| |
|
What
is probate?
When you
die assets you own or have an interest in are “stuck”
in your name if you own them as a tenant-in-common with someone
else or you own them individually without any “pay-on-death”
or “transfer-on-death” designation (without a beneficiary).
Probate is a court-supervised process of ensuring that title
to the assets you own on your death is passed to your beneficiary(ies)
according to your will (a “testate estate”) or according
to the laws of Virginia if you have left no will (an “intestate
estate”). There will be a separate probate in each state
in which you own real estate.
What
is included in a “living-trust-based estate plan”?
A
living-trust-based estate plan for a single person (including
a married individual wishing to plan without or separately from
their spouse) will include: the trust agreement; certificates
(two different editions) for the purpose of verifying information
about your trust without disclosing who gets your wealth upon
your death; an Advance Medical Directive (a combination Living
Will and Health Care Power of Attorney); a Durable General Power
of Attorney; one “Pour-Over” Will; one deed to convey
one piece of real estate to your trust; and, funding instructions
(including ghost-written letters to your fiduciaries) and assistance
for three months after you have executed your trust documents.
Unsigned copies, for your future reference, of all documents are
organized into a handsome padded binder along with information
and schedules to organize your financial information and other
information you want your beneficiaries and/or successor trustee(s)
to know.
A living-trust-based
estate plan for a married couple planning jointly will include:
the trust agreement; certificates (two different editions) for
the purpose of verifying information about your trust without
disclosing who gets your wealth upon your death; two Advance
Medical Directives (a combination Living Will and Health Care
Power of Attorney); two Durable General Powers of Attorney;
two “Pour-Over” Wills; one deed to convey one piece
of real estate to your trust; and, funding instructions (including
ghost-written letters to your fiduciaries) and assistance for
three months after you have executed your trust documents. Unsigned
copies, for your future reference, of all documents are organized
into a handsome padded binder along with information and schedules
to organize your financial information and other information
you want your beneficiaries and/or successor trustee(s) to know.
What is the advantage to doing a living
trust?
People
have different reasons for doing a living trust. Some of the
most common reasons are:
•
A desire to avoid the cost and time of probate. Probate in Virginia
typically costs between 3 and 5% of the estate under administration
and will take between 18 and 24 months to complete.
• A desire to preserve privacy, probate is a completely
public process, any one who wishes to can know what the value
of your estate was when you died and who exactly received it.
• Ownership of real estate in more than one state. Each
state in which you own real estate will require a separate probate.
If a trust owns real estate there will be no probate.
• A desire to plan for incompetency. A Will only comes
into action upon your death. Therefore, if you become incapacitated
there may need to be a petition to the court for a guardian
to be appointed for you. This can be expensive and humiliating.
A living trust allows you to appoint someone now to take care
of you and your affairs when you are not able to do so and under
what circumstances they may do this.
• Second marriages. Many people in second marriages are
at great risk of disinheriting children from a prior relationship.
If you and your new spouse own real estate, bank accounts and/or
brokerage accounts jointly your children will receive nothing
– EVEN IF you have a Will.
• A beneficiary with “problems” (he couldn’t
hold onto a dollar bill if it was stapled to him OR she is on
SSI or other needs-based government assistance OR your children
are minors OR substance abuse is or has been a problem). This
type of beneficiary needs careful planning to avoid harm to
the beneficiary by the receipt of your wealth.
• A desire to avoid estate taxes. For a married couple
whose net worth – including life insurance – exceeds
the estate-tax credit the additional cost of including provisions
for a credit shelter trust within the living trust can save
their beneficiary(ies) more than 40% of every dollar that exceeds
the credit amount.
What
are the disadvantages to doing a Living Trust?
Disadvantages
to a Living Trust are few but can be significant to the person
desiring to do an estate plan. The primary disadvantages are:
• The cost of establishing the trust. A trust will cost
significantly more than a simple Will, though commonly these
costs will be less than the ultimate cost of probate.
• The process of funding the trust can be tiresome and
time-consuming. This is most commonly a problem if you have
many bank accounts that you do not wish to consolidate and/or
have actual paper certificates for any stock you own. Most other
assets are easily retitled to the trust, with a little guidance
from your attorney.
AGGREGATE
EXCLUSION AMOUNT (Federal Credit)
A “federal credit” worth hundreds of thousands
of dollars against estate taxes to a widow/er. (Each U.S.
citizen has one such credit, and it can be "sheltered"
after death in a credit shelter trust.) This credit is the
equivalent of an exemption from federal estate taxes on
the following amounts of individual wealth: $1,000,000 (2002);
$1,500,000 (2004); 2,000,000 (2006); and $3,500,000 (2009).
Under 2001 legislation, the federal credit increases to
infinity in 2010, then reverts (“sunsets”) to
1,000,000 in 2011.
|
CREDIT
SHELTER TRUST
(a.k.a. Bypass Trust, “B” Trust, Family Trust)
An irrevocable trust for couples (which can work together
with or independent of a living trust) that is created specifically
to contain wealth up to the equivalent of the federal credit
and to thus preserve each spouse's federal credit. This
married trust can save a married couple hundreds of thousands
of dollars in estate taxes, and does not need to be funded
until after the death of the first spouse.
|
ESTATE
PLANNING
Ordering your affairs to minimize trouble upon incompetency
or death, and to maximize the well-being of beneficiaries.
INCOMPETENCY (Legal)
The condition of being adjudicated unable to manage your
affairs.
|
LIVING
TRUST
A revocable trust created during your lifetime to hold title
to your assets. So long as you live you retain complete
control of your assets, but at death your assets avoid probate.
A living trust DOES NOT shield assets from estate taxes
or from creditors.
|
LIVING
WILL
Your directions regarding your health care while incompetent
and the disposition of your body once deceased.
|
MARITAL
DEDUCTION
The unlimited right of spouses to transfer as much wealth
between themselves as often as they wish (and once more
at the death of the first to die) without federal estate
or gift tax consequences. This deduction DOES NOT preserve
the federal credit of the first spouse to die.
|
POWER
OF ATTORNEY (FINANCIAL)
Your authorization to another to act for you relative to
your assets with full powers. Should be “durable”
|
POWER
OF ATTORNEY (MEDICAL)
Your authorization to another person to act for you relative
to your body with full powers except where your living will
controls.
|
PROBATE
The state-court post-mortem lawsuit which retitles assets
out of the name of a deceased person and into the name of
that person's rightful successor(s), whether by will or
by intestacy.
|
SPECIAL
NEEDS TRUSTS
These trusts can take many forms to address your particular
concerns: income generation, minors, spendthrifts, philanthropy,
et cetera.
|
WILL
Your directions to the probate court regarding the distribution
of your personal estate after your death. Any asset of yours
with another person’s name on it or which you endorsed
to another at your death is not subject to your will.
|
COSTS OF BASIC PLANNING (average ranges)
I
Have Quoted $0 to $3900
I
Have Heard Quoted $185 to $8000+
Given
such wide ranges, YOU MUST ASK what you will get for your money!
Here are some good questions to ask your attorney. (Only one of
my clients has ever asked me these questions!)
1.
Do you have a planned estate? (Approximately half of attorneys
do not have even a will!)
2. How many estates have you planned? (But quality of planning
is even more important.)
3. What is your opinion of joint living trusts? (Ask me, please!)
4. How long should the process take? ("days" - too fast;
"months" - too slow)
5. Do you guarantee the price in a written contract? (Beware hourly
rates or “if you insist”.)
6. After the contract is signed, do you delegate client contact?
7. Would you incorporate, free of charge, a benediction I might
write into my plan of distribution?
8. Do you mail drafts for me to review? (Do not sign what you
have not carefully read!)
9. Do you do anything to maximize the portability and/or durability
of my documents nationwide?
10. Do you provide any "helping documents" in addition
to the original documents?
11. Does your price include any funding work? (Beware an unfunded
trust.)
12. Would you advise me, free of charge, if I have problems with
the funding process?
13. Are your clients satisfied? How do you know? Do you give references?
How
many answers do you have? How many questions do you have?
My
best advice is, "Please attend my free monthly seminar here at
my Merrifield offices every 2nd Tuesday night at 7P.M." I stay
until the last question is answered.
Zingers
-
Wills
do not avoid probate, Wills only avoid intestacy. Living trusts
avoid both.
-
Life
insurance you own is potentially death taxable. Uncle Sam
may be your biggest beneficiary. Ask about an I.L.I.T.
-
Only
1 American in 10, in my experience, has a complete, correct,
and appropriate estate plan.
-
Your
life savings took a lifetime to earn. The average inheritance
is spent in fourteen months.
-
Inadequate
estate planning is a common cause of estranged relationships
among siblings.
-
Can't
decide which of you three children to name as your successor?
Name all three!
|
