Estate Planning and Elder Law

QUESTIONS AND ANSWERS ABOUT ESTATE PLANNING

WHAT IS ESTATE PLANNING? Simply defined, it is the process arranging your affairs to ensure you and your loved ones are cared for if you are incapacitated or die. Estate planning begins with deciding what should happen to you, your property, and your loved ones in the event you are incapacitated or die. Merely deciding what you desire to happen is only the beginning; these desires must be expressed in legally valid documents to ensure implementation. Numerous legal considerations (agency law, estate law, tax law, property law, etc.) must be incorporated into all good estate plans. Therefore estate planning will require the assistance of an attorney knowledgeable in these areas.

WHO SHOULD HAVE AN ESTATE PLAN? Everyone. Everyone will die, and everyone should plan for this fact of life. Further, a substantial number of persons will become mentally or physically incapacitated prior to their death. Failure to plan for potential incapacitation can have disastrous personal and financial consequences.

WHAT HAPPENS IF I DO NOT HAVE AN ESTATE PLAN? If you do not have an estate plan, the government, via statutes and court appointed personnel, will decided what happens to you, your property, and your loved ones when the eventuality of death or incapacitation arrives. Although the government's intent is to help you, often the result is not what you would have intended. Further, the governmental process is often snarled in court system filled with red tape that results in excessive costs.

WHEN SHOULD I MAKE AN ESTATE PLAN? Now. You cannot predict your demise, and hopefully it will be decades away. But unfortunately it could be tomorrow. Therefore you should plan today. The worst estate planning mistake most people make is procrastination.

WHAT ARE THE ELEMENTS OF A GOOD ESTATE PLAN? There is no one plan that will work for everyone. The plan should be tailored to your desires and your circumstances. A good plan will allow you to accomplish your goals as simply as possible. This plan should:

Plan for both death and incapacitation.

Care for minor children.

Minimize costs. Costs should be avoided both now and after your death. Not everyone needs to have an extremely elaborate plan. However, often spending a relatively small amount now on good planning can save thousands of dollars later.

Minimize hassles. A primary goal of your plan should to be avoid court proceedings and other time consuming matters. Numerous methods are available to streamline your affairs. Use of some of the more "hassle-free" methods may involve investment of some time and money now. Again, this investment of time and money now can pay big dividends in the future.

Minimize taxes. Not everyone needs to be concerned with estate taxes. However, for people (or couples) with gross estates over $1,000,000.00 (including life insurance proceeds), tax planning is essential. Current law provides an exemption higher than $1,000,000, but that law is going to expire soon and the current political climate does not indicate that it will be renewed. Estate taxes can easily consume 40% or more of a large estate. Even worse, real estate or other assets may need to be sold at a loss to obtain cash to pay taxes. There are many methods to legally avoid or reduce taxes through planning, but few options are available after death of a person (or the death of one spouse).

WHAT ARE THE PARTS OF AN ESTATE PLAN? As stated above, not all plans are the same and yours should be designed to meet your goals and circumstances. However, most plans use combinations of the components listed below. More detailed descriptions of these components can be found later in this page.

Wills
Revocable "Living" Trusts
Irrevocable Trusts
Insurance
Durable Powers of Attorney
Durable Powers of Attorney for Health Care
Living Wills
Joint Ownership of Property
Community Property Agreements
Appointment of Fiduciaries
Appointment of Guardians for Minors
Business Succession Planning

DESCRIPTION OF ESTATE PLAN COMPONENTS

WILLS. A will is a document that describes a person's desires regarding their property after they die. A will also appoints a person or persons to carry out this plan. Wills should contain appointment of guardians for minor children and can create trusts (called testamentary trusts). Virtually all estate plans contain a will. In some plans the will is used as the primary document in the plan, while in others a will is used as a back-up to cover unforeseen circumstances or failure of other devices. Wills should be written and acknowledged in accordance with Statute of Wills formalities. These formalities are extremely important and failure to follow them can invalidate the will. Sometimes under very limited circumstances, handwritten (holographic) or oral (noncupative) wills are recognized as valid. However it is strongly recommended holographic or noncupative wills be avoided and that a formal will be prepared and executed. A will can be changed or revoked by the person making it anytime up to their death. After a person dies, the will cannot be changed. A will does not automatically take effect upon the death of the maker. Wills must be probated through the court. This process can be time consuming and costly. Often a goal of estate planning is probate avoidance. However, there are some advantages to probate, with the major advantage being the ability to cut off creditor's claims against the deceased person's property.

TRUSTS. A trust is a separate legal entity. A trust is created by a grantor executing the document that creates the trust and placing property into the trust for the benefit of a person or other legal entity such as a charity. There are three parts to a trust. The trust "res" is the property contained within the trust. The "trustee" is the person or other legal entity that administers and manages the trust res. The beneficiary is the person entitled to the proceeds or property of the trust. The grantor can be the trustee and/or a beneficiary.

Irrevocable Trusts. There are numerous types of irrevocable trusts (charitable, insurance, etc.). As the title suggests, these trusts cannot be revoked by the maker. These trusts are usually used for tax planning purposes by wealthy individuals. However there are certain circumstances where other persons want to consider using a irrevocable trust.

Revocable "Living" Trusts --also called Inter Vivos Trusts and Grantor Trusts. These trusts have become extremely popular in recent years. The major reason for their popularity is probate avoidance. An equally or more important reason for their use is guardianship and conservatorship avoidance in the event a person becomes mentally or physically incapable of managing their affairs. In the typical living trust arrangement, a person (or husband and wife) create a trust, transfer their property to the trust, and names themselves as the trustee(s) to manage the property for their own benefit. "Living" trusts by themselves offer no tax advantages. However, tax avoidance techniques can be incorporated into a "living" trust. A will, called a "pour- over" will should be executed in addition to a revocable trust. This will transfers any property to the trust that was not transferred to the trust during the grantor's lifetime.

INSURANCE. Various types of insurance are part of estate planning. By far the most common is life insurance. Other important types are medical, disability, and long term nursing home insurance.

POWER OF ATTORNEY (POA). Powers of attorney are used to allow another person to act for you. The person granting the power is called the principal and the person receiving the power is called an agent or attorney in fact. Powers of attorney can be given to anyone; they do not have to be given to an attorney-at-law. Powers of attorney can be extremely useful when someone cannot handle their own affairs because of absence or incapacity. For a POA to be used in cases of incapacity, it must be a durable POA. Specific language must be included in durable POAs to allow them to be used after incapacitation. Powers of attorney can also be dangerous. The person holding the POA is empowered to do whatever is described within the document, often including the power to buy or sell property in your name. Therefore extreme care should be used in giving POAs. Durable POAs are useful in avoiding guardianships since they allow another person to act in the event of the principal's incapacity. However, the general rule is that no one is required to accept a POA, thus precluding the agent from acting on your behalf. This may cause a POA to fail as an attempt to avoid guardianship proceedings. Described below are some of the more common types of powers of attorney:

General Power of Attorney. This document allows the agent to do anything that the principal could do. It is the broadest grant of power possible.

Special Power of Attorney. This document allows the agent to do only those acts specifically described. There are an infinite number of types of special powers of attorney. Some of the more common purposes are:

Cash checks

Sell property

Consent to medical care for children

Sign various documents

Health Care Power of Attorney. This document designates someone to make your health care decisions when you are incapable of doing so yourself. Your incapacitation need not be permanent for the other person to make the decisions. This document differs from a Living Will (see below), and one is not a substitute for the other.

LIVING WILLS. Living wills are used to express your desires and to give instructions in the event you become terminally ill. These documents usually are only effective when you are in a vegetative state and your doctor(s) certify that you are not expected to recover. Normally, a living will states that you do not want to have your life prolonged by artificial life support measures. This document differs from a Durable Power of Attorney for Health Care (see above), and one is not a substitute for the other.

JOINT OWNERSHIP OF PROPERTY. Joint property ownership is a technique that can be used to avoid probate. However not all forms of joint ownership will avoid probate. The most common form of ownership that allows probate avoidance is joint tenancy with right of survivorship or JTRS. Property held as JTRS automatically belongs to the other joint owner(s) upon the death of a joint owner. However, there are community property and other laws that may interfere with this type of arrangement. Further, there are dangers in joint property ownership. A joint owner can improperly use or dispose of the property, and the property is subject to the claims of the creditors of any joint owner. Another potential problem with joint ownership is that it can result in higher capital gains taxes when the joint owner sells the property (as compared to selling the property after inheriting it).

COMMUNITY PROPERTY AGREEMENTS. Community property agreements allow transfer of property to one spouse upon the death of the other spouse without probate. These agreements are a supplement to a will and/or trust. They are not a substitute since they only address transfer of property between spouses and do not cover the circumstance of death of both spouses. Further the use of these documents can inadvertently result in increased estate taxes upon the death of the second spouse to die. This is caused by shifting all assets to the surviving spouse instead of into a by-pass trust or other tax avoidance mechanism.

APPOINTMENT OF FIDUCIARIES. All estate plans will appoint various fiduciaries to handle affairs upon your death or incompetence. Consideration should be given to who can best handle this job taking into consideration education, skills, where they live, and personalities. Generally most plans will appoint a combination of the following:

Executor or Executrix of a Will
Trustee(s)
Guardians for minor children
Guardians for yourself

BUSINESS SUCCESSION PLANNING. Business owners need additional planning on whether and how a business will continue after their death or incapacitation. If the business will not be continued, planning needs to occur on how the business will be wrapped up.

MISCELLANEOUS. Other considerations should also be addressed in an estate plan. These include election of retirement plan beneficiaries, mortuary planning, anatomical gifts, and other final instructions.

The Time to Plan is NOW! We can help. Call today for an appointment.