about to some degree or another, so long as they have belongings and at least one person they want to inherit them.
What Does Estate Planning Mean?
Estate planning fundamentally comes down to one simple concept: making a plan for how you want your personal affairs to be handled in the event of your death or incapacity.
Estate planning doesn’t just involve planning for how you want your property to be passed down after you are gone — though it does of course encompass that as well. Estate planning also involves:
a) Designating trusted individuals to make financial decisions for you if you should become unable to make those decisions yourself;
b) Appointing trusted individuals to make healthcare decisions for you if you should become unable to make those decisions yourself;
c) Ensuring that you maintain control over the terms of your end-of-life care; and
d) Minimizing family conflict during emotionally trying times.
Who Needs Estate Planning?
When it comes to the question of who needs to do estate planning, the answer is pretty simple — everyone who has personal belongings, or who has a dollar to their name, or who owns property, and has living relatives or some other person or organization that they want to receive these belongings, should engage in at least some level of estate planning, tailored to their individual situation.
Estate planning isn’t just for the wealthy or the elderly. If you have belongings that you want to pass on to your loved ones, you need to do some estate planning. While the specific type of estate planning that’s best for you will depend on your specific circumstances, the need to plan ahead exists regardless of your age or financial situation.
Proper estate planning ensures that your wishes will be honored; gives you agency in critical decisions; and — perhaps most importantly — relieves the burden on your loved ones during their time of grief, while also minimizing the risk of familial conflict.
What Are The Consequences Of Not Planning Ahead?
In order to fully understand the importance of estate planning, it’s important not only to understand its advantages, but also to understand what the consequences are of not having such plans in place in advance.
The Probate Process
Probate is a process where Arkansas courts decide how to distribute the deceased individual’s property (the person who has passed away is called the “decedent”). This process typically unfolds as follows:
1) Someone must ask the court to open a probate case, after which the court will appoint someone to administer their probate estate. This person is called the “administrator” of the estate.
2) Once an administrator has been appointed by the probate court, the administrator must publish notice of the probate, so that the decedent’s creditors can make a claim on the estate to recover the debts that are owed. Often, this will involve medical debts, credit card debts, etc.
3) In Arkansas, after the notice is published, the administrator must wait six months to give time for all existing creditors to find out about the probate case and make claims against the estate. This is called the “creditor period.”
4) Once the six-month creditor period has ended, any creditors that have not yet made claims against the estate are permanently barred from making a claim against the estate.
5) Once all known creditors have placed a claim on the estate within the allowed time, then the administrator must use the decedent’s assets to pay off the debts.
6) Once all debts have been paid, the administrator then distributes the decedent’s property to the heirs.
How a decedent’s assets are distributed during this final stage of the probate process depends on whether or not they have done any estate planning.
If the decedent did engage in some estate planning before they passed, then they are considered to have died “testate,” meaning they had a “last will & testament” that governs how their property should be distributed.
If, on the other hand, the decedent did not do any estate planning before they passed, then that person is considered to have died “intestate,” meaning they did not have any document that governs the distribution of their property after death,
Intestate Succession — When The State Decides
If someone passes away without having done any estate planning, everything that belongs to them has to go through a process called “intestate succession” in probate court. When a person dies “intestate,” their property will be distributed according to Arkansas statutes. This means that the probate courts have full control over how that person’s property will be distributed.
Assuming that there are still assets remaining in the estate after all creditors have been paid, the courts will then look to Arkansas statutes and follow the instructions in those laws on how things must be distributed. This can get complicated very quickly, and, if the decedent does not have any direct descendants, can lead to the administrator being forced to track down extended relatives, such as third cousins, etc., until the court finds someone who the law states is going to inherit.
The assets in the estate are used to track down possible heirs in such situations, so if someone passes without any close relatives living, it is possible that all of the estate assets may be exhausted in trying to find those people that the law states are entitled to inherit.
If the decedent does not have any living relatives who are entitled to inherit under Arkansas intestate succession statutes, then whatever is in the estate at that point defaults, or “escheats,” to the state. What this means is that everything that belonged to that person now becomes property of the State of Arkansas.
Disadvantages Of Probate
The probate process creates several risks that can be avoided through proper estate planning. These risks include:
a) Loss of Control: In the probate process, the probate courts have control over how, and, in the case of someone who dies intestate, to whom, your property is distributed
b) Unnecessary Delays: Even if there are no creditors, the six-month creditor period still applies, which extends the probate process unnecessarily. Even if there is only one possible heir, and no debts exist, all assets will be locked up in the probate courts for a minimum of six months
c) Increased Costs: Probate proceedings, like all court proceedings, involve court fees and administrative expenses. Furthermore, Arkansas statute authorizes attorney’s fees for probate proceedings to be paid as a percentage of the total value of the estate
d) Risk of Family Conflict: Uncertainty about your wishes regarding distribution of your assets can create disputes among your surviving relatives. Grief and the power of sentimental value can create disputes even among the most reasonable of people, and families can get torn apart as a result — even over things as simple as “mama’s rolling pin” or “daddy’s toolbox”
e) Risk to Heirs: If the debts exceed the amount of money that is in the estate, even after estate assets have been sold, then the estate must pay off as much of the debts as possible until there is nothing left in the estate. This means that, if the decedent has more debt than they do assets, the probate process can often lead to creditors cleaning out the entire estate, leaving nothing for that person’s heirs to inherit.
f) Risk of Forfeiture: If there are no heirs to inherit your property, then your property will default, or “escheat,” to the state.
The Power of Estate Planning
There are two different basic types of property transfers in the context of estate planning: probate transfers (transfers of property that go through the probate courts), and non-probate transfers (transfers of property that do not go through the probate courts).
Wills — Providing Direction
A will is a probate transfer; meaning it has to go through the probate courts. However, having a will offers a lot of advantages to navigating the probate process, as compared to having no estate planning in place whatsoever.
A properly drafted will allows you to specify exactly who you want to receive your property, as well as which specific property you want them to receive, and in what proportions. This means that, if you do not want your family members to inherit, you can name non-family members, such as friends, acquaintances, churches, or charities, and have your property distributed to them instead.
Or, if you want to name such individuals or entities in addition to your family members, a will allows you to do that as well. You can also nominate a specific trusted individual, or multiple individuals, to serve as the administrator of the estate (when a will nominates someone to serve as administrator, that person is called the “executor” of the will).
Importantly, a will can also state that, if none of the named individuals are still alive at the time of your death, you can nominate an organization of your choosing to receive your estate, so that there is no need to go chasing down 3rd and 4th cousins, thereby eliminating the risk of the property defaulting (“escheating”) to the state.
Of course, since wills still have to go through probate, they don’t completely eliminate the disadvantages inherent in the probate process. Wills don’t shield your assets from creditor
claims, and, since they still have to go through the six-month creditor period, wills also don’t eliminate the delays inherent in the probate process.
The best way to eliminate the disadvantages of probate is by avoiding the probate process altogether — by utilizing non-probate transfers.
Trusts And Other Non-Probate Transfers — Maximizing Protection
Non-probate transfers can take many forms, but they all have one thing in common: they do not require the involvement of the probate courts. Therefore, the advantages to non-probate transfers, as you can imagine, are massive.
Because non-probate transfers do not have to go through the probate courts, they are typically not subject to creditor claims, and there is no risk of property that is transferred in this way of escheating to the state.
The most common form of non-probate transfer is a trust — but there are a multitude of other such non-probate transfers available as well, depending on your specific circumstances and goals.
The Best Time To Plan Is Now
The best way to avoid probate is to plan ahead. No one likes to think about their own mortality; but the advantages of planning while you are still alive, healthy, and mentally sharp are tremendous.
When you plan ahead, you will not have to worry about these matters when you do reach the end of your life — instead, you will be able to focus on spending quality time with your family, comforted by the knowledge that you have properly ordered your affairs.
As a result, your loved ones will not have to deal with additional administrative burdens while they are grieving your loss, and there will also be far fewer opportunities for family disputes to arise.
So, if you have any belongings, no matter how few, and at least one person you would like to have them once you are gone, it is best to act sooner rather than later, while you are still able to put these plans in place.
Remember, estate planning isn’t about age or wealth — it’s about responsibility, and about taking care of the people you love. Consulting with an attorney who can guide you through that process ensures that you will have a plan that is tailored to your specific situation, and that will effectively carry out your wishes while providing maximum protection for your family.
Kirby Nix is a family law and estate planning attorney serving clients throughout Northwest Arkansas. He is dedicated to helping individuals and families navigate important legal matters with clarity and confidence. Whether you are facing a family law issue or need guidance in planning for the future, Kirby provides personalized solutions to protect what matters most. If you would like to meet with him to discuss your case, please contact Albarran & Joyce to schedule a consultation.
Albarran & Joyce (Joyce Law Firm) was founded in 2002 by Kirk Joyce. Each of the attorneys at Albarran & Joyce focus in specific areas of law, including, but not limited to: personal injury, immigration, criminal defense, family law, and business law. Contact Albarran & Joyce today at 479-442-5577. More about Albarran & Joyce
