Dallas W. Jolley, Attorney & Counselor at Law

What is an Estate Plan?

What is Proper Estate Planning?

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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:

•Provide instructions for your care and that of your loved ones in the event of your disability,

•Be effective if you move to or own property in another state,

•Avoid probate and its associated legal costs,

•Keep your affairs private and confidential,

•Control all your property, including pensions and life insurance,

•Allow you to leave explicit instructions for the care of your loved ones,

•Create protective trusts for your young children, disadvantaged children, adult children, and grandchildren and

•Provide federal estate tax planning.

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.

•Is the business to be sold?

•What event or events will trigger the sale?

•If the business is to be sold, to whom is it to be sold and what are the price and terms of sale?

•Will there be sufficient liquidity for the most likely purchaser to acquire the business?

•Will the selling owner or his or her survivors want to be involved in the business?

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:

Durable powers of attorney

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.

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