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| Jack and Diane were a married couple with two young
children. They only had simple wills prepared. Jack
tragically died and Diane was shocked to discover that
she could not access a large portion of Jack’s estate
for at least six months, during the probate process. If
Jack and Diane would have had living trusts as part of
their estate plan, Diane could have had immediate access
to Jack’s estate. And, they could have saved Jack’s
estate a lot of money in estate administration. |
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Whether your estate is worth $1 million or $100 million, the
following four documents are the basic building blocks for every
estate plan:
Pourover Will
Revocable Living Trust
Power of Attorney for Property
Power of Attorney for Health Care
The primary provisions of a pourover
will includes the following:
| Who will act as your executor
(oversee the administration of your estate following your death) |
| Who will act as guardian of the person (care
for any minor children) and guardian of the estate (manage money for
any minor children) |
| A "pourover" provision which provides
that any assets you may have failed to transfer to your living trust
during your lifetime will
"pour over" into your living trust upon your death and your estate
will be distributed in accordance with the terms of your Living Trust. |
Living trusts are no longer only for
the very wealthy. Over the past
several years, Revocable Living Trusts have become the corner stone of almost
all estate plans. In the event of incapacity, Living Trusts have proven
to be a flexible and efficient tool to manage property during ones lifetime. In
the event of death, Living Trusts provide an effective means to minimize
estate tax consequences and maximize the transfer of wealth from one generation
to the next, and can provide asset protection for the decedent’s beneficiaries.
A Living Trust is a written property agreement drafted by a qualified
estate planning attorney wherein you, as the grantor (or settlor) transfer
your property to a trustee for the benefit of named beneficiaries. During
your lifetime you are the sole grantor, sole trustee, and sole beneficiary. The
document details how you want your property managed and distributed during
your lifetime and after your death. Once drafted and executed, your
Living Trust must be funded to be effective because a Living Trust only controls
property that is specifically titled in the name of the trust. This
means that real estate, bank accounts, investment accounts, and other assets
must be re-titled to change the ownership of the asset from you, individually,
to your trust. For example, assets owned by "Lindsey Markus", must
be transferred to my Living Trust by re-titling them in the name of my trust: "Lindsey
Markus Living Trust". You would continue to sign for the assets,
however as "trustee" of your Living Trust. (“Lindsey Markus, Trustee
of Lindsey Markus Living Trust”).
During your lifetime, you may serve as the sole trustee of your trust and
you may continue to deal with the assets in the trust exactly as you always
have. There is no loss of control or your ability to buy, sell, transfer,
invest or gift your assets. Because you are the sole grantor, trustee,
and beneficiary of your Living Trust, the taxable income from any trust property
continues to be reported on your individual tax return with no additional
filing requirements. Thus, any property owned in the name of the trust
will be treated by all parties (including the IRS and any creditors) as if
you own the property in your own name. There are no ongoing fees to
maintain the trust and the trust does not have to file any special tax returns.
Just as the name implies, the Revocable Living Trust is "revocable" and
can be revoked or amended at any point in time. You continue to maintain
all control over the trust property and at any time you may change the beneficiaries,
successor trustees, or any other terms of the trust.
Under the Durable Power of Attorney for Health Care, you name an agent (and
successor agents) who is empowered to make health care decisions on your
behalf in the event you are unable to do so. The Durable Power of Attorney
for Health Care also allows you to provide your agent with guidance regarding
your wishes in the event you are in a terminal state. If you have an
existing of Attorney for Health Care, you should check to make certain that
the document references HIPAA (Health Insurance Portability and Accountability
Act of 1996). It is important for your Power of Attorney for Health
Care to reference HIPAA to ensure that your agent will have access to your
medical records so that he/she can make informed decisions on your behalf.
Under the Durable Power of Attorney for Property, you name an agent (and
successor agents) who is empowered to make property decisions on your behalf
in the event you are unable to do so.
If you own assets (home,
business, investments, personal belongings) valued over $100,000, upon your
death, your estate will be subject to a court administered probate process. This
process, known as "probate", validates your will and re-titles your assets
to your heirs. If you die with
minor children, the cost to probate your estate will continue until all
of your children reach the age of majority (18).
A Living Trust is the simplest way for you to ensure that you
can AVOID PROBATE. The challenges of probate include the
following:
Cost
Probate is expensive. Legal
fees associated with probate can be 3-5% of the size of the decedent’s
estate. |
Freezing of Assets
Assets which must
go through probate are frozen for a minimum of 6 months during
the “creditor claims” period. This means, that your surviving
beneficiaries may not be able to access necessary funds for an
extended period following your death. |
Public Disclosure
All legal documents
filed in probate become a matter of public record. Thus,
your assets, net worth, and private family issues may become public
knowledge. |
A Living Trust can also provide increased ASSET PROTECTION for
your beneficiaries. Your Living Trust can provide for
the creation of a spendthrift or other types of trusts which can be
used to promote your values to your heirs (encourage education, charity,
etc.) and protect their inheritance from the reach of creditors, judgments,
or divorces.
During your lifetime, your Living Trust can also provide for
your Incapacity. In the event of incapacity, your appointed
successor trustee can manage your assets on your behalf. This
eliminates additional legal expenses traditionally incurred with guardianship
/ conservatorship proceedings.
Upon your death,
your successor trustee will oversee the transfer of your Living Trust assets
to your heirs and prevent the need to go through probate. To transfer
assets from your estate to your heirs or another trust, the trustee will take
a copy of the trust document with a death certificate to the appropriate institutions
to initiate the transfer.
Your trust can also provide for the creation of new trusts such as credit shelter
trusts (trusts to maximize the use of the federal estate tax exemption), special
needs trusts (trusts which provide for a family member with special needs and
ensure that the assets bequeathed to an individual with special needs does not
prevent him / her from obtaining federal aid), and spendthrift trusts (trusts
to provide asset protection for beneficiaries and prevent creditors from reaching
the beneficiary’s inheritance).
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