Estate planning is the preparation of a plan of administration and disposition of your property at or before your death, completed prior to death. Estate planning should be utilized to minimize negative tax consequences, ensure compliance with your wishes, and look after your family. The tools used in estate planning can include Wills, Trusts, Powers of Attorney, Living Wills, guardianships, joint accounts, life insurance, retirement benefits and the creation of business entities. Additionally, it can involve your attorney helping you through the probate process or counseling you on your options. Estate planning can also encompass elder law issues such as Medicare and Medicaid, as well as your options for entering a nursing home or assisted living facility. Your attorney will discuss your options with you to create the most effective plan possible.
While it is possible to purchase a form online and create your own Will, there are potential issues you may run into. The law is constantly changing and your attorney will always be in a position to inform you of recent developments or requirements in the area of estate planning. Further, creating a Will involves several formalities in order to make it legal and valid. Your attorney will be aware of these formalities and will make sure that you are actually creating a valid Will. If you create your own Will and are not careful, you may end up passing away with an invalid Will and then your property will pass via intestacy. Lastly, your attorney will be a part of the Will creation process and will bear witness to the process. This will be beneficial if there is a Will contested after your death. If you wrote your Will at home and one of your beneficiaries challenged it after your death, it would be difficult to prove your intentions. Whereas, if an attorney creates your Will for you, he or she will be available to state your intentions and thoughts during the process.
Yes. Even if you don't own any property and you don't have any children, it is still important to speak to an attorney about an estate plan. Advance directives are documents that we prepare while we are of sound mind and they direct what we would like to happen in the event we are injured or incapacitated in some way. These advances generally include Durable Powers of Attorney for Health Care and Finance, but can also include Living Wills. We are all familiar with the case of Terri Schiavo in Florida. The problem that arose in her case was that she was incapacitated and she did not have an advance directive. Her parents believed that she wanted one thing and her husband believed that she wanted the opposite. Unfortunately, the family was stuck in a bitter, expensive court battle for years and it was left in the hands of a judge to decide what was best for Terri. If you draft your advance directives now, you can prevent this happening to you and your family.
Estate planning allows you to maintain control over your property and assets. Most people's estates are not subject to estate tax when they die. See answer #3 for a discussion on advance directives. In addition, estate planning is beneficial if you have any assets at all. For example, you can create a trust and place property or money into it and then pay annual income to certain beneficiaries. You can place certain requirements on these trusts to insure that your assets are being distributed the way you want. If you simply leave an outright gift to a beneficiary in a Will, you lose all of this control.
Testate refers to someone who dies with a valid Will or estate plan. Intestate refers to someone who dies without leaving a Will or any direction as to their assets. When someone dies intestate, the court will follow state intestacy statutes and will distribute the property and assets according to these statutes.
Probate is the process by which an executor (if there is a Will) or an administrator (if the court must appoint someone) manages and distributes a decedent's property. This process is done before a court and can include such costs as accounting and legal fees, appraisal fees, and fees of the executor and/or trustees. The executor is required to submit certain reports to the court and the entire process can be lengthy. The goal of most estate planners is to avoid probate.
The decision of who you want to take care of your children when you die is a very personal one and can only be made by you. However, when you have minor children, the need for an estate plan is even more evident. If you do not name a guardian to take care of your children when you die, the court will step in and chose one for you. Sometimes this can even be a stranger to the children. It is vitally important to have a document (Will) designating a guardian of your children if you were to die. Additionally, estate planning allows you to set up trusts for the benefit of your children and/or the proposed guardian.
There are several parties to a Trust:
The trust may be structured in several different ways. It is usually a written document, which spells out how the property and/or income in the trust is to be distributed. The trust may be:
It may further be classified as:
There are many uses of a Trust, and its purpose will determine how the trust is structured. The more common uses are:
Death-related costs to include: medical bills, funeral expenses, etc.,
Outstanding bills and debts,
Unpaid previous and current income taxes,
Probate-related expenses such as accounting and legal fees, appraisal fees; fees of the executor and/or trustees,
Federal Estate Tax,
State death taxes (if applicable).
Of these categories, the two categories of expenses which can, to some degree be anticipated and controlled by an effective estate plan are the probate-related costs, and Federal Estate Tax.
The marital deduction allows a spouse to transfer unlimited property to the other spouse completely free of tax consequences as long as the spouse is a US Citizen and the transfer is of a present interest. This deduction is frequently utilized in estate plans because it allows the transfer of large amounts of assets completely tax free.