Practice Areas • Estate Planning • Basic
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.
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:
(a) Who will act as your executor (oversee the administration of your estate following your death)
(b) Who will act as guardian of the person (care for any minor children) and guardian of the estate (manage money for any minor children)
(c) 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.
Power of Attorney for Property
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.
Why do I need an Estate Plan with a Living Trust?
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:
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.
Under a Living Trust, What Happens to My Assets Upon My Death?
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).