Estate Planning FAQs

One common misconception is that, if you are young and not too wealthy, you don’t really need an estate plan. The truth is, everyone has an estate, regardless of wealth, so everyone needs an estate plan. Your estate is made up of your personal property, bank accounts, retirement accounts, life insurance policies, and real estate.  All of these possessions can disposed of through a will or trust.  If you don’t have a will or trust, on the other hand, the probate court will decide who get your property after your death.  Most clients would rather make those decisions for themselves.  Creating an estate plan is the easiest way to do that.  Whether a will or trust is best for you is something you should discuss with an experienced and qualified estate planning attorney.

Those who have only a few possession, but do not own a home or vehicle, believe they have no reason to create a will. What many clients fail to consider are the personal possessions that may have sentimental value. For instance, who do you want to get your family heirlooms, your wedding ring, your family photos? Something else to consider if you have children is who should be their guardian if you die while they are still minors. The same is true for your pets. If you die without a will, the state will make all of these decisions for you.

Contrary to what many people believe, trusts are not created primarily as tax shelters. Although they do come with certain tax benefits, trusts are most often used to ensure that your family will have the funds they need in the future, once you are no longer there to provide for them. Trusts also help your family avoid the need to go through the probate process which is time consuming and expensive. They can prevent the need for a court proceeding known as a conservatorship, as well, if you ever become incapacitated.

Many people assume that, if they die while their children are still minors, the family that survives them will automatically take them in and care for them. The truth is, if you do not address this issue in your estate plan, a judge will ultimately decide who will raise your children. A judge many not share your family values or religious beliefs, so your views on proper child rearing may not be taken into consideration. If you have a will that identifies a guardian for your children, you can maintain control over your children’s future.

After your will has been created, your estate planning is not necessarily complete. With a will or trust, it is just as important to keep it updated. If your assets grow or shrink, you get married, divorced, have a child, or one of your heirs dies, it is very likely that you will need to change the terms of your will or trust. A will or trust can be modified at any time during your lifetime provided you are still mentally competent.

If you create a living trust-based estate plan, after your trust has been created, there is one more very important additional step. All of the property or assets that you intend to be controlled by the trust must actually be re-titled into the name of trust. This is known as funding the trust.  In most cases it simply means changing the ownership of that property from you to the trust.  The specific method of funding your trust depends on the type of assets you are including in your trust.

This additional step is what allows your affairs to be handled after your death without having to go through probate.  With a will-based plan, probate will be required except in the case of a modest estate.

Incapacity can be the result of an accident or illness. It may also be temporary or permanent. Regardless of the type or cause of your incapacity, a living trust can allow you to plan for the possibility by identifying someone to manage your finances and medical care through an established trust.  Trusts also allow your private affairs to remain private, unlike conservatorship or probate proceedings at the courthouse, which are matters of public record.

Most of us spend a considerable amount of time and energy in our lives accumulating wealth. With this, there comes a time to preserve wealth both for enjoyment and future generations. A solid, effective estate plan ensures that your hard-earned wealth will remain intact as it passes to your beneficiaries, instead of being siphoned off to government processes and bureaucrats.

YES. But your family may not like it. The government’s estate plan is called “Intestate Probate” and guarantees government interference in the disposition of your estate. Documents must be filed and approval must be received from a court to pay your bills, pay your spouse an allowance, and account for your property–and it all takes place in the public’s view. If you fail to plan your estate, you lose the opportunity to protect your family from an impersonal, complex, governmental process that can become a nightmare. Then there is the matter of the state and federal government’s death taxes. There is much you can do in planning your estate that will reduce and even eliminate death taxes, but you don’t suppose the government’s estate plan is designed to save your estate from taxes, do you? While some estate planners favor Wills and others prefer a Living Trust as the estate plan of choice, all estate planners agree that dying without an estate plan should be avoided at all costs.

A Will is a legal document that describes how your assets should be distributed in the event of death. The actual distribution, however, is controlled by a legal process called probate, which is Latin for “prove the Will.” Upon your death, the Will becomes a public document available for inspection by all comers. And, once your Will enters the probate process, it’s no longer controlled by your family, but by the court and probate attorneys. Probate can be cumbersome, time-consuming, expensive, and emotionally traumatic during a family’s time of grief and vulnerability. Con artists and others with less-than-pure financial motives have been known to use their knowledge about the contents of a Will to prey on survivors. A Living Trust avoids probate because your property is owned by the Trust, so technically there’s nothing for the probate courts to administer. Whomever you name as your “successor trustee” gains control of your assets and distributes them exactly according to your instructions. There is one other crucial difference: A Will doesn’t take effect until your death, and is therefore no help to you during lifetime planning, an increasingly important consideration since Americans are now living longer. A Living Trust can help you preserve and increase your estate while you’re alive, and offers protection should you become mentally disabled.

Unfortunately, you would be subject to “living probate,” also known as a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. These “court-appointed agents” must file a strict accounting of your finances with the court. The process is often expensive, time-consuming and humiliating.

YES. In fact, people who create most Living Trusts act as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your Trust. In the event of a mentally disabling condition, your hand-picked successor trustee, not the court’s appointee, assumes control over your affairs.

NO. The purpose of creating a Living Trust is to avoid living probate, death probate, and reduce or even eliminate state and federal estate taxes. It’s not a vehicle for reducing income taxes. In fact, if you’re the trustee of your Living Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created.

YES. In fact, all real estate should be transferred into your Living Trust. Otherwise, upon your death, depending on how you hold the title, there will be a death probate in every state in which you hold real property. When your real property is owned by your Living Trust, there is no probate anywhere.

NO. The Living Trust has been authorized by the law for centuries. The government really has no interest in making you or your family suffer a probate that will only further clog up the legal system. A Living Trust avoids probate so that your estate is settled exactly according to your wishes.

NO. A Living Trust can help anyone protect his or her family from unnecessary probate fees, attorney’s fees, court costs and state and federal estate taxes. In certain circumstances even individuals with small estates can derive meaningful benefits.

YES, but you would be better off choosing an attorney whose practice is focused on estate planning. Members of the American Academy of Estate Planning Attorneys receive continuing legal education on the latest changes in laws affecting estate planning, allowing them to stay on top of the latest laws and techniques to help you meet your needs.

The federal estate tax is a tax levied by the federal government upon the estate of a deceased person. The federal government gives certain exclusions and deductions and then taxes everything above a set level.

A state estate tax is a tax levied by a state government upon the estate of a deceased person. It is levied in much the same way as the federal estate tax. A state inheritance tax is a tax levied by a state government that varies depending upon the relationship of the inheritor to the deceased person. Many states have a separate state estate or inheritance tax which kicks in at a lower level than that of the federal government.

Portability is where the surviving spouse can use the amount of federal estate tax exclusion that their deceased spouse left unused at their death. Portability has been part of the law since 2011, though it was temporary until 2013.

Yes. Portability must be elected on a timely-filed federal estate tax return. This is the case even though a federal estate tax return would not otherwise be required, such as if the estate of the deceased spouse is below the threshold for federal estate taxation.