Estate Planning FAQ
These are some of the most frequently asked estate planning questions to help you better understand the estate planning process. While some of the answers to the questions which follow may not apply in your situation, you may find the answers to be informative nonetheless.
If you die intestate (without a will), your state’s laws of descent and distribution will determine who receives your property by default. These laws vary from state to state, but typically the distribution would be to your spouse and children, or if none, to other family members. A state’s plan often reflects the legislature’s guess as to how most people would dispose of their estates and builds in protections for certain beneficiaries, particularly minor children. That plan may or may not reflect your actual wishes, and some of the built-in protections may not be necessary in a harmonious family setting. A will allows you to alter the state’s default plan to suit your personal preferences. It also permits you to exercise control over a myriad of personal decisions that broad and general state default provisions cannot address.
Aside from providing for the intended disposition of your property upon your death, a number of other important objectives may be accomplished in your will.
- You may designate a guardian for your minor child or children if you are the surviving parent and thereby minimize court involvement in the care of your child. Also, by the judicious use of a trust and the appointment of a trustee to manage property funding that trust for the support of your children, you may eliminate the need for bonds (money posted to secure a trustee’s properly carrying out the trustee’s responsibilities) as well as avoid supervision by the court of the minor children’s inherited assets.
- You may designate an executor (personal representative) of your estate in your will, and eliminate their need for a bond. In some states, the designation of an independent executor, or the waiver of otherwise applicable state statutes, will eliminate the need for court supervision of the settlement of your estate.
- You may choose to provide for persons whom the state’s intestacy laws would not otherwise benefit, such as stepchildren, godchildren, friends or charities.
- If you are acting as the custodian of assets of a child or grandchild under the Uniform Gift (or Transfers) to Minors Act, you may designate your successor custodian and avoid the expense of a court appointment.
Contrary to what you’ve probably heard, a will may not be the best plan for you and your family. That’s primarily because a will does not avoid probate when you die. A will must be validated by the probate court before it can be enforced.
Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. So the court could easily take control of your assets before you die — a concern of millions of older Americans and their families.
Fortunately, there is a simple and proven alternative to a will — the revocable living trust. It avoids probate, and lets you keep control of your assets while you are living — even if you become incapacitated — and after you die. Legally you no longer own anything; everything now belongs to your trust. So there is nothing for the courts to control when you die or become incapacitated. The concept is simple, but this is what keeps you and your family out of the courts.
What’s so bad about it?
- It can be expensive. Legal fees, executor fees and other costs must be paid before your assets can be fully distributed to your heirs. If you own property in other states, your family could face multiple probates, each one according to the laws in that state. These costs can vary widely; it would be a good idea to find out what they are now.
- It takes time, usually nine months to two years, but often longer. During part of this time, assets are usually frozen so an accurate inventory can be taken. Nothing can be distributed or sold without court and/or executor approval. If your family needs to live on, they must request a living allowance, which may be denied.
- Your family has no privacy. Probate is a public process, so any “interested party” can see what you owned, whom you owed, who will receive your assets and when they will receive them. The process “invites” disgruntled heirs to contest your will and can expose your family to unscrupulous solicitors.
- Your family has no control. The probate process determines how much it will cost, how long it will take, and what information is made public.
Not really. Using joint ownership usually postpones probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.
Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could disinherit your family.
With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court — even if the incapacitated owner if your spouse.
If you can’t conduct business due to mental or physical incapacity (dementia, stroke, heart attack, etc.), only a court appointee can sign for you — even if you have a will. (Remember, a will only goes into effect after you die.)
Once the court gets involved, it usually stays involved until you recover or die and it, not your family, will control how your assets are used to care for you. This public, probate process can be expensive, embarrassing, time consuming and difficult to end. It does not replace probate at death, so your family may have to go through probate court twice.
Absolutely not. You keep full control. As trustee of your trust, you can do anything you could do before — buy and sell assets, change or even cancel your trust. That’s why it’s called a revocableliving trust. You even file the same tax returns. Nothing changes but the names on the titles.
No, and your attorney, trust officer, financial adviser and insurance agent can help. Typically, you will change titles on real estate, stocks, CDs, bank accounts, investments, insurance and other assets with titles. Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.
It will take some time — but you can do it now, or you can pay the courts and attorneys to do it for you later. One of the benefits of a living trust is that all of your assets are brought together under one plan. Don’t delay “funding” your trust; it can only protect assets that have been transferred into it.
You may decide to be the trustee of your trust. However, some people select a corporate trustee (bank or trust company) to act as trustee or co-trustee now, especially if they don’t have the time, ability or desire to manage their trusts, or if one or both spouses are ill. Corporate trustees are experienced investment managers, they are objective and reliable, and their fees are usually very reasonable.
If you and your spouses are co-trustees, either can act and have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, the successor trustee you personally selected will step in. If a corporate trustee is already your trustee or co-trustee, they will continue to manage your trust for you.
If you become incapacitated, your successor trustee looks after your care and manages your financial affairs for as long as needed, using your assets to pay your expenses. If you recover, you resume control. When you die, your successor trustee pays your debts, files your tax returns and distributes your assets. All can be done quickly and privately, according to instructions in your trust, without court interference.
Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. If you choose an individual, you should also name some additional successors in case your first choice is unable to act.
Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age(s) you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, spouses and future death taxes.
Your estate will have to pay federal estate taxes if its net value when you die is more than the “exempt” amount at the time. (Your state may also have its own death or inheritance tax.) If you are married, your living trust can include a provision that will let you and your spouse use both of your exemptions, saving a substantial amount of money for your loved ones.
Not when compared to all of the costs of court interference at incapacity and death. How much you pay will depend primarily on your goals and what you want to accomplish.
Yes, you need a “pour-over” will that acts as a safety net if you forget to transfer an asset to your trust. When you die, the will “catches” the forgotten asset and sends it into your trust. The asset may have to go through probate first, but it can then be distributed as part of your overall living trust plan. Also, if you have minor children, a guardian will need to be named in the will.
No. A living trust is for financial affairs. A living will is for medical affairs; it lets others know how you feel about life support in terminal situations.
No, they’ve been used successfully for hundreds of years.
Age, marital status and wealth don’t really matter. If you own titled assets and want your loved ones (spouse, children or parents) to avoid court interference at your death or incapacity, you should probably have a living trust. You may also want to encourage other family members to have one so you won’t have to deal with the courts at their incapacity or death.
A power of attorney gives one or more persons the power to act on your behalf as your agent. The power may be limited to a particular activity, such as closing the sale of your home, or be general in its application. The power may give temporary or permanent authority to act on your behalf. The power may take effect immediately, or only upon the occurrence of a future event, usually a determination that you are unable to act for yourself due to mental or physical disability. The latter is called a “springing” power of attorney. A power of attorney may be revoked, but most states require written notice of revocation to the person named to act for you.
One answer is convenience. If you are buying or selling assets and do not wish to appear in person to close the transaction, you may take advantage of a power of attorney. Another important reason to use power of attorney is to prepare for situations when you may not be able to act on your own behalf due to absence or incapacity. Such a disability may be temporary, for example, due to travel, accident, or illness, or it may be permanent.
If you do not have a power of attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint one or more people to act for you. People appointed in this manner are referred to as guardians, conservators, or committees, depending upon your local state law. If a court proceeding, sometimes known as intervention, is needed, you may not have the ability to choose the person who will act for you. Few people want to be subject to a public proceeding in this manner so being proactive to create the appropriate document to avoid this is important. A power of attorney allows you to choose who will act for you and defines his or her authority and its limits, if any. In some instances, greater security against having a guardianship imposed on you may be achieved by you also creating a revocable living trust.
You may wish to choose a family member to act on your behalf. Many people name their spouses or one or more children. In naming more than one person to act as agent at the same time, be alert to the possibility that all may not be available to act when needed, or they may not agree. The designation of co-agents should indicate whether you wish to have the majority act in the absence of full availability and agreement. Regardless of whether you name co-agents, you should always name one or more successor agents to address the possibility that the person you name as agent may be unavailable or unable to act when the time comes.
There are no special qualifications necessary for someone to act as an attorney-in-fact except that the person must not be a minor or otherwise incapacitated. The best choice is someone you trust. Integrity, not financial acumen, is often the most important trait of a potential agent.
A living will is your written expression of how you want to be treated in certain medical circumstances. Depending on state law, this document may permit you to express whether you wish to be given life-sustaining treatments in the event you are terminally ill or injured, to decide in advance whether you wish to be provided food and water via intravenous devices (“tube feeding”), and to give other medical directions that impact your care, including the end of life. “Life-sustaining treatment” means the use of available medical machinery and techniques, such as heart-lung machines, ventilators, and other medical equipment and techniques that may sustain and possibly extend your life, but which may not by themselves cure your condition.
A living will applies in situations in which the decision to use such treatments may prolong your life for a limited period of time and not obtaining such treatment would result in your death. Having a living will does not mean that medical professionals would deny you pain medications and other treatments that would relieve pain or otherwise make you more comfortable. Living wills do not determine your medical treatment in situations that do not affect your continued life, such as routine medical treatment and non life-threatening medical conditions. Most states permit you to include other medical directions that you wish your physicians to be aware of regarding the types of treatment you do or do not wish to receive. In all states the determination as to whether you are in such a medical condition is determined by medical professionals, usually your attending physician and at least one other medical doctor who has examined you or reviewed your medical situation.
A person appointed and granted the authority to make medical decisions for you in the event you are unable to express your preferences about medical treatment. Most commonly, this situation occurs either because you are unconscious or because your mental state is such that you do not have the legal capacity to make your own decisions. As with living wills, depending on your state of residence, the health care proxy may be a standard or statutory form or it may be may be drafted specifically for you by your lawyer. Normally, one person (not multiple persons to act at one time) is appointed as your health care proxy. It is quite common, however, for you to appoint one or more alternate persons (successors) in the event your first choice proxy is unavailable. You should confirm prior to appointing someone as your proxy that he or she will in fact be willing and able to carry out your wishes. If your preferred proxy has, for example, a religious view that prevents him or her from carrying out your wishes, you should name someone else. As in the case of a living will, medical professionals will make the initial determination as to whether you have the capacity to make your own medical treatment decisions.
A Special Needs Trust (also called a Supplemental Needs Trust) is a way to provide financial security for your child with special needs and help ensure a better quality of life. A Special Needs Trust enables a person with a physical or mental disability to have an unlimited amount of assets, as long as they are held in Trust for his or her benefit. The assets in a Special Needs Trust are not counted when qualifying for certain government benefits.
A Special Needs Trust can be set up by a parent, grandparent or legal guardian. Sibling and other relatives or friends can also create an SNT under certain circumstances. A judge can also order a Special Needs Trust be created for a disabled individual.
Your child may qualify for government benefits for people with special needs, including Medicaid and SSI. These programs may not always provide the level of benefit or quality of care that you would want your child to have, but if you provide the funds to supplement your child’s care, that additional income could disqualify him or her from receiving benefits from the government. A Special Needs Trust provides a safety net to pay for expenses not covered by government programs without the risk of losing those benefits.
The money in the Special Needs Trust may be distributed for many different things your child wants or needs. Furniture, cars, clothes, and other personal needs can be paid for with money from the Trust. The Trust can also pay for medical expenses including insurance premiums, alternate therapies and any special equipment. Even social and recreational expenses like TVs, computers, movies, sports, vacations or camps can be funded by the Trust. Intellectual or artistic activities like classes, books, games and crafts are also provided for through a Trust. Your child can have a more productive and fulfilling life through access to funds through a Special Needs Trust.
The Trustee is the person who will manage the Trust and make the decisions about how to invest or spend the money in it, so it’s important to choose someone you trust. You or your spouse can be the Trustee, or you can designate a professional corporate trustee.