Estate
Planning
Estate
planning is a process involving people who
are familiar with your goals and concerns, your assets
and how they are owned, and your family structure.
It involves a specific group of people that will
help you as much as possible, including your lawyer,
accountant, financial planner, life insurance advisor,
banker and your broker.
What
is a Will?
Wills
are the most basic of estate planning documents.
Wills are basic
instructions to a court how a deceased person would
like their money and property distributed.
Anyone who is concerned how their estate will be
divided should have a current
and valid will.
What's
In a Will?
- Who you are, and
what right you have to give away property
- A description of
the property itself
- Exactly who you
want it to be distributed to
Willa are pretty easy to draw up.
Getting a qualified
estate planning attorney can be helpful, this is
not always a requirement but it's more of a recommendation.
Many courts have accepted simple handwritten wills
drawn up without any legal counsel. Nowadays with
technology, you can create a will using programs
right off the internet.Some states
even allow an oral will to be acceptable; however,
it is best to execute a formal will.
Publicity
vs. Privacy
As far as will's go being simple
is a definite benefit, but also has its disadvantages.
For instance, a will is only an instruction to a
court of lawand it can be contested. Once your will
is entered into court, the privacy of your will is
eliminated due to the will becoming a public record.
Once a deceased person is put in
the newspapers, relatives, friends, and associates
can petition the court to share in your wealth.
Family Court is usually a heartbreaker for
most families.Not only do your loved ones have
to cope with your death, but then have to battle
other acquaintances and distant family members for
the right to your estate.
Can
a Will Be Invalid?
Unfortunately, when a will comes
before a court, you are no longer around to vouch
for it. A will can be found to be invalid for a few
reasons including:
- Improper execution
- The grantor was not mentally competent
and able to understand what they were doing when
they executed the will
- The will was made
under duress, or as a result of undue influence
from another person.
If for any reason the fwill is found
to be invalid, the court will usually treat it as
though you had died intestate,
or without a will. Once the court has decided that
the state(the one you reside in) decides on how your
property will be distributed. And if there are no
living relatives, the property reverts back to the
state.
Wills
and Probate
The process of having an attorney
present your will before a court is called probate. Unlike
living trusts, each and every will must go through the
probate process. Probate usually ties up the estate
anywhere from 9 months to 2 years, and can cost approximately
2-4% of your entire estate value.
Nothing
Worse Than Death AND Taxes
Wills do nothing for estate taxes.
Individuals that have assets, including real estate,
over $2 million are subjected to extreme estate taxes
that climb up as high as 46%. Plus, if you're married,
a will may not maximize the Estate Tax Credit exemption
for both individuals; in some cases, the $2 million
exemption meant per individual is reduced to $2 million
per couple.
Drafting
Your Own Will
Each family's situation is different. For some,
a will is sufficient. However, it is the most basic
of estate planning documents. If you wish to preserve
your wealth for generations to come, then you may
want to combine a will with other advanced estate
planning techniques.
While a will can be drafted with
simple estate planning software, it's usually wise to have
a professional estate attorney do it for you. Legal
counsel may help you avoid many of the pitfalls
associated with wills, and ensure that the chances
it could be contested are reduced.
Living Trusts
Over the last two decades, the popularity of Living
Trusts has skyrocketed. No longer a tool just for
the rich, Living Trusts are one of the most common
estate planning tools in use today.
This legal arrangement, usually
drafted by an estate attorney, creates a separate entity called
a Living Trust. A Living Trust is called that simply
because it is created while you're alive (as opposed
to a "testamentary" trust created after death).
The
Parties Involved
The Living Trust document itself
names three different parties. The individual (or
couple) that establishes the Trust is named the Grantor (also
referred to as the Trustor).
The Trustee is the person named
by the Trust as the controller of the Trust's assets
(and in many cases, the Trustees are the same people
as the Grantors).
On the receiving end, the Beneficiaries are
the heirs that will benefit from the Trust once the
Grantor's have passed away.
History
of Living Trusts
Living trusts date back to 16th century England,
when landowners used trusts to circumvent the King.
Constantly concerned with landowners owning too much
land, the King made sure he could oversee the distribution
of property when a landowner died. This process of
overseeing transfers was the very first form of probate.
Trusts with the Church helped landowners skip the
process altogether. Landowners would deed their property
to their Church, in exchange for the promise that
the Church would grant the land back to heirs when
the landowner died.
In colonial times, the first settlers in America
brought English custom and law with them across the
Atlantic. This included the concepts of probate and
trusts. Trusts were long considered the domain of
the rich, since they were often expensive to create.
It wasn't until the 1960's that revocable living
trusts gained popularity. And while the increased
acceptance of living trusts ticked off many attorneys
(since they stood to lose probate fees), the living
trust was here to stay.
For a detailed history of Living
Trusts, download our Living
Trust Special Report.
Who
Needs A Living Trust?
Almost anyone with an estate of $100,000 or more
can benefit from having a living trust. Estates of
$100,000 or more are often subjected to probate in
their state of residence, which can cost anywhere
from 2%-4% of the estate's value in court and legal
fees.
The living trust also is useful for individuals
subject to estate taxes. Through a living trust,
a couple is able to maximize their Unified Credit
to its fullest. It even accomplishes protection for
individuals wanting to avoid conservatorship.
Advanced living trusts can be structured
for complicated family situations. Re-married spouses,
with children from a previous marriage, can use an
advanced revocable trust to ensure kids receive their
proper inheritance. Our FREE Living
Trust Special Report offers a checklist for individuals
to determine if the living trust is an appropriate
strategy for them.
Avoiding
Probate
Living Trusts avoid probate,
since they are completely private. Because a trust
is recognized as a separate legal entity, distributions
can be made by a Trustee to named beneficiaries without
any involvement from the courts.
The courts maintain no control over the Trust's
assets, and do not tie up the assets in a lengthy
(and costly) probate process. The Trustee simply
distributes assets to named heirs, but only if those
assets have actually been placed inside the Trust.
Funding
Your Living Trust
Once established, almost anything
can be placed in a trust: savings
accounts, stocks, bonds, real estate, life insurance,
and personal property. In "funding" the trust, you
simply change the name or title on your assets to
the name of your Trust. Many people worry about losing
control of assets; however, that is not the case
within a carefully-constructed Living Trust.
Always
There For You
Because the Trust is essentially controlled by one
individual (the Trustee), that person can carry out
your wishes when you're not able to. For instance,
if you have children from a previous marriage and
wish to leave them an inheritance, specific instructions
to the Trustee will ensure that they receive what
you had requested.
If you're institutionalized or unable to care for
yourself anymore, the Trust can still function and
make distributions as needed. The Trustee has a fiduciary
responsibility to see that your requests are fulfilled
exactly. He or she can even provide care and protection
for disabled relatives or handicapped children in
accordance with your wishes.
Power of Attorney
A power of attorney is used
for situations where an individual cannot be present,
but that individual has entrusted someone to do
the job in their place. When someone holds "a power of attorney," they
are able to enter into contracts, negotiate, and
settle matters as if they were that other person.
An ordinary power of attorney can
usually be completed by completing specific
forms for your state of residence. The power
of attorney typically expires when a grantor becomes
incompetent or passes away. The theory is that if
the principal couldn't do it on their own, then the
agent shouldn't be able to do it either. This makes
sense in many financial and commercial situations,
but makes little sense when dealing with elderly
issues.
Durable
Power of Attorney
A Durable Power of Attorney can
act on a person's behalf even while that person is
still alive.
People suffering from dementia or senility, who are
no longer competent to make their own decisions,
need to continue to make financial and medical transactions
long after they have the capacity to do so. A Durable
Power of Attorney allows them to do that.
Setting up a Durable Power of Attorney is as easy
as signing a single legal document, naming who you
would like to appoint as your agent. There are no
hearings or court proceedings to go through.
What happens if you do suffer from dementia or are
incapacitated, and have not signed a Durable Power
of Attorney? If you have not named an agent to act
on your behalf, you can only hope that someone will
become a Conservator for you.
Conservatorship is a lengthy and expensive court
procedure requiring someone to volunteer to become
your Conservator. Finding a volunteer, whom you trust
with your affairs, to suddenly appear and want to
be your Conservator is rare. In many cases, it is
also unreasonable to expect there will be enough
money and time to go through the court proceedings
necessary to establish the conservatorship.
Individuals granted Power of Attorney
must, by law, act in good faith at all times on behalf
of the grantor. Suppose an elderly man is declared
incompetent, but had given his adult child a Durable
Power of Attorney. The son cannot turn around and
put his father's house in the child's name, or sell
off assets for his own use. The law maintains agents
have a fiduciary duty to the grantor, and cannot take advantage
of his or her position.
Medical
Power of Attorney
A Medical Power of Attorney (also
known as a Durable Power of Attorney for Health Care)
is so critical, because it allows a trusted agent
to make healthcare decisions on your behalf. Few
hospitals wish to take on the responsibility of determining
your healthcare decisions for you, especially in
this litigious society. The Medical Power of Attorney helps your doctors
determine when life-supporting measures should be
stopped. If your wish is to not use life-sustaining
measurer, you can convey this to the person you've
named, and they will be able to fulfill your wishes
on your behalf. A Medical Power of Attorney only
has this responsibility to you for healthcare decisions,
and cannot make financial or other decisions on your
behalf (unless, of course, you've granted both Powers
of Attorney to the same person).
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