Estate Planning

What is Estate Planning?

Estate planning is a process that generally involves your family, your lawyer and other individuals and, in some cases, charitable organizations of your choice. This process also involves your assets and properties and the various forms of ownership and title that those assets and properties may take. It may also address your future needs in case you ever become incapacitated or not able to care for yourself.

Here are some of the things the estate planning process will help you determine or decide:

  1. How and by whom your assets will be managed for your benefit during your lifetime if you ever become unable to manage them yourself.
  2. When and under what circumstances your assets can be distributed during your lifetime.
  3. How and to whom your assets will be distributed to after your death.
  4. How and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become incapacitated.

Contrary to public believe, estate planning does not only involves the writing of a simple will. Estate planning may also involve financial, tax, medical and business planning. Although a will is part of the planning process, but you will need other important documents as well to fully address your estate planning needs.

What is a Will?

Generally speaking, a will is a traditional legal document that takes effect after one’s death. It does the following:

  1. Designates individuals or charitable organizations who will receive your assets and property after your death, either by outright gift or in a trust.
  2. Nominates an “executor” who will be appointed and supervised by the probate court to manage your estate; pay your debts, expenses and taxes; and distribute your estate according to the instructions in your will.
  3. Nominates guardians for your minor children.

Just about all assets and properties in your name alone at your death will be subject to your will. Some exceptions include securities accounts and bank accounts that have designated beneficiaries, life insurance policies, IRAs and other tax-deferred retirement plans, and some annuities. Such assets would pass directly to the beneficiaries and would not be included in your will. In addition, certain co-owned assets would pass directly to the surviving co-owner regardless of any instructions in your will (in case of “Joint Tenancy”). And assets that have been transferred to a revocable living trust would be distributed through the trust and not through wills.

You do not always need an attorney to prepare your will, however, you must execute your will in compliance with the state laws. Failure to do so could invalidate the entire will.

What is a Revocable Living Trust?

A Living Trust is a legal document that can, in some cases, partially substitute for a will. With a revocable living trust, your assets are put into the trust, administered for your benefit during your lifetime and transferred to your named beneficiaries when you die without the need for court involvement.

Most people name themselves as the trustee in charge of managing their living trust’s assets. By naming yourself as trustee, you can remain in control of the assets during your lifetime. In addition, you can revoke or change any terms of the trust at any time as long as you are still competent. The terms of the trust become irrevocable when you die.

In your trust agreement, you will also name a successor trustee who will take over as the trustee and manage the trust’s assets if you should ever become unable to do so. Your successor trustee would also take over the management and distribution of your assets when you die.

A living trust does not, however, remove all need for a will. Generally, you would still need a “pour over will” to cover any assets that have not been transferred to the trust.

Your living trust will do the following:

  1. Provides the “trustee” the legal right to manage and control the assets held in your trust.
  2. Instructs the trustee to manage the trust's assets for your benefit during your lifetime.
  3. Designates the “beneficiaries” who are to receive your trust's assets when you die.
  4. Provides guidance and certain powers and authority to the trustee to manage and distribute your trust's assets.

The assets and properties held in your living trust could be managed by the trustee and distributed according to your directions without court supervision and involvement. This can save your heirs time and money. And because the trust would not be under the direct management of the probate court, your assets and their value as well as your beneficiaries' identities would not become a public record. Your heirs and beneficiaries would still have to be notified about the living trust and advised, among other things, of their right to obtain a copy of the trust.

What is Probate?

Probate is a court process for transferring a deceased person’s assets to the beneficiaries listed in his or her will or in the case without a will to the decedent’s next of kin or lawful heirs.

Usually, the “executor” named in your will would start the process after your death by filing a petition in court and seeking appointment. Your executor would then take charge of your assets, pay your debts and, after receiving court approval, distribute the rest of your estate to your beneficiaries. If you were to die “intestate” (died without a will), a relative or other interested person could start the process by petitioning to the court. In such an instance, the court would appoint an administrator to handle your estate. Personal representative is another term used to describe the administrator or executor appointed to handle an estate.

The probate process is not ideal for many people with assets. For example, probate proceedings are very public. The value of your assets will become a public record. It is also a very expensive to administer. For example, lawyer’s fees and executor’s commissions are based on a statutory fee schedule-- a probate may cost more than the management and distribution of a comparable estate under a living trust. Another disadvantage is that it is very time consuming. An average probate proceeding could take up to 2 years or longer.

When does estate planning involve tax planning?

Currently, estate taxes (up to 49%) are imposed upon estates that have a net value of $2 million or more. This exemption amount will increase to $3.5 million in 2009. In 2010, the estate tax will disappear completely. However, unless Congress passes an extension, the exemption will revert back to $1 million in 2011. For estates that approach or exceed these amounts, significant estate taxes can be saved by proper estate planning, usually before your death or, for couples, before one of you dies. Please keep in mind that tax laws often change. Additionally, estate planning for tax purposes must take into account not only estate taxes, but also income, capital gains, gift, property and generation-skipping taxes as well.

What other Estate Planning documents should I consider?

A Durable Power of Attorney for Property Management could be helpful if you ever become incapacitated. It deals with assets that were not transferred to your living trust before you became incapacitated and any assets that you receive afterward. With this power of attorney, you appoint another individual (“the attorney-in-fact”) to make financial decisions on your behalf. This power of attorney, however, cannot replace a living trust because, among other things, it expires when you die. It cannot provide instructions for the distribution of your assets after your death.

An Advance Health Care Directive or Durable Power of Attorney for Health Care allows your attorney-in-fact to make health care decisions for you when you can no longer make them for yourself. In your advance health care directive, you may state your wishes regarding life-sustaining treatment, organ donation and funeral arrangements as well. A health care directive also allows an authorized agent to access your medical information, which could be important in light of strict federal privacy laws.

For more detailed information on estate planning, please contact our office to schedule a personal consultation with our attorney.