What is Estate Planning?
Estate planning is the process of anticipating and arranging for the disposal of an Estate.
Estate planning typically attempts to eliminate uncertainties over the administration of a Probate and maximize the value of the estate by reducing Taxes and other expenses.
The Estate Planning process includes ten (10) areas beyond a Traditional Estate Plan, including:
- Property & Stories
- Minor Care & Advancements
- Purpose, Guide-lights & Guidelines
- Risks & Special Needs
- True Wealth
- Heirs & Charities
- Family Tree Info
Estate Planning gives you eace of mind
A basic estate plan addresses what happens to your property and your children when you die. But estate plans can go even further. They can also plan for your incapacitation, such as if you’re in an accident or become ill and can no longer take care of your own affairs. Estate plans are not a single document, but a whole collection of documents that you put together to deal with a variety of circumstances.
- Estate Plans Begin With Wills – A last will and testament is the best-known part of an estate plan. A will lets you decide who gets your property when you die. You can use a will to name a guardian for your young children. You can name your executor, the person you want to handle your affairs and oversee the probate process. However, until you die, a will is not a legally binding document. Therefore, most estate plans are more extensive.
- You Can Create a Trust – You can also include a trust in your estate plan. When you create a trust, you transfer ownership of your personal assets and real property to it. When you die, the trustee distributes your property according to your directions, just as an executor would do if you bequeathed assets in a will. The greatest difference between wills and trusts is that trust assets don’t have to go through the probate process to transfer property to your beneficiaries. Many people include both wills and trusts in their estate plans. A “pour over” will sends to your trust any property you didn’t already include.
- You Can Include Powers of Attorney – Estate plans can also address what will happen if you become incapacitated. Most trusts name a successor trustee, who will manage the trust if the person who created it can no longer do so. Wills can’t do this, however, because they don’t have any power until you die. If you use a will as the basic part of your estate plan, you should create powers of attorney, which will allow a trusted friend or relative to manage your financial affairs for you if you are incapacitated.
- You Can Include Health Care Directives – Your estate plan can also include directives regarding your life and your health. Powers of attorney can address both your financial affairs and health care decisions if you’re incapacitated. You can also add a living will to your estate plan. A living will explains whether you want your life to be artificially prolonged if there’s no chance for your recovery. A health care proxy or power of attorney for health care names someone to make that decision for you.
What constitutes an Estate Plan?
- Financial Directive – To have the power to make financial decisions for your partner, you must prepare the right legal documents.
- Medical Directive – To have the power to make medical decisions for your partner, you must prepare the right legal documents.
- A Will – This is the legal instrument that permits a person, the testator, to make decisions on how his estate will be managed and distributed after death.
What Is A Will?
A WILL is the legal instrument that permits a person, the testator, to make decisions on how his estate will be managed and distributed after his death.
A WILL acts on any property that is not transferred to the trust. The will provides for collection of that property, payment of Probate expenses, and transfer of whatever is left to the trust. In effect, whatever is left in the Probate estate “pours over” into the trust and is then administered according to the terms of the trust.
When Should I Make A Will?
A person should make a will right now because no one knows what tomorrow holds. A person should review his estate plan occasionally, especially after certain events, such as marriage, divorce and winning the lottery.
Who Needs A Will?
Since most everyone dies possessing property, most everyone needs a will. The law decides what happens to property in the estate of a person who dies without a will. State law attempts to distribute the property according to what most people want, but it doesn’t always work that way. The default plan normally distributes property to relatives.
Someone who leaves behind a girlfriend or boyfriend, or even a fiancé, will not be able to provide them with any inheritance unless there is a valid will. There is almost no exception in the law to provide otherwise.
Who Should Draft My Will?
Only an Advocate can legally draft a will for a person, unless a person drafts his own will. Personally drafted wills are often incomplete, and therefore invalid under the law. An invalid will is worthless.
If your will fails to follow the law, it will be invalid.
What Are The Requirements For A Will?
The specific requirements depend on law. Commonly, the will must be in writing, signed by the person whose will it is (the “testator“) and witnessed by (usually) two persons.
The testator normally must have attained the age of majority, and must be of “sound mind” at the time the will is executed.
The witnesses normally MUST be “uninterested”, meaning they’re not beneficiaries of the will. Witnesses also must be competent persons.
A will normally doesn’t need to be notarized, but a document called a “self-proving affidavit” might be created to provide further legal strength to the will.
Why Must An Estate Go Through Court?
So that the decedent’s affairs can be LEGALLY concluded. The Court oversees the probate. If there is real property, someone will need legal authority to transfer the property to the heirs. If the estate is producing income, taxes will have to be paid. The creditors are to be paid from the estate property.
Can A Will Be Changed?
Yes, if the testator is competent. A new will or a “codicil” can be executed to create a new scheme for disposing of the testator’s property.
The Government can change a will also. This is commonly done when there has been a divorce. Usually a divorce terminates the ex-spouse’s rights under a will, unless a contrary intent is clearly shown. A separation doesn’t terminate a spouse’s rights under a will. The specific impact of divorce on an existing will depends entirely on the law.
Can I Appoint A Guardian For My Children In My Will?
Yes. This is another valuable benefit that a will can provide. However, a Court is not bound by the naming of a guardian in a will. The Court will certainly consider it, and it’s often the only way to make your wishes known after you’ve died.
Can I Dispose Of My Property In Any Way I Wish?
Yes, for the most part. But if you indicated that all your property should be collected and burned, the law might not give effect to that part of your will.
You won’t be able to avoid protections given to others by act of law, either. This can include your spouse’s rights against the estate, community property protections, and special protections for children.
Can More Than One Person Be Named As Personal Representative?
Yes. You may appoint co-representatives, or a secondary representative.
Having more than one representative can create problems during probate, however. Normally they will have the same powers to act, and this can create conflict. The nomination of two or more executors/representatives should be carefully considered.
Appointing co-representatives might be an emotional reaction – not wanting to hurt someone’s feelings. However, an emotional reaction is often not the best choice for a legal situation. If you nominate co-representatives, you need to believe that they will be able to cooperate in handling the estate.
How Can A Person Contest A Will?
A person contests a will by filing the relevant documents with the probate Court. The person normally must be “interested” that is, must be an heir under the will or at law. There are time limits for contesting a will.
You must have grounds to have a chance of successfully contesting a will. Unhappiness with the proposed distribution of property is not a valid ground. Valid grounds depend on law. Incapacity, fraud, undue influence and duress are the most common grounds.
Is Joint Tenancy A Substitute For A Will?
A joint tenancy with right of survivorship is a method of owning property with another person. At the death of one owner, the other owner becomes the full owner of the property. The property isn’t part of the decedent’s estate, and doesn’t go into probate.
There are tax implications and simple ownership issues for a joint tenancy.
A joint tenancy is not the equivalent of a will. A will can do a number of other things. A joint tenancy creates a situation where the other joint tenant will get the whole property at the decedent’s death. But if you give your brother an interest in a joint tenancy on your home, he could sell his interest or his creditors could go after his interest.
Must The Will Be Read To The Family?
This is a Hollywood myth. The law could require this, but it would be rather pointless. The representative of the estate normally must provide notice of probate to all interested parties, and they can obtain a copy of the will from the probate Court. A “reading of the will” is used in movies to create drama, like when the decedent disinherits his wife and children and leaves everything to his mistress, which is about impossible to do in real life.
What is accomplished by a trust?
If you want to avoid the probate process entirely, and/or accomplish special goals (like controlling distribution of the assets over time, or helping a charity or a disabled relative) you can create a trust. This can be an attractive option if you have a larger estate, because probate can cost up to seven percent of the value of your estate.
In an irrevocable trust, you give up control of your assets during your lifetime. They are managed instead by a trustee. In an irrevocable trust, your assets are protected from creditors. There are tax advantages.
In a revocable Living Trust, you retain control over your personal assets during your life. Such trusts are commonly used as a substitute for a will in estate planning. You can change the terms, by adding or removing beneficiaries, or cancel the trust entirely. The assets are not protected from creditors and lack the tax advantages of irrevocable trusts. Your assets transfer automatically and quickly to your beneficiaries at the time of your death.
Do I even need a will or trust?
If you own property and assets, you may want to have a will. That way you, rather than your state government, can decide who gets your property and assets when you die. In most cases, wills are written legal documents, but some states do recognize other types of wills. The legal requirements of each state can vary, so it’s essential that your will is drafted and executed properly.
- A Will Must Meet All Legal Requirements – Most wills are formal documents that instruct how money and property should be distributed to each person named as an heir. For a will to be valid, you usually need to have one or two people witness you signing the will and then sign it themselves.
- Your Will Does More than Name Heirs – The main reason for having a will is to allocate your property to heirs in any way you like. But there are other things you can include such as funeral arrangements, legal guardians for your minor children, and who should serve as executor of your will or trustee of any trusts you create.
- A Will Prevents Intestate Succession – When you die without a will, state laws known as “intestate succession laws” will decide which family members will inherit your estate and in what proportion.
- A Will May Eliminate Family Conflict – The division of an estate after death comes with many emotions. The slightest differences can result in hurt feeling and recriminations. As divorce becomes more complex and blended families more common, dividing assets has become even more complicated. A typical situation is when you’re in a second marriage and have children from your first marriage. In this case, allocating your property purposefully between your second spouse and your children can give you peace of mind and prevent your family from fighting over your possessions.
What happens if I do nothing?
If you do nothing at all, you die “intestate,” which means without a will. When this happens, the state will step in. The probate Court will tally up all of your assets, pay all of your outstanding debts, and distribute what’s left according to a standard formula.
The Government awards half of the estate to the surviving spouse. The rest is divided among the children. If you don’t have children, your estate goes to your spouse is shared between a spouse and certain relatives. If you are single with children, your estate goes to your children. If you have no spouse and no children, your estate usually goes to your parents.
What is the purpose of a trust?
There are many types of trusts, but irrevocable and revocable trusts are the most common. An irrevocable trust involves giving up control of your assets during your lifetime. You name a trustee who manages the trust and the assets you place in it. You can manage a revocable trust yourself. One might be more suitable for you than the other, depending on what you’re trying to achieve.
- Trusts Avoid Probate – Many people include trusts in their estate plans for the purpose of avoiding probate. Both irrevocable and revocable trusts bypass the probate process. This can be an attractive option if you have a large estate, because probate can cost up to 7 percent of your estate’s value. There’s a catch, however. You must transfer ownership of your assets to your trust before your death. The assets you own are subject to probate when you die, because probate is the legal process that transfers ownership of your assets to your beneficiaries. The trust, on the other hand, transfers trust assets to your beneficiaries, so probate is unnecessary.
- Trusts Are Private – If privacy is a concern to you, trusts are a good estate planning option. Some people choose them because they don’t want their financial holdings to be common knowledge when they die. Because assets placed in your trust don’t go through the probate process, they’re not a matter of public record.
- Trusts Control Inheritances – Trusts can also serve the purpose of keeping control of your assets even after your death. If you pass your assets to your beneficiaries through a will, they receive the assets when you die. If you use a trust instead, you can set it up so that younger, less mature beneficiaries might not receive their inheritance until they reach a certain age. The trust would manage their inheritance until that time.
- Some Trusts Shield Your Assets From Creditors – A purpose unique to irrevocable trusts is that they can also shield your assets from creditors during your lifetime, so you’re sure you have something to leave your loved ones when you die. If your career is one that leaves you open to lawsuits, and if someone gets a judgment against you, they can’t use that judgment to seize your assets if you’ve transferred them to an irrevocable trust. If you maintain control over them, either through a revocable trust or by not forming a trust at all, you could lose the assets to creditors or lawsuits.
When is a revocable trust a good idea?
One type of trust that is commonly used by estate planning lawyers is the revocable Living Trust, which allows you to retain control over your personal assets. However, revocable Living Trusts aren’t for everyone. In some cases, the disadvantages can outweigh the benefits.
- A Revocable Living Trust Gives You Control – As the name implies, a revocable Living Trust takes legal effect during your life rather than at your death. Since it’s revocable, you always have the options of changing the terms of the trust, such as adding and removing beneficiaries, or cancelling the trust entirely. This flexibility is seen as an advantage by many people, because you can’t always predict your future financial needs or whether relationships with beneficiaries will become strained.
- You Can Use a Revocable Living Trust in Place of a Will – Many estate plans use revocable Living Trusts as a substitute for a will either entirely or for specific assets. Wills may be subject to probate proceedings in a state court after your death. During probate, there’s always the possibility that a family member who is excluded from your will may challenge the terms of your will. Moreover, probate usually delays the distribution of your estate. With a revocable Living Trust, however, your assets can be distributed immediately. They aren’t subject to probate or to challenges by those who aren’t named as beneficiaries.
- Make Sure That an Irrevocable Living Trust Isn’t a Better Option – One of the main disadvantages to creating a revocable Living Trust is that the trust property is still considered yours and isn’t protected from your creditors or lawsuits. Making the Living Trust irrevocable provides more creditor protection since you’re no longer considered the owner of property in the trust. The downside to irrevocable trusts, of course, is that you can’t change your mind if you ever need your assets back at some point.
- Consider the Estate Tax Implications – Since you’re considered to be the owner of all assets in your revocable Living Trust at the time of death, the value of your trust property may be subject to federal and state estate taxes. Check carefully, because state tax laws change frequently.