Estate Planning FAQs

Estate planning is something everyone should think about some time. Your estate plan is the steps you take to direct who will get your property when you die, making it easier for your heirs to receive property, and reducing the tax bite so your heirs will get as much as possible.

Eventually, we all do. Hard as it is to accept, everyone dies sometime. Estate planning is for anyone who wants to direct who will get your property when this happens, what they will receive, and who will be in charge of distributing the property according to your wishes.

Estate planning is for everyone. Your estate plan may cover a lot of issues other than just money. If you want to designate the guardian of your children, you need an estate plan. Even if your savings or wealth are modest, an estate plan lets you decide who will receive your property when you die. For many people, their estate plan also addresses matters like old age, disability and illness.

Having no estate plan usually means you don’t have a will or other legal document stating who will get your property. Then state laws control who gets your property and how. In a sense, the state does your estate planning for you. But the law may not pass your property the way you would want. For example, state law may not give your spouse or children all the property you would want them to receive.

Wills are legal documents that provide many estate planning benefits, including letting you specify how your property will be distributed when you die. A will is essentially your instructions and wishes, written according to legal rules so they can be followed when you are no longer here. For many people, wills are part of a complete estate plan.

There are several important reasons to have a will. A will lets you:

• name your beneficiaries. These are the people and charities whom you want to receive your property when you die.

• select a guardian for your children in case you and your spouse die while they are minors. The guardian will raise your children and manage their money until they reach adulthood.

• select an executor. The executor will oversee your estate’s financial affairs during the probate process, including making sure your debts are paid and that your property is distributed according to your will.

• set up a trust. This can help save taxes.

People who die without a will are referred to as dying “intestate.” If you die intestate, your property will be distributed according to state law rules of intestate succession. Generally, property goes to your surviving spouse and children. If you have no spouse or children, certain other relatives become entitled to receive the property. If none of these relatives are alive, your property goes to the state. When property is distributed under rules of intestate succession, it likely won’t be distributed the way you want, since it goes to recipients without regard to whether they need it or how much they need.

In addition, if you die without a will, the critical decision of who will be your children’s guardian will be left to a judge. Also left to a judge’s discretion is who will serve in the important position of executor.

While you are alive, you can always sell or give away property that is mentioned in your will. Then you can update your will.

No. Some property is not covered by a will. This includes:

• life insurance. Money from life insurance goes to the person named as the beneficiary in the policy.

• living trust. Property in a living trust goes to the beneficiaries of the trust.

• joint tenancy property. Property you hold with someone in joint tenancy automatically passes to that person when you die.

• retirement plans. Money from a retirement plan goes to the person named in the plan as the beneficiary.

In most states, children do not have the legal right to inherit anything from their parents. If you don’t want a child to receive anything, you can put a provision in your will disinheriting your child.

If you have a child and your will leaves property to other people without mentioning the child, the law in most states will treat him or her as being accidentally omitted and give the child a share of your estate. To avoid this, people who want to disinherit a child include a “disinheritance” clause in their will. This may specifically name the child being disinherited or at least describe him or her so there is no doubt about who should not receive any of your property. Because the law resists disinheriting children, and because laws vary between states regarding inheritance rights of children not mentioned in a will, it is best to consult a lawyer for help making a will that leaves nothing to a child.

Yes. You can change your will any time while you are legally “competent.” You should consider changing your will when: there’s a birth or death in your family; your financial condition has changed significantly; you move to another state; you want to name a new guardian or executor; you marry or divorce; you want to add or remove beneficiaries; you want to reallocate how your property will be distributed; or if your will was made long ago and may not be up-to-date with current tax and other laws. Even if none of these events has happened, it is still a good idea to review your will yearly to make sure it is up-to-date with your current wishes on who you want to receive your property when you die.

There are two ways to change your will. One way is to add an amendment to your will. This is called a “codicil.” Another way is to make a new will that replaces all prior wills. Codicils and new wills must be prepared according to legal requirements.

There are several types of wills, including “holographic” wills and “formal” wills. A holographic will is a will that is written in the person’s own handwriting. A formal will is usually typewritten and signed in the presence of witnesses. There are certain legal requirements for making both holographic and formal wills. Also, holographic wills are not valid in all states.

It is best to seek legal help in making a will. Laws for making wills are specific, and you will want to make sure everything is done right. If there are problems with how your will was made, it could be subject to a challenge and all or part of it may be invalidated by a court. Also, lawyers can explain how estate taxes affect you and help you make a will that lowers your tax burden and leaves more to your family.

It is a legal arrangement whereby a person transfers property from their name to the name of the living trust, and the property in the trust is then controlled by a trustee. Most people who set up a trust name themselves as trustee. The trustee holds and manages the property for your benefit, or of other people you select, called beneficiaries. When you die, a successor trustee (someone you named) takes control of the trust and distributes the property in accordance with instructions in the trust document.

A living trust can be revocable, meaning you have the right to modify, amend or terminate it, or it can be irrevocable, meaning that once you set it up, you cannot change or terminate it.

When the successor trustee takes over management and control of the trust upon your death and distributes the trust property, this occurs without the involvement of the probate court. So with a living trust, property can often be transferred after death much faster than by will, since property left by a will goes through the probate process.

With an irrevocable living trust, you can reduce taxes as well as avoid probate. Property put in an irrevocable trust is no longer yours. The property is not counted for estate tax purposes, and you typically don’t pay income tax on interest earned by the property unless it is paid to you.

Living trusts offer a lot more privacy than wills because wills must be proved and administered through courts, and court records are open to the public. The contents of a living trust don’t have to be made public, so they are easier to keep confidential.

Living trusts are usually harder to challenge than wills. This is because more effort and thought typically go into preparing a living trust than a will, so it is harder for someone to show that you were pressured to create the trust or were mentally incompetent when you made it.

Another key benefit of a living trust is that it can help you in case you ever become incapacitated. For example, suppose you become incapacitated due to Alzheimer’s disease or another serious illness. If your assets are not in a trust, a conservator (called a “guardian” in some states) will have to be appointed by a court to take care of your assets. A conservatorship proceeding can be expensive and time consuming as well as cause agonizing family disputes. If you have created a living trust, the successor trustee (someone you selected) can take control of the trust assets and use the income (or sell assets if needed) to provide for your care.

A trust doesn’t totally eliminate the need for a will, particularly for assets you don’t put in the trust. But since your major assets will pass by a trust, the probate for a will should be much faster and easier.

A living trust is created by a written trust document, usually written with a lawyer’s help. Your lawyer can also help prepare other papers used to transfer property into the trust.

You can place almost any type of property in it, including money, your home and other real estate, stocks, bonds, artwork, collections and automobiles. Placing property in a living trust usually does not result in an assessment of taxes.

A living trust is an important legal document which must satisfy legal rules to be valid. Also, some companies that make sales pitches about living trusts on television, radio or over the internet may use pre-printed forms that do not fit your situation. There are some people for whom a living trust is not a good choice. Problems may not surface until after you die, when it is too late. Almost always it is beneficial, and often critical, to have your own lawyer advise you whether a living trust is a good choice for you, and prepare your living trust document with your particular wants and needs in mind.

There can be. Life insurance can be a part of an estate plan. Life insurance helps make sure there is money for people who will need cash when you die. Often the recipients of the insurance money are family members or a business that will need money to replace the services that you provided.

A living will (some states call it by a different name, like an “Advanced Health Care Directive”) is a document that states your wishes regarding the use of life support equipment if you are incapacitated and cannot communicate. It tells your doctors, hospital and family members the life-sustaining equipment you want — or don’t want. It is called a living will because it can take effect while you are alive.

Sickness and incapacity can happen suddenly, and the worst time to try to find out a person’s wishes regarding medical care is during a medical crisis. So it’s best to prepare a living will as soon as possible. It will help make sure that if you are incapacitated, your wishes regarding the use of life-sustaining equipment will be followed.

You can always change or revoke a living will. If you change your mind about using life support equipment, you can simply change an existing document or make a new one.

There are specific legal requirements for making a living will. These requirements vary from state to state, but they typically include a requirement of a certain number of witnesses as well as who can serve as a witness (generally people unrelated to the person making the living will). Because of these rules, it is advisable to seek legal help when preparing a living will.

A power of attorney is a legal document giving someone else the authority to act on your behalf. The person who makes the power of attorney is the “principal,” and the person given the authority to act for another is the “agent” or “attorney-in-fact.” The agent will have control over your business, financial or health matters and be able to make legal decisions for you.

Yes. There are several kinds of powers of attorney. They include:

• Nondurable power of attorney. This lets you appoint someone to handle your business and financial affairs. It is commonly used to give someone temporary power. A nondurable power of attorney ends when you die or become mentally incompetent, revoke the power of attorney or on an expiration date written in the document.

• Durable power of attorney. This is like a nondurable power of attorney, except a durable power of attorney stays valid even if you become mentally or physically incapacitated. A key benefit of a durable power of attorney is that it can save your family the expense and inconvenience of a court having to appoint a guardian (called a conservator in some states) for you if you become incapacitated or disabled – since you have already appointed someone to manage your affairs, a court procedure won’t be necessary.

• Springing power of attorney. This becomes effective at a later date and upon the happening of a certain event. Usually the event is your serious illness or disability. A springing power of attorney will usually provide that a doctor (or doctors) will determine whether you can still handle your financial affairs. If a doctor determines that you are not competent to handle your own affairs, the springing power of attorney “springs” into effect.

• Durable power of attorney for health care (some states call these by a different name, such as a “Health Care Proxy”). This lets you appoint someone to make health care decisions for you if you are incapacitated and cannot make them yourself. The decisions can cover almost all medical matters, including giving consent for hospitalization and surgery.

There are specific rules for making a power of attorney. These rules vary between states. Many states require the power of attorney to be signed before a notary or a certain number of witnesses, with special rules about who can be a witness. Not following the law’s requirements could make a power of attorney invalid.

Powers of attorney can be revoked at any time while you are legally competent. If you revoke a power of attorney because you do not like the way the agent is doing things, or for another reason, you should notify banks and other institutions you deal with of the revocation. It is also usually good to prepare a new power of attorney.

Probate occurs after a person dies. It is the process in which someone supervised by a court accounts for the decedent’s property, pays debts and taxes, and distributes what remains according to the person’s will or, if the person dies without a will, according to state law.

There are several steps in the typical probate process, including:

1. Opening the estate and notifying creditors. When a person dies, someone begins the probate process by submitting the will to probate court, and a court verifies the will is valid. Usually the person who starts the probate process is the executor named in the decedent’s will. If there’s no will, a court appoints an “administrator,” who performs the same role as the executor. Many areas now use the term “personal representative” to encompass both executors and administrators.

The personal representative notifies relatives, heirs and creditors of the death. In most states this is done by both letters as well as publishing notice of the death.

2. Collecting assets and paying debts and taxes. The personal representative is required to make an inventory of all the decedent’s property, determine its value, collect money owed the estate, and pay valid debts as well as all taxes owed by the estate (only a small percentage of estates owe federal estate tax, but most states have an inheritance tax).

3. Distributing the estate. The personal representative usually cannot distribute property to heirs until he or she can show debts and taxes have been paid and an accounting has been filed with the court. Once the personal representative has filed the accounting and distributed the property, and a waiting period (if required) has ended, the estate is “settled” and the process is over.

No. Non-probate property is transferred automatically to another person. There are different types of non-probate property, including:

• “joint tenancy” property. When a person dies, any property he or she holds as joint tenants automatically goes to the surviving joint tenants.

• life insurance. The proceeds of life insurance go to beneficiaries outside of probate.

• living trust. Property held in a living trust goes to the beneficiaries of the trust without the involvement of the probate court.

• retirement accounts. Money in a retirement account goes to the person named as beneficiary of the account.

In most states, people whose estate is worth less than a certain amount can have their property transferred to beneficiaries without going through probate or by going through a simplified procedure. The size of an estate that qualifies for this faster procedure varies between states, but it generally ranges between $25,000 and $150,000.

Yes. Probate can be complex and time-consuming, as it involves a significant amount of paperwork as well as court appearances. If you have been named executor or administrator of an estate, our law firm can help you perform some or all of the duties of probating the estate.