Estate Planning Toolkit

by Karla McAlister

Only about half of Americans have a Will according to a recent Forbes magazine article. Most people procrastinate because they do not want to actually think about what will happen when they die. It is important to plan and to make decisions or the state will make the decisions for you. State law directs how your assets are distributed if you die without a Will.  The distribution depends on whether you are married or single and whether you have children. The distribution, according to state law may not be anything you would have chosen but it is what your family must deal with if you have not planned.  It is especially important if you have minor children to make plans for the preservation of your assets to care for them. Provisions for a contingent trust for your children can be included in a Will or in a separate revocable trust document. 

 There are many different planning options and the proper option depends on your family situation, your assets and the complexity of your particular wishes.  Taking the time to work through and complete a planning questionnaire helps ensure accurate advice about the options for your situation. Sometimes the right answer is a revocable trust which avoids probateand provides detailed instruction for the trustee to manage your assets for your family. Other times the proper planning may be a transfer on death deed and placing payable on death beneficiaries on your bank accounts.  

Planning gives peace of mind:

• By specifying who gets what—especially items with emotional significance—you head off disputes.
• By choosing an executor and trustee if you use a trust to administer your estate, you put someone you trust in charge.
• By naming a guardian for your young children (under 18), you make it possible for the person you choose to raise your children if for some reason you and the other parent couldn’t. If you don’t make your preference known in your will (or in other legally effective document) a judge would have to choose a guardian without any knowledge of your wishes.

Your life insurance and retirement accounts, traditional IRA, Roth IRA, and 401K are distributed upon your death according to the beneficiary designation, not by the provisions of your Will or Trust. The law is complicated and it is important to discuss those beneficiary designations with an experienced advisor.
 

In addition to the basic estate planning tools of a Will and Trust, a Durable Power of Attorney, which names a person who can act in your behalf regarding your property, is a valuable document. This tool gives the agent the power to act on your behalf if you are incapacitated and need assistance or if you are unavailable to act.  If you have a Durable Power of Attorney you will probably avoid the need to have a Guardian appointed if you unable to handle your own affairs. This avoids the cost and time associated with guardianship proceedings. 
 

A Healthcare Power of Attorney allows the agent named to make healthcare decisions for you, if you cannot make them. It is useful if you are injured or incapacitated and unable to make healthcare decisions. An additional healthcare document is the Advance Directive for Healthcare that gives instructions to your physicians on end of life matters. It also names a proxy who can make decisions if you are not able to make them.  It is essential in all of these documents to name people you trust as the agents, proxies, trustees, and personal representatives. They have great power but it also gives you great flexibility and avoids court supervisions of your affairs. 

Dispelling the Myth that Estate Planning is for Old People

by Cody Jones

• “I/we don’t have enough assets to have a trust.”
• “I won’t need an estate plan until I’m older.”
• “I/we have too much debt for an estate plan.”
• “I just want to know who will take care of my kids if I die.”

I often hear these responses when the twenty- and thirty-somethings I meet discover I’m an estate planning attorney. Although we’re told to plan for the worst and hope for the best, that advice rarely translates into preparing for our incapacity or death.  Instead, our time is spent focusing on careers, finances, homes, families, and other adventures. As a thirty-something, I too am often guilty of forgetting my days are numbered, hoping I’ll have plenty of time to plan for the not-so-fun “adult” decisions of life.  In doing so, we disadvantage our loved ones by leaving them to pick up the pieces without any foresight from us. Plus, we sacrifice the advantages of planning ahead. 

1. Death is guaranteed, and incapacity is likely for all of us - no matter our age.  If you have experienced the loss or incapacity of someone you love, you know it is difficult.  We seldom think clearly in times of great tragedy. Planning ahead for such events can prevent additional stress in already stressful times. Such plans may include nominating someone you trust to care for you if you are incapacitated and documenting end-of-life decisions you would make if you were able.  Nominating an agent or proxy for your health care may also prevent the need for a costly court-supervised guardianship. 
   
    
2. Not planning ahead can create confusion.  Upon your death or incapacity, your loved ones will have heightened emotions, and each will react to grief in a different and personal way.  One of the most sensitive questions that may be asked is who will take care of your minor children or other dependents. This may be a difficult question for you to answer, but it is even more difficult for others to answer when you cannot.  Discussing the nomination of a guardian for your minor children or other dependents with your spouse and loved ones while you have the ability to express your reasoning and consider their input can help avoid controversy over an already difficult decision.  Nominating a guardian helps provide a smooth transition for your children or other dependents and their caregivers. 
   
    
3. Planning ahead can make planning later easier. Just as a football team is better prepared for the big game if the coach has a game plan, you can be more prepared for managing your estate as it increases in value if you create the framework from the beginning. Part of this framework may include a revocable trust that outlines how your assets may be used upon your incapacity and controls the distribution of your assets upon your death.  You don’t need an abundance of assets to justify having a trust.  If you have assets without beneficiary designations, such as a vehicle and a house, preparing a trust may be prudent.  Even if you have debt associated with an asset, such as a mortgage, the equity you own is an asset of your estate.  If you die and the legal ownership of the asset is trapped in your name, your loved ones will likely need to go through a court-supervised probate to access the value of the asset. A probate is avoidable if you properly utilize a revocable trust. Creating a trust to own your assets as you acquire them throughout your life can be less time-consuming and less expensive than implementing the same planning with a lifetime’s accumulation of assets later in life.  With a trust already prepared, you can simply buy an asset in the name of your trust at the time of purchase and rest in the assurance the asset will be controlled by the trust upon your death or incapacity. 
   
    
4. A plan eases the impact of unexpected circumstances.  A revocable trust also provides a plan for unanticipated situations that joint ownership with rights of survivorship cannot address. Joint ownership only works well if at least one of the owners survives and has capacity.  If both you and your spouse die or become incapacitated simultaneously, a revocable trust contains provisions to address such circumstances.  Similarly, after your death if a beneficiary of your trust unexpectedly suffers from substance abuse or develops a disability, the trust can provide protections to avoid misuse or exhaustion of the trust funds which outright ownership cannot avoid.

Unexpected circumstances do not have an age limit.  Take time today to look at your family situation and personal assets. Who will care for your children if you pass away?  Who will care for you if you are incapacitated? What will happen to your assets upon your death or incapacity?  If you don’t have answers to these questions, or if you have adult children who cannot answer these questions for themselves, make an appointment so we can help you plan ahead and provide everyone certainty and peace of mind.

A Year-End Check-Up!

by Lloyd McAlister

Year’s end or the beginning of a new year, whichever you prefer, is an excellent time to get in the habit of checking your important personal paperwork – documents that are legally and financially important for you and your family.  So, consider taking an hour or so to do the following paper check-up:

1. Locate your documents!  Isn’t it amazing how many times we need some piece of paperwork and aren’t sure where to look for it? If you can’t relate to that problem, move on to #2!   If you’ve experienced that problem, though, you know it is a good idea to gather all your important records.  
    
2. Confirm the documentation you have! Your important records might include: military service and discharge papers; retirement plan papers; insurance policies; documents evidencing your ownership of all your assets, including vehicle titles, financial account statements, deeds for land and minerals, ownership records for assets received by gift or inheritance, trust papers for any interests you have in existing trusts, and so on.  And, last but by no means unimportant, your estate planning documents, including your last will and testament, your revocable trust, your durable power of attorney, your healthcare power of attorney (for general health and personal care decisions), your advance directive for healthcare (for end of life health decisions) and your consent for your attorney to communicate with your fiduciaries.  
    
3. Confirm you have the necessary signed, original documents!  In most of our business and personal matters it is acceptable to simply have a copy of documentation, rather than a signed and dated original document.  This is so either because we aren’t the party responsible for possession of an original or the original document is not necessary.  However, as you well know, it can be very important to have the original paperwork proving ownership of certain types of assets, either in order to transfer ownership to a new owner or in order to establish our own ownership.  Likewise, original estate planning documents, properly executed with your signature and, if required, the signatures of witnesses and/or a notary public, can be critical in carrying out plans and instructions in the event of your incapacity or death.  
    
4. Confirm your documents are current!  Have you ever felt time was passing quickly?  The speed of time passing seems especially real when we notice how “old” something has gotten without our notice.  For example, do you remember the date you did your estate planning documents (Will, trust, powers of attorney, advance directive for healthcare, etc.)?  Have things changed since then?  Do your documents still work the way you originally intended and, if so, is that still how you want things to happen?  Our clients regularly call upon us to meet with them and review their documents in order to assess whether any updating is needed or desirable.  Although this may seem inconvenient and does involve time and expense, the cost at present can be very small in comparison to the problems and costs which can be caused by having outdated documents which are no longer adequate or appropriate for the person’s situation.
    

My planning check-up:

• What documents do I have?  
• And which are signed originals?
• Will    
• Trust    
• Durable Power of Attorney    
• Healthcare Power of Attorney    
• Advance Directive for Healthcare
• Where are my documents located?
• Are my documents current?

A Word About Words

by Lloyd McAlister

Mrs. Jones’ attorney: “Mrs. Jones, your father’s life insurance is taxable and at an estate tax rate of forty percent.”

Mrs. Jones: “But I didn’t think my father’s insurance was in his estate!”

Mrs. Jones’ attorney: “The life insurance your father owned is not part of his ‘probate estate’ but it is a part of his ‘gross estate’ for estate tax purposes.”

Legal terminology can be confusing, causing people to misunderstand important legal and financial consequences.  Few legal terms create more confusion than the word “estate” and the variety of uses for the word which have different legal and tax implications.

When a person dies, we often speak of their “estate,” usually referring to the property and legal rights the deceased person owned at the time of their death.  However, sometimes we mean something narrower in meaning, with a more specific application.  For example, we might be talking about the “estate tax” due as a result of the person’s death, in which case we might use the word estate to refer to their “taxable estate.”  However, technically, to arrive at one’s “taxable estate” we must start with their “gross estate” and deduct allowable deductions.  Now, what at first might have seemed somewhat simple becomes more confusing.  

When referring to one’s estate, we might also be talking about their “probate estate.”  Again, what might seem simple can become quite confusing because we referred to “taxable estate” and “gross estate” above, yet what comprises one’s “probate estate” might be quite different than those other terms used to refer to tax matters.  If a person dies owning property titled in their name without valid transfer on death successor owner arrangements, the disposition of that property after the owner’s death is technically subject to the administration of such property by the “probate court.”  The probate court determines:  what property fits in that category (and, consequently, is subject to the jurisdiction of the probate court), whether there was a valid last will and testament of the deceased person which disposes of such property and, if no valid will exists which completely disposes of the property, the disposition of the deceased person’s property according to state law (called the laws of “descent and distribution”).

Although all the property in a deceased person’s probate estate might also be in their gross estate, it will not necessarily all be in their taxable estate due to the “allowable deductions” which are subtracted from the gross estate to arrive at the taxable estate, deductions such as the marital deduction for property passing to a surviving spouse or the charitable deduction for property passing to a charity.  Similarly, it is entirely possible some or even all the deceased person’s property is in that person’s “gross estate” (again, using the term in its technical sense to refer to the gross estate for federal estate tax purposes) yet little or none of it is in their “probate estate” because the ownership of the property was such that there was no need for a probate court to determine the lawful, successor owners.  The very common use of revocable trusts (also referred to alternatively as living trusts, inter vivos trusts, loving trusts, etc.) is an excellent example; a person might establish the ownership of some or even all their property in the name of the trustee of their revocable trust in order to avoid the court-supervised administration of their estate, a legal process called “probate.” By virtue of the legal fact that the client, now deceased, did not hold the title in their individual name but rather held title in their name (or someone else’s name) as a trustee of their trust, there is nothing to probate (nothing for the probate court to administer); the successor trustee named in the deceased person’s trust merely needs to accept or confirm their appointment as trustee.  Since the property in one’s revocable trust is subject to the “estate tax” it is included in their “gross estate” and, possibly, their “taxable estate” even though such property is not in their “probate estate.”  In fact, the deceased person may have planned their “estate” so that there will not be a “probate estate” and, consequently, no need for a court-supervised probate proceeding.

So, if you speak of someone’s “estate,” be careful to be clear about the type of “estate” to which you are referring.  Otherwise, you may believe others understand what you said, yet you may not realize that what they think you said is not what you meant!