Speak with an experienced advisor! Estate Planning
Estate planning is a process involving people who are familiar with your goals and concerns, your assets and how they are owned, and your family structure. It involves a specific group of people that will help you as much as possible, including your lawyer, accountant, financial planner, life insurance advisor, banker and your broker.
What is a Will?
Wills are the most basic of estate planning documents. Wills are basic instructions to a court how a deceased person would like their money and property distributed. Anyone who is concerned how their estate will be divided should have a current and valid will.
What’s In a Will?
- Who you are, and what right you have to give away property
- A description of the property itself
- Exactly who you want it to be distributed to
Willa are pretty easy to draw up. Getting a qualified estate planning attorney can be helpful, this is not always a requirement but it’s more of a recommendation. Many courts have accepted simple handwritten wills drawn up without any legal counsel. Nowadays with technology, you can create a will using programs right off the internet.Some states even allow an oral will to be acceptable; however, it is best to execute a formal will.
Publicity vs. Privacy
As far as will’s go being simple is a definite benefit, but also has its disadvantages. For instance, a will is only an instruction to a court of lawand it can be contested. Once your will is entered into court, the privacy of your will is eliminated due to the will becoming a public record.
Once a deceased person is put in the newspapers, relatives, friends, and associates can petition the court to share in your wealth. Family Court is usually a heartbreaker for most families.Not only do your loved ones have to cope with your death, but then have to battle other acquaintances and distant family members for the right to your estate.
Can a Will Be Invalid?
Unfortunately, when a will comes before a court, you are no longer around to vouch for it. A will can be found to be invalid for a few reasons including:
- Improper execution
- The grantor was not mentally competent and able to understand what they were doing when they executed the will
- The will was made under duress, or as a result of undue influence from another person.
If for any reason the fwill is found to be invalid, the court will usually treat it as though you had died intestate, or without a will. Once the court has decided that the state(the one you reside in) decides on how your property will be distributed. And if there are no living relatives, the property reverts back to the state.
Wills and Probate
The process of having an attorney present your will before a court is called probate. Unlike living trusts, each and every will must go through the probate process. Probate usually ties up the estate anywhere from 9 months to 2 years, and can cost approximately 2-4% of your entire estate value.
Nothing Worse Than Death AND Taxes
Wills do nothing for estate taxes. Individuals that have assets, including real estate, over $2 million are subjected to extreme estate taxes that climb up as high as 46%. Plus, if you’re married, a will may not maximize the Estate Tax Credit exemption for both individuals; in some cases, the $2 million exemption meant per individual is reduced to $2 million per couple.
Drafting Your Own Will
Each family’s situation is different. For some, a will is sufficient. However, it is the most basic of estate planning documents. If you wish to preserve your wealth for generations to come, then you may want to combine a will with other advanced estate planning techniques.
While a will can be drafted with simple estate planning software, it’s usually wise to have a professional estate attorney do it for you. Legal counsel may help you avoid many of the pitfalls associated with wills, and ensure that the chances it could be contested are reduced.
Living Trusts
Over the last two decades, the popularity of Living Trusts has skyrocketed. No longer a tool just for the rich, Living Trusts are one of the most common estate planning tools in use today.
This legal arrangement, usually drafted by an estate attorney, creates a separate entity called a Living Trust. A Living Trust is called that simply because it is created while you’re alive (as opposed to a “testamentary” trust created after death).
The Parties Involved
The Living Trust document itself names three different parties. The individual (or couple) that establishes the Trust is named the Grantor (also referred to as the Trustor).
The Trustee is the person named by the Trust as the controller of the Trust’s assets (and in many cases, the Trustees are the same people as the Grantors).
On the receiving end, the Beneficiaries are the heirs that will benefit from the Trust once the Grantor’s have passed away.
History of Living Trusts
Living trusts date back to 16th century England, when landowners used trusts to circumvent the King. Constantly concerned with landowners owning too much land, the King made sure he could oversee the distribution of property when a landowner died. This process of overseeing transfers was the very first form of probate.
Trusts with the Church helped landowners skip the process altogether. Landowners would deed their property to their Church, in exchange for the promise that the Church would grant the land back to heirs when the landowner died.
In colonial times, the first settlers in America brought English custom and law with them across the Atlantic. This included the concepts of probate and trusts. Trusts were long considered the domain of the rich, since they were often expensive to create.
It wasn’t until the 1960’s that revocable living trusts gained popularity. And while the increased acceptance of living trusts ticked off many attorneys (since they stood to lose probate fees), the living trust was here to stay.
For a detailed history of Living Trusts, download our Living Trust Special Report.
Who Needs A Living Trust?
Almost anyone with an estate of $100,000 or more can benefit from having a living trust. Estates of $100,000 or more are often subjected to probate in their state of residence, which can cost anywhere from 2%-4% of the estate’s value in court and legal fees.
The living trust also is useful for individuals subject to estate taxes. Through a living trust, a couple is able to maximize their Unified Credit to its fullest. It even accomplishes protection for individuals wanting to avoid conservatorship.
Advanced living trusts can be structured for complicated family situations. Re-married spouses, with children from a previous marriage, can use an advanced revocable trust to ensure kids receive their proper inheritance. Our FREE Living Trust Special Report offers a checklist for individuals to determine if the living trust is an appropriate strategy for them.
Avoiding Probate
Living Trusts avoid probate, since they are completely private. Because a trust is recognized as a separate legal entity, distributions can be made by a Trustee to named beneficiaries without any involvement from the courts.
The courts maintain no control over the Trust’s assets, and do not tie up the assets in a lengthy (and costly) probate process. The Trustee simply distributes assets to named heirs, but only if those assets have actually been placed inside the Trust.
Funding Your Living Trust
Once established, almost anything can be placed in a trust: savings accounts, stocks, bonds, real estate, life insurance, and personal property. In “funding” the trust, you simply change the name or title on your assets to the name of your Trust. Many people worry about losing control of assets; however, that is not the case within a carefully-constructed Living Trust.
Always There For You
Because the Trust is essentially controlled by one individual (the Trustee), that person can carry out your wishes when you’re not able to. For instance, if you have children from a previous marriage and wish to leave them an inheritance, specific instructions to the Trustee will ensure that they receive what you had requested.
If you’re institutionalized or unable to care for yourself anymore, the Trust can still function and make distributions as needed. The Trustee has a fiduciary responsibility to see that your requests are fulfilled exactly. He or she can even provide care and protection for disabled relatives or handicapped children in accordance with your wishes.
Power of Attorney
A power of attorney is used for situations where an individual cannot be present, but that individual has entrusted someone to do the job in their place. When someone holds “a power of attorney,” they are able to enter into contracts, negotiate, and settle matters as if they were that other person.
An ordinary power of attorney can usually be completed by completing specific forms for your state of residence. The power of attorney typically expires when a grantor becomes incompetent or passes away. The theory is that if the principal couldn’t do it on their own, then the agent shouldn’t be able to do it either. This makes sense in many financial and commercial situations, but makes little sense when dealing with elderly issues.
Durable Power of Attorney
A Durable Power of Attorney can act on a person’s behalf even while that person is still alive. People suffering from dementia or senility, who are no longer competent to make their own decisions, need to continue to make financial and medical transactions long after they have the capacity to do so. A Durable Power of Attorney allows them to do that.
Setting up a Durable Power of Attorney is as easy as signing a single legal document, naming who you would like to appoint as your agent. There are no hearings or court proceedings to go through.
What happens if you do suffer from dementia or are incapacitated, and have not signed a Durable Power of Attorney? If you have not named an agent to act on your behalf, you can only hope that someone will become a Conservator for you.
Conservatorship is a lengthy and expensive court procedure requiring someone to volunteer to become your Conservator. Finding a volunteer, whom you trust with your affairs, to suddenly appear and want to be your Conservator is rare. In many cases, it is also unreasonable to expect there will be enough money and time to go through the court proceedings necessary to establish the conservatorship.
Individuals granted Power of Attorney must, by law, act in good faith at all times on behalf of the grantor. Suppose an elderly man is declared incompetent, but had given his adult child a Durable Power of Attorney. The son cannot turn around and put his father’s house in the child’s name, or sell off assets for his own use. The law maintains agents have a fiduciary duty to the grantor, and cannot take advantage of his or her position.
Medical Power of Attorney
A Medical Power of Attorney (also known as a Durable Power of Attorney for Health Care) is so critical, because it allows a trusted agent to make healthcare decisions on your behalf. Few hospitals wish to take on the responsibility of determining your healthcare decisions for you, especially in this litigious society.
The Medical Power of Attorney helps your doctors determine when life-supporting measures should be stopped. If your wish is to not use life-sustaining measurer, you can convey this to the person you’ve named, and they will be able to fulfill your wishes on your behalf. A Medical Power of Attorney only has this responsibility to you for healthcare decisions, and cannot make financial or other decisions on your behalf (unless, of course, you’ve granted both Powers of Attorney to the same person).
