1. Why Do I need an Estate Plan?
Without an Estate Plan an individual’s assets will pass through the laws of intestacy, a situation in which an individual’s assets are distributed based on the laws of the state rather than based on the wishes of that said individual. With an Estate Plan an individual can fully control the distribution of their assets.
2. What information is necessary in order to create an Estate Plan?
General information such as the names of the Testator, spouse and other close relatives is gathered. Information such as citizenship status of all parties and the status of the relevant individuals as adults or minors and as children or dependents is also relevant. A detailed registration of assets and liabilities is also necessary.
3. What is an asset?
An asset is anything of monetary value, Real or Personal Property, whether tangible or intangible, that has financial value and can be used for the payment of its owner’s debts. Assets are generally broken down into several categories: business investments, employee benefits, and real estate. Additionally all assets that are not readily categorized into the previously stated categories are placed into a separate miscellaneous listing.
4. Does a Will cover all my assets.
No, there is a legal distinction made between what is called the “Probate Estate” and the “Non-Probate Estate”. The Probate Estate encompasses all of the assets held in the individual’s name alone that do not have a beneficiary designated. The Will will only take effect on those assets that are part of the Probate Estate. The Non-Probate Estate consists of all assets owned jointly or that have a named beneficiary, such as a life insurance policy. These forms of ownership are called “Will substitutes” because they pass assets as a Will would, but without the need for a Will. In fact, a Will does not speak to non-probate assets. It only controls the disposition of probate assets.
5. Does it matter what kind of Will I choose.
Yes, different kinds of Wills have different costs and benefits. There are a number of different basic types of Wills. The one that is best for an individual depends on the financial situation of the individual, their age and the other specific needs of the individual.
6. Outright Distribution Wills
Outright Distribution Wills, also known as Simple or Basic Wills, provides for the outright distribution of assets to a designated individual and are generally used for uncomplicated estates. These Wills are generally best for Estates whose total assets are lower than the current state estate tax exemption. Since an estate can grow after the Will is written, it is important to take into consideration future growth in the monetary value of the estate which may lead to other types of Wills being more financially favorable.
7. Basic Mirror Wills
Basic Mirror Wills are often used by spouses. A couple will often want to make nearly identical Wills designating each other as the beneficiaries respectively and their children or if they have no children someone else thereafter. It is important to remember to designate a beneficiary other than one’s spouse as a safeguard in case death occurs together.
8. Disclaimer Trust Will
A Disclaimer trust Will is a Will that is more complex than a Basic Mirror Will and should generally be used only for large estates. In a Disclaimer Trust Will the beneficiary of the Will can put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed property interests are transferred to the trust, without being taxed. This can be beneficial in allowing for a net savings in total taxes paid on the estate.
9. Creating A Trust Under A Will
A Trust is defined as “A right or property, real or personal, held by one party for the benefit of another”. Any Trust created through a Will does not begin to take effect until the Will does, when the person passes away. It is thus important to be careful with the wording of the Trust since for instance a Trust with the provision that it be designated for a minor child will no longer be effective if the child is an adult at the onset of the Will.
10. Springing Durable Power of Attorney
Someone who is designated as having the Power of Attorney over someone else is authorized to act as an agent on that person’s behalf in both legal and business matters. The Springing Durable Power of Attorney similarly designates another individual as a legal agent who can act on another person’s behalf. A Spring Durable Power of Attorney will only grant this power when the designator becomes medically incapacitated. In the event of the designator going into a persistent vegetative state or other mentally incapacitated state, the agent gains power over both financial and legal decisions.
11. Parents/ Grandparents Trust
Without an Estate Plan an individual’s assets will pass through the laws of intestacy, a situation in which an individual’s assets are distributed based on the laws of the state rather than based on the wishes of that said individual. If one whishes that their assets be distributed in a manner that is different from the distribution manner that their states laws dictate, a Trust allows for the designation of the distribution of assets upon the death of the individual.
12. Special Bequest
A Special Bequest is the designation whereby the maker of a Will gives a beneficiary a specific asset whether its Real or Personal Property. This can be used as a way of distributing items of assets in a manner specific to the wishes of the designator.
13. What can I do to lower my Estate Tax liabilities
There are a number of methods of lowering the eventual cost that the Estate Tax will cost. There are several provisions in the federal law for exclusion of gifts from being taxable items.
1) There is currently an annual exclusion of up to $13,000 of gift giving.
2) There is also an unlimited marital gift exemption.
3) All gifts medical and educational in service which are paid direct ally to the provider of the service are not federally taxed.
Other exemptions also exist and should be discussed with an attorney prior to the writing of a Will.
