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 What is an Estate Plan?What is Proper Estate Planning? Proper estate planning allows you to plan for yourself and your loved ones without giving up control of your affairs. Your estate plan should allow you to plan for the possibility of your own disability. It should give what you own to whom you want to receive it, the way you want them to receive it, and when you want them to receive it. Your estate plan should save every tax dollar, professional fee, and court cost that are legally possible to save. Problems with Traditional Estate Planning Most of us are familiar with conventional age-old estate planning tools. You have probably used one or more of these techniques. But there are disadvantages. Each of these drawbacks contradicts the definition of wise and proper estate planning. If you're considering one of these options, take a look at some of these pitfalls. Why do You Need an Estate Plan? Don't think of your belongings as an "estate?" Think again. Just because you may not have a multi-million dollar estate doesn't mean an estate plan won't protect the ones you love. Find out why you may not need an estate plan, but your family does. By meeting the definition of estate planning, a properly prepared plan meets your goals. It allows you to plan for your disability and direct the distribution of your property. It saves tax dollars, professional fees and court costs. And, most importantly, it keeps you in control of your own affairs. A properly designed estate plan can:
Creating an Estate Plan is Easy. With the help of your attorney and advisors, you can quickly and comfortably establish a living trust-centered estate plan for yourself and your loved ones. Your living trust can be changed or canceled at any time. As maker, trustee, and primary beneficiary, you control every aspect of how your property will be used. You also appoint the trustees, naming as many or as few trustees as you like, with specifications of who takes care of what. Of course, a living trust-centered estate plan truly comes to life by adding your loving concern and the caring efforts of your attorney and other professional advisors. What are some of the documents and terminology that I ought to be familiar with as I work on my estate planning? Last Will and Testament Generally, a last will and testament is a written document in which an individual directs to whom his or her property will pass upon death. Not only does a will provide who gets the property, but it may also provide when the property is to be distributed, for example, by granting a life estate or creating a Testamentary Trust. Executor The will usually names an executor who will have the responsibility, power, and duty to administer the estate. In many states, the executor is now called a "personal representative." The will can expressly waive the executor's bond, and it can name successors if a named executor cannot serve for any reason. Apportionment of Taxes and Expenses The will can direct how the estate or other taxes and expenses will be charged or paid. For example, it can direct the payment of taxes and expenses from the estate property before it is distributed to the beneficiaries, or it can direct payment out of the shares or assets received by a beneficiary. Therefore, one beneficiary's shares may be responsible for the payment of all the taxes and expenses to the exclusion of other beneficiaries. Dispositive Provisions These provisions specify who gets what property and when. Guardian of Minor Children Another important function of a will is to allow a person with minor children to name the guardian of the children. The will can expressly waive the guardian's bond. Intestacy If one dies without a valid will, a situation called "intestacy," the state has drafted one by statute. The probate property will pass to the decedent's heirs at law in accordance with the state's order of descent and distribution. If a person does not like the terms of the state's will, then he or she can alter the disposition by writing his or her own will or trust. Right of Election State laws generally provide for certain spousal rights with respect to a decedent's probate property. State law may limit or restrict one's right to disinherit one's surviving spouse, irrespective of the wording in the will. Will Substitutes A will controls only the disposition of probate property. Many clients use joint and survivorship accounts, payable on death (POD) accounts, beneficiary designation forms, or revocable trusts to avoid probate (these arrangements are often referred to as "will substitutes"). If effectively implemented, will substitutes but not the last will control the disposition of a person's assets. A person's will and will substitutes should be coordinated to ensure that his or her intent is effective. Revocable Living Trust The Revocable Living Trust is one of the most popular estate planning vehicles used today. There are important tax and nontax reasons to use or not to use a Revocable Living Trust. You should ask an estate planning attorney to explain the proper uses of a Revocable Living Trust. You should also get as much other information as you can, so that you have a good understanding of how a Revocable Living Trust may benefit you. A trust is an arrangement whereby one transfers property to oneself or to another as trustee. The trustee is to hold, manage, and distribute the trust property in accordance with the trust agreement. A Revocable Living Trust is evidenced by a written agreement. It creates the power and duties of the trustee with respect to the trust property, and it may be altered, revoked, or terminated by the maker at any time. Generally, during the maker's lifetime a Revocable Living Trust may be funded or unfunded. Unfunded Revocable Living Trust An unfunded Revocable Living Trust is used as a "standby" arrangement. That is, a person may desire to have all of his or her property pass to the spouse at death, but if the spouse is not living, then the property would pass to a trust for the person's children. An unfunded trust does not avoid probate. Funded Revocable Living Trust A funded trust, on the other hand, is used during the lifetime of the maker. The maker transfers property to the trustee, who is often the maker of the trust. If the maker becomes unable to serve as the trustee due to health or other reasons, then a successor trustee or trustees can be named to manage the property during the maker's lifetime. Upon the death of the maker, the trust property, unlike that in a will, is not subject to probate. The trust property and the terms of the trust will not become a part of the "public record," as they would in a will. The trust property will be disposed of under the terms of the trust agreement. Depending on the maker's goals, the trust may continue on in one or more trusts to benefit loved ones or charities. Last, the estate settlement costs associated with trusts (and other nonprobate property) are often, but not necessarily always, significantly lower than the costs for property which is subject to probate. While property held in a Revocable Living Trust at the time of the death of its creator is not subject to probate, for estate tax purposes all the property in the trust is included in the maker's gross estate. Avoidance of probate is not the same as tax avoidance! Irrevocable Trust Generally, an irrevocable trust is used by the maker to make lifetime gifts to the trust beneficiaries. The maker must part with sufficient control over the property to avoid having the property included in his or her gross estate at death. Often, an irrevocable trust is used instead of "outright" gifts because the gift recipients are not, in the maker's mind, ready to manage the property without help. An irrevocable trust (like outright gifts) may save estate taxes because the appreciation and income on the transferred property will not be included in the maker's gross estate at his or her death. Close Corporation Agreements, including Buy-Sell Agreements If an individual owns a business, special issues arise with respect to how the business succession plan (or lack of one) will affect the overall estate plan. Generally, a client is well advised to plan for his or her disability, divorce, withdrawal from the business, or death to avoid adversely affecting his or her family and the other business owners. A business owner may desire to prearrange the disposition of his or her ownership of the business. If so, then there are a number of questions that must be answered.
After these decisions are made, the business owner's planning attorney can reduce the owner's business succession plan into a legally binding document. Even then, the document and the plan should be reviewed periodically to determine if they still meet the needs of the owner and his or her family. These are just a few of the terms and documents that are important to understand. Other documents that should be considered in creating a comprehensive estate plan include:
Living Wills and health care powers of attorney Antenuptial agreements Qualified retirement plans and IRAs Nonqualified plans and salary continuation agreements Beneficiary designation forms Employment contracts Real estate deeds or leases What should my estate plan include? Having a well-designed estate plan can provide the peace of mind that comes with knowing you have taken the appropriate steps to ensure that the future of your loved ones is guaranteed. Your estate plan should allow you to plan for your own disability and to give what you have, to whom you want, the way you want, and when you want, while saving tax dollars, court costs, and professional fees. Your estate plan should be uniquely tailored to your specific family needs and should consist of a comprehensive set of documents. Depending on your needs and the size of your estate, your overall estate plan could include an array of documents consisting of various types of trusts, partnerships, corporations, and maybe even limited liability companies. Many planners believe that your estate plan should have as its centerpiece a fully funded Revocable Living Trust agreement that contains instructions for your own care while you are alive and for the care of your loved ones after your death. Ideally, your estate planning documents should be prepared in a well-organized manner, such as in a binder or portfolio that allows you to keep all your estate planning and financial information in easy reach. Having a method to keep your documents and information organized will greatly benefit you and your family. In addition to your Living Trust, the following should also be part of your basic estate planning package: Pour-Over Will:
The purpose of the Pour-Over Will is to make sure that any assets you may have forgotten to put in your Living Trust while you were alive are poured into your trust after your death. It acts as a safety net. The other purpose of the Pour-Over Will is for you to name the guardians of your minor children. Funding instructions: Your estate planning portfolio should contain some general instructions as to how to get and keep your trust funded. Durable special power of attorney: This limited power of attorney permits others to transfer assets into your trust for you in case you are unable to do so yourself. Durable special power of attorney for health care: Sometimes known as a "patient advocate," this document permits you to appoint someone to make important medical decisions for you in the event you cannot communicate with your doctor. Living Will: In your Living Will, you may express your feelings and desires regarding life support to forgo being kept alive artificially by machines when there is no hope of recovery. Trust transfer document: Having a systematic method of determining which assets have been placed in your trust and which assets are outside your trust can prove to be invaluable and save your family members considerable time and expense. Location list: Providing the location of your important legal documents and listing the names, addresses, and phone numbers of important advisors and friends and relatives can prove to be invaluable to your family in the event of your disability or death. Personal property memorandum: If permitted by law in your state, a tangible personal property memorandum is a very convenient way to leave personal items to loved ones through the use of a list which you complete. Life insurance summary: Listing your life insurance policies and the companies you have them with can help your family members gather all the benefits they have coming to them in the event of your death. Anatomical gift form: By completing an anatomical gift form, you can donate body parts to someone who may need them. Burial and funeral instructions: Leaving burial and funeral instructions can lift a major burden off surviving family members by letting them know exactly what your wishes were. Are there any other needs or expertise that the client should be aware of regarding estate tax planning? Clients need expertise and guidance in wills, trusts, gifts, life insurance, accounting, investments, partnerships, corporations, hybrid organizations, employee retirement and benefit agreements (qualified and otherwise), probate, and probate avoidance, as well as federal and state income, gift, and estate taxes and a myriad of other subjects. The field is as broad as human experience and as demanding as human imagination. Estate planners become technical advisors, family counselors, amateur psychiatrists, economists, and parental images. Beyond the need for technical expertise, there is also a need for diverse attitudes. There is a need for conservatism; there is a need for aggressiveness; there is a need for imagination and ingenuity; there is a need for motivation; there is a need for an understanding to coordinate activities in many technical fields. The entire experience is mind stretching, but no single mind has the ability, expertise, and elasticity to do the entire job. There should always be a sharing; there should always be cross-pollination; there should be objectivity; and there should be checks and balances. Without question, the estate planning team concept is justified and valid. How do you define an estate planning team? First, an estate planning team needs a coach! A coach is essential and should encourage and lead the other professionals who may be involved. The coach can be any member of the team. He or she is the professional who coordinates the planning, follows through on deadlines, and initiates meetings and communication. The estate planning team is based on the concept that professionals with diverse expertise and experience in a variety of disciplines will work together to help clients identify, solve, and avoid problems dealing with family financial security. The team must be unified: a cohesive group of people who have specialized functions. Each person has his or her own area of expertise and relies on the resources and support of others to get the complete job accomplished. In our complex society, proper estate planning demands experience and expertise far beyond the abilities of any single professional person, group, or discipline. Proper estate planning may be described by two words. The first is compassion--the act of caring. The second word is integrity--the act of performance. Estate planning is, first, the act of caring for people and, second, caring enough to act! How often should I review my estate plan? Just as it is wise to undergo a periodic checkup of your physical health, it is equally wise to conduct an annual review of your estate plan. At the very least you should review your estate plan every 3 years with your lawyer and other estate planning and financial advisors. By reviewing your estate plan, you may discover a need to amend your plan as a result of a change in your personal family life, the tax law, or your overall estate planning goals. If your estate has grown significantly, it may be necessary to modify your plan to minimize the tax consequences. Your overall estate may have grown because of inflation, appreciation of your assets, a substantial salary increase, or an inheritance or judgment from a lawsuit. Other circumstances that may necessitate a change to your estate plan include the death of a trustee, personal representative, or guardian you named for your minor children. Beneficiaries may require different planning than first implemented because of a troubled marriage, creditor problems, a disability, or death. You may have had additional children or grandchildren that you would like to specifically plan for. If your marriage is failing and you have filed for a divorce, it may be necessary to modify your plan to ensure that your children will benefit from your estate should you die before the judgment of divorce is entered. Periodic reviews of your estate plan can also alert you to any assets that may be outside of your Living Trust. Making certain your Living Trust is fully funded is crucial to your estate planning and to avoid probate. By reviewing your estate plan often, you can be certain that any changes that need to be made can be done in a timely fashion to ensure that your estate planning goals and dreams will materialize. What are some of the reasons that people don't do estate planning? The first reason why people don't plan ahead to maximize and preserve wealth is to avoid the complexities and the expense. Very competent legal help is necessary to assist with this, and such services don't come cheaply. People may also have a mind-set about the amount of time and money that they are willing to devote to this subject. It's so much easier just to do nothing. The second reason is that most plans require the giving of gifts to others, and this can shift control away from them. Successful people are often used to making decisions alone and may find it uncomfortable if others must be involved. They may not see eye to eye with those who they would normally consider as recipients of gifts. The third reason is that the estate planning strategies chosen may require an arrangement where investment cash flow is now divided among family members. Many people are understandably reluctant to share cash flow if they think they will need the money someday. Fourth, people who fail to plan may have legitimate fears that their generosity could complicate or increase tax liabilities for others. And they may feel that the beneficiaries of their generosity would be better off starting from scratch and not receiving much from them. The greatest enemy of estate planning is procrastination! Incredibly, many people feel that they are immortal and will always have the proper amount of time to do their estate planning. This fallacy ignores the many lifetime benefits of estate and financial planning. Estate planning is, in fact, living planning. A competent advisor can demonstrate how most of the concerns about planning can be overcome. The most important first step is to meet with a competent advisor and explore the possibilities of estate planning that can benefit you and those you wish to care for. |
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| ©2008, Dallas W. Jolley, Attorney & Counselor at Law. Send questions or comments to info@jolleylaw.com. | |||||
