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Frequently Asked Questions
1. What is estate planning?
Estate planning is really the accumulation, the preservation, and the distribution of your assets. It is accomplishing your personal family goals and easing the management of your estate as well as minimizing taxes.
2. What will happen to my property if I die without a will or trust?
You will leave two very important questions unanswered. First: Who gets it? If you die without a will or trust, the state determines your ultimate heirs. This can be either the state of your legal residence, or the state in which the assets are located. And: How is it transferred? The transfer of your property is accomplished through a court-supervised proceeding called probate. Probate can be avoided with proper estate planning.
3. What is Probate?
Probate is the court procedure used to change title to assets from the name of an individual who has passed away into the name of the living beneficiaries. It is also where all creditors of a decedent are assured that they are paid. In addition, it is the court process where anyone who has a complaint regarding the deceased can appear and file their complaint. That is what most of us have heard of as contesting a Will. And finally, it is a public proceeding.
4. Can probate be avoided?
Probate can be avoided with careful planning. There are a number of different techniques for doing so which can be used alone or in combination.
5. What is the marital deduction?
The Internal Revenue Service allows an individual to leave any amount of assets to his or her spouse without taxation. At the death of the spouse, however, all assets in the estate over the exemption will be taxed.
6. What happens if I give all my assets to my spouse at my death?
An outright gift at the death of the first spouse to a surviving spouse qualifies for the unlimited estate tax deduction and, therefore, there will be no tax paid when the first spouse dies. However, the exemption for the estate of the first deceased spouse is lost and cannot be used when the second spouse dies.
7. Should I use my exemption during my lifetime?
This is a complex question; the answer depends upon individual family circumstances and the size of your estate.
8. What is joint tenancy?
When property is held in joint tenancy by two or more people, upon the death of one of the owners, all of his or her interest in the property is transferred immediately to the surviving owners.
9. What is a power of attorney?
A power of attorney is a document you sign authorizing someone else to act on your behalf. The purpose of giving someone such a power is to enable that person to act for you when you cannot act for yourself.
10. Who can give a power of attorney?
Generally, you can give a power of attorney if you are over 18 years of age and legally competent.
11. When does a power of attorney become effective?
The power of attorney is effective based upon what it says. It can be made effective at the time of signing or it can become effective at the time of your incapacity.
12. How does a power of attorney terminate?
Death revokes a power of attorney. You may also cancel your power of attorney by signing a revocation. The best way to revoke a power of attorney is to destroy all copies.
13. Are there alternatives for managing property when a person becomes incapacitated?
There are several. One is using a financial durable power of attorney. Another is a court-supervised proceeding referred to as a guardianship. Another alternative is the use of a living trust where assets are funded into the living trust.
14. Should I have a durable power of attorney?
Yes. The durable power of attorney for property/finances is often used in conjunction with a trust to enable your agent to transfer your assets into your trust in the event you are disabled. A durable power of attorney can be made effective immediately upon signature or can become effective at the time of the principal’s incapacity.
15. Should I have a durable power of attorney for health care?
It is important to have a durable health care power of attorney. This allows the agent to make a number of health care decisions on behalf of the individual. Often this is accompanied with a health care proxy or a physician’s directive that can cover the issue of remaining on life support systems under certain circumstances.
16. What is a living will/directive to physicians?
A living will or directive to physicians is a document indicating what you want to happen in the event you are being kept alive by life-support machines. It lets others know what your decision is so they can implement that decision if necessary.
17. Why is a Living Trust better than a power of attorney?
We often recommend clients use living trusts as the key documents in their estate plans. One reason for this is that the living trust is normally the best method for managing assets during incapacity. A major advantage of the living trust is that the trustee has actual title to the assets and third parties must deal with the trustee as the owner. A designated agent does not have title and third parties may refuse to deal with the agent. This is particularly true if the power of attorney is more than a few years old.
18. Why should I have a Living Trust?
A revocable living trust, also known as a revocable inter-vivos trust, is a legal document that allows you to direct how you want your assets to be distributed when you die while allowing you to maintain control of those assets during your lifetime. Not only does a Living Trust provide for the disposition of your property (like a Will), but it also offers the following benefits:
- Provides for immediate transfer of assets while you are alive
- Allows smooth transition of management upon incapacitation/death
- Provides care of disabled and handicapped children/grandchildren
- Establishes education funds for children/grandchildren
- Avoids expense and hassle of probate proceedings
- Minimizes estate taxes and defers payment (for married couples)
- Allows continuing control over assets after death or incapacitation
- Provides security to you and your loved ones
- Offers flexibility
19. Will I still have control over my property if I establish a Living Trust?
Absolutely! While you are alive and mentally competent, you have complete control over your property. You can buy, sell, improve, spend, change investments, or give away your property just as you would without a trust. The trust can be modified in any manner you choose or it can be completely revoked. Once you die your trust becomes irrevocable so that no one can change your testamentary wishes.
20. Who is the trustee of my Living Trust?
While you are alive, you act as the trustee. For married couples, either one or both spouses may act as trustee or co-trustees. The “successor trustee” is the individual that you designate to be in charge of your trust in the event of your disability or at the time of your death.
21. Whom Should I designate as my successor trustee?
You will need to designate one or more successor trustees. These can be individuals, such as family members, trusted friends or trusted professionals, or you could designate an institution, such as a bank or professional trust company. If you choose an individual, you should name more than one in case your first choice is unable to act.
22. Will my income taxes change if I have a trust?
A revocable Living Trust does not change your income tax liability. The Internal Revenue Service does not require any additional income tax filings when you create your Living Trust, and you still file the same annual 1040 tax return.
23. Do property taxes change if I have a trust?
Generally, property taxes remain the same when you transfer your real estate into your Living Trust.
24. What is the fee for a trust? Is there an annual fee?
A living trust is not expensive when compared to all the costs of court interference at incapacity and death. How much you pay will depend on how complicated your plan is. There is no annual fee associated with maintaining a trust. Additional fees are involved when an amendment to the trust is made which is changing the terms of the trust. And, of course, when a spouse passes away fees will be charged in order to take advantage of the tax law and to follow the terms of the trust.
25. Is it hard to transfer assets into my trust?
Funding the trust means transferring the assets you own as an individual into the name of your trust. Your attorney, trust officer or financial adviser and insurance agent can help.
26. What assets are left outside of my trust?
Assets that generally don’t transfer into the trust are IRAs and pension plans, since these contain assets that are already in trust. What’s important is to coordinate the appropriate beneficiary designation with your overall estate plan. This is a complex area of planning and must be based on each person’s family circumstances and size of estate.
27. How do I put my car in the trust?
Generally vehicles are "assigned" into the trust, because there is an easy way to transfer vehicles at the time of an individual’s death.
28. How is out-of-state property transferred?
Out-of-state property is transferred into the trust by using a local attorney in that state working with your law firm. They contact a member attorney in the state where your property is located to have it transferred to your trust within a minimum of delay.
29. How are time shares transferred?
Time shares are transferred based upon the type of ownership you have. Some time shares are a contract and are transferred to the trust by an assignment of the contract. Other time shares are a fee-simple, which means you have absolute ownership. Therefore, it is transferred by deeding it to the trust.
30. Does the trust provide asset protection?
During the lifetime of both spouses there is no asset protection provided by the trust. However, there may be some protection for the survivor after the first spouse dies.
31. Why do I need a Pour Over Will if I have a Living Trust?
What could happen is that future assets acquired by an individual or couple are left out of the trust. A Pour Over Will is used to “pour” any assets left out of the trust into it so they are ultimately distributed according to the terms of the trust.
32. How do I change my trust?
An actual change to the terms of the trust is called an amendment to the trust. An example would be if you want to change the distribution from two children to just one child. An amendment is not required to buy or sell assets in the trust.
33. Will I have to change my trust when I buy or sell assets?
When you buy or sell assets you are not changing the trust; you are merely changing the assets in the trust. So, think of buying and selling assets as assets going in and out of the trust without changing the terms of the trust.
34. When does a trust end or terminate?
A trust will end or terminate when the distribution of all assets is made pursuant to the trust document.
35. How do I revoke a trust?
First of all, trusts are rarely revoked. Most of the time, once you have a trust set up, no one wants to revoke it. However, there are situations where it does occur, primarily in the case of divorce. Then a written agreement is prepared, indicating that the trust is now revoked. The assets are removed and put in the name of the individuals, who are free to establish new trusts if they so desire.
36. Can someone contest a Trust like breaking or contesting a Will?
Anyone can hire an attorney to question how you have arranged your legal affairs, so, in theory, anyone can attempt to contest your trust. However, in practice, it is much more difficult than contesting a Will. Probate court proceedings are open to the public, and anyone who is interested can contest the Will at that time. In contrast, someone who wants to contest a trust must take the initiative to begin his or her own lawsuit, complete with court and attorney fees. What also makes it harder to question the validity of a Trust is the fact that the Trust operates during your lifetime, which generally confirms its terms as your true wishes.
37. What happens to the trust when a spouse dies?
When one spouse passes away, at that time, the surviving spouse should contact an attorney. You need to inventory all assets so that you know what is in the trust in order to divide the assets into the A trust and the B trust – the survivor’s trust and the family trust. There are tremendous tax benefits associated with the A/B type of trust, which is why we take a snapshot of the assets at the date of death of the spouse.
38. What happens if I am single when I die?
When a single individual passes away, whoever is named as successor trustee usually contacts an attorney. In most cases, the trustee is instructed that assets need to be collected, debts need to be paid and then ultimately the distribution of assets will be made pursuant to the terms of the trust. In essence, the terms of the trust are carried out. Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the person or corporate trustee you have chosen – until your beneficiaries (including minor children) reach the age(s) you want them to inherit, or to provide for a loved one with special needs.
39. What happens if tax law changes? Is my trust still good?
In the event of a tax law change, the trust is still valid. However, amendments to the trust may be needed to comply with the new law.
40. What is a step up in basis?
A step up – or step down – in basis is an adjustment for tax purposes to an asset’s fair market value at the date of the death of the owner of the asset. For example if you bought a share of stock for $100 that increased in value to $500 at the time of your death, your tax basis was $100, but increases to $500 at the time of death. This increase is known as a step up in basis. If you bought the stock for $500 and it was worth $100 at the time of your death, it would be a step down in basis. In community property states, each spouse’s share of community property receives the adjustment.
41. Do my assets get a step up in basis if they’re in my trust when I die?
The assets held in the trust do get a step up in basis on the death of the first spouse. There will be another step up in basis of the survivor’s share of the trust at the death of the surviving spouse.
42. What is a Family Limited Partnership?
A Family Limited Partnership is a partnership made up of family members and used in many cases to facilitate asset management, tax planning and gifting. Generally, the parents are the general partners, controlling the partnership and making all decisions. The limited partners are often children or grandchildren who receive gifts of partnership interests. This is a very popular and effective estate planning tool for asset protection.
43. What is included in my estate for purposes of determining Estate Taxes?
Almost everything you own will be included in your estate to determine Estate Taxes. This includes one’s home, business interests, bank accounts, investments, personal property, IRAs, retirement plans and death benefits from life insurance policies payable to or owned by the estate. These items are reduced by one’s debts at death, expenses of administration of the estate (such as executor, legal, and accounting fees), certain medical expenses, funeral expenses, marital and charitable deductions and certain losses. The value of the estate after deductions is subject to the Estate Tax to the extent it exceeds the exemption amount established by Congress at the time of death.
44. Should I have an attorney do my trust?
Yes, but you need the right attorney. A local attorney who has considerable experience in living trusts will be able to give you valuable guidance and peace of mind that your trust is prepared properly.