Estate Planning FAQs
Estate planning arranges for the transfer of an individual's property after death and may involve a will and/or trust, or the application of state intestacy laws.
Estate planning allows an individual to decide exactly who will benefit from their estate, and to what extent. It also ensures that the estate will not be destroyed by taxes imposed on the transfer of assets at death.
An estate consists of all property owned at death before it is distributed by will, trust, or intestacy laws. An estate may contain both real property (real estate, including houses and investment properties) and personal property (all other property, including bank accounts, securities, jewelry, and automobiles).
No. There is no law requiring individuals to complete a will. In most cases, however, it is a good idea to make some plan regarding the dispersal of your finances and property after you die. First, creating a will allows you to control how your assets will be distributed after you die. If you pass without creating a will, you will not have any say in what happens to your personal property, real estate, and finances. A will allows you to determine who will receive your assets, or whether certain individuals should be prohibited from receiving any of your property. This is known as disinheriting an heir. Often, designating the individual who is responsible for winding up your affairs can make all the difference in how smoothly your estate is distributed and closed. Many people who make a will find peace of mind in knowing that they’ve selected someone they trust to see to their final affairs.
If you have minor children, a will allows you to provide a plan for their care in the unfortunate circumstance that you pass while they are still minors. Additionally, a will can often allow your surviving heirs to avoid having to go through the lengthy and complex probate process. Another reason to create a will is to avoid estate taxes. The amounts that you bequeath to your beneficiaries or heirs will not be counted toward your final estate tax accounting. A will is not permanent and can be changed throughout your lifetime. This allows you to make any modifications necessary, should you decide to distribute your estate differently later.
A person who passes without a will is referred to as intestate. Each state has enacted a set of intestacy laws that make provisions for how a deceased individual’s assets should be distributed if they pass without a will. Since each state has the authority to create its own intestacy laws, the procedures that apply after an intestate individual passes vary greatly. In general, however, each state’s laws provide a list of the decedent’s next of kin in the order in which they will receive a portion of the decedent’s estate. For example, a state may specify that the decedent’s surviving spouse receives the decedent’s property, or that the decedent’s surviving spouse receives one-half of the estate and the decedent’s surviving children receive the other one-half of the estate in equal shares. These laws vary, particularly where the surviving children are from a previous marriage and unrelated to the surviving spouse.
In the event the decedent is single and has no surviving children, the decedent’s parents typically are next in line to receive the decedent’s property. If the decedent has no surviving parents at the time of his or her death, the estate is divided among the decedent’s surviving siblings in equal shares. If an individual passes without surviving siblings, his or her estate is divided among his or her siblings’ decedents. It is important to look up the intestacy rules that apply in your state.
Whether or not you need an estate planning lawyer to help you draft a will generally depends on the extent and complexity of your assets. Many people will only use a will for the purpose of passing on things like a home or personal property to their loved ones. In preparing your will, it is important to meet certain basic procedural requirements like making sure you have witnesses when you sign the necessary documents. However, with some careful reading and research, it is certainly possible to draft a valid will on your own if your estate is relatively simple. If your estate will be more complex and/or involves significant assets, it may be best to work with an attorney to ensure that your wishes are carried out with respect to the disposition of your property.
Losing a family member is one of the most difficult and challenging experiences that someone can endure. The last thing that many people want to think about during this time is tying up their loved one’s affairs and ensuring that everything is seen to properly. One of the first things that you should attend to after losing a loved one is obtaining a legal pronouncement of death. A doctor or medical professional usually performs this. If your loved one dies at home or under hospice care, however, you may call the hospice nurse, who can make the pronouncement of death and arrange for the transportation of the body to the hospital. If your loved one dies outside these circumstances, you can call 911. Without a do-not-resuscitate document executed by the decedent, the paramedics will likely engage in life-saving measures upon arrival. You can also transport the decedent to an emergency room and have the emergency room physician make the pronouncement.
Next, it is a good idea to notify the decedent’s family physician and the county coroner. Close friends and family should also be notified of your loved one’s passing. If the individual was working at the time of his or her death, it is a good idea to notify his or her employer and make any inquiries necessary regarding the payment of benefits. If the individual had a life insurance policy, it is also a good idea to contact the policy issuer. If the decedent has any minor children or pets, you will need to arrange for any care or supervision necessary. If the decedent died with a will or trust, there may be instructions regarding the care of any minors or pets provided in the document.
A living will is a statement that details the author’s wishes regarding his or her medical treatment in the event that he or she is no longer able to communicate informed consent. An advance healthcare directive provides specific instructions to healthcare providers should a range of circumstances arise. For example, if you are in a coma, in a vegetative state, terminally ill, or so sick that you are unable to communicate, the advanced healthcare directive can let your treating physicians know what measures they should use to treat you. In many cases, people use advanced healthcare directives to let their physicians know that they do not want any extraordinary life-saving measures used.
A power of attorney is a form of advanced healthcare directive that allows you to appoint someone to make healthcare decisions for you in the event that you are unable to make them for yourself. In some states, the document is referred to as a durable power of attorney, a healthcare proxy, or a healthcare surrogate. When selecting a power of attorney, it is important to choose someone whom you trust and to spend sufficient time explaining your wishes to them.
A living will or advanced healthcare directive can ensure that your wishes are carried out even when you are unable to explain them or express yourself. Many people think that these options are only for the elderly, but even young persons should consider making some provisions for their health care and the distribution of their assets.
Probate is the process that courts use to enforce the provisions of a will and deal with any disputes regarding the decedent’s estate. After an individual dies, the person named in his or her will as executor will file papers with the court informing the court that the individual has passed. If there is no executor named in the will, the court will appoint someone to take on the role of executor. Next, the executor must prove the veracity of the individual’s will and provide the court with an inventory of the decedent’s property and debts, as well as a list of people who are named in the will as beneficiaries. A beneficiary is someone who is provided with a gift in the will.
Probate can take over a year to complete because of the many steps that the executor must accomplish. The more complex and intricate the estate or will, the longer it will take to tie up loose ends. For example, the executor must secure the decedent’s assets and manage any assets that remain unsold or undistributed during the pendency of the probate proceeding. For assets that are not distributed to a beneficiary, the executor will have to decide whether to sell the property or distribute it in a bequest. In other circumstances, a will may make a series of cash bequests. If the estate does not have enough cash on hand to satisfy this bequest, the executor may need to sell non-accounted-for assets to generate the cash needed to pay these bequests.
Each state has different probate laws. It is important to check with your local court to determine how a probate proceeding should be initiated and conducted before taking action.
There are some aspects of a probate proceeding that may prove unfruitful or inconvenient for a decedent and his or her heirs. First, the probate process can take over a year to complete. The more complex and intricate the decedent’s estate and will, the longer it will take to accomplish all of the procedures necessary to tie up loose ends. The longer a probate proceeding lasts, the more fees that are associated with it. In many cases, the executor will hire an attorney to help him or her navigate the probate process. Like regular civil court or criminal court, probate court has its own set of complicated rules and procedures. For some families, probate is filled with many disputes and disagreements regarding the disposition of the decedent’s assets. If a family member or other individual disagrees with how the executor is handling the will, for example, he or she can file a petition seeking court review of the executor’s actions.
Probate proceedings are public, and any documents filed that are associated with the probate of a will are available for public viewing. If your loved one has any personal or sensitive information available in his or her will, this information will therefore be available to the public. Since some wills contain very detailed information about family history, or controversial information like the disinheritance of a relative, the public nature of a probate proceeding can create unwanted tension. Some ill-intentioned wrongdoers routinely peruse probate filings for the purpose of identifying potential robbery targets. Most decedents’ homes remain empty after they pass, leaving their valuables vulnerable.
A trust is a written document that places your assets into a trust for your benefit during your lifetime and that provides for the transfer of those assets to a specified individual or individuals upon your death. In many cases, these individuals are referred to as secondary beneficiaries. Unlike with a will, legal title to the identified assets is placed in the trust. The beneficiary will appoint a third party to serve as the trustee of the estate. The trustee is responsible for managing the trust’s assets and seeing to any transfers that are necessary upon the beneficiary’s death or incapacitation.
One of the most attractive benefits of a trust is that they do not require probate. There are many circumstances in which a will must be administered through the probate process, which can be costly, time-consuming, and extremely public in nature. As a result, the administration of a trust following a decedent’s death typically allows a faster distribution of the assets contained therein than the administration of a will. In many situations, the secondary beneficiaries become primary beneficiaries immediately upon the trust-founder’s passing.
A trust can also provide a method for increasing your financial stability and providing a better outcome for the secondary beneficiaries. A trust’s assets can remain in investment accounts during the founding beneficiary’s lifetime, allowing them to increase in value. Additionally, a trust provides the founding beneficiary with significantly more privacy than a will. A trust can be designated as confidential and remain unavailable to prying eyes.
It is possible to provide for your pet through a will, though you will generally want to leave money for pet expenses in the care of the person who will be taking the pet, rather than leaving money directly to the pet. In this situation it is also important to identify a backup caregiver, provide care instructions, and to specify that the funds you are leaving to any caregivers are intended for your pet’s care. You also have the option of setting up a trust for your pet, though this is an expensive and complicated process that likely won’t be the best fit for most people. In the absence of a will or trust, there are animal care non-profit and rescue organizations that can help to locate a good home for your pet, but it can be risky to rely on this option in the event that such organizations do not have capacity or are not located in your area. Finding a friend or family member who will agree, either legally or informally, to take care of your pet and setting aside funds and information for pet care may be the safest option.
Current federal laws require United States citizens and residents to pay three types of taxes on a transfer of property: estate tax, generation-skipping transfer tax, and gift tax. An estate tax, which is also referred to as an inheritance tax, constitutes a tax on your right to transfer property at the time of your death. The first step to calculating your estate tax is to determine your “gross estate.” This typically includes every asset and interest that a person owns or has an interest in at the time of his or her death. There are many other calculations and additions that are conducted when determining an individual’s gross estate. For example, the value of any property that the decedent had, at any time, transferred during the three years prior to his or her death is added to the decedent’s gross estate, even if he or she no longer owns the property at the time of death.
After calculating the gross estate, federal law allows for certain deductions to be made on the “taxable estate.” These deductions include, but are not limited to, funeral expenses, claims against the estate, administration expenses, some contributions to charitable organizations, and certain bequests made to surviving spouses. Calculating the amount of inheritance tax owed also requires determining the tentative tax base that applies to the estate. The tentative tax base schedule changes each year. Check with the IRS’ website to determine which figure will apply to a particular estate.
Currently, at least 15 states have an estate tax, and over five states have an inheritance tax. Some states, like Maryland and New Jersey, use both. Check with your state’s rules to see what tax obligations apply in your location.
A power of attorney is a document that grants a specified individual the right to act as the grantor’s attorney in fact or agent should the grantor become incapacitated. The laws governing the creation of powers of attorney and the scope of the designated individual’s authority vary from state to state. In most cases, however, the individual who creates the power of attorney, often called the principal, can dictate the scope of the individual’s authority. For example, the principal can designate one person to deal with one particular issue, which is called a specific power of attorney, or provide him or her with broad authority to handle any issues that arise should he or she become incapacitated. The latter version is called a general power of attorney.
An attorney-in-fact is responsible for maintaining accurate and diligent records of all transactions and decisions that he or she makes on the principal’s behalf. Some of the types of decisions that an attorney in fact can make include gifts of money, financial decisions, and the recommendation of a guardian for the principal’s minor children or dependents. Many people use powers of attorney to make healthcare decisions for them in the event that they become incapacitated. A power of attorney can be given the authority to give, withhold, or cease all medical treatments, diagnostic procedures, or services. The document will usually include instructions from the principal regarding how far he or she wants his or her treating physicians to go before ceasing all life-saving measures. The principal can designate any adult as his or her attorney in fact, including an adult child or trusted friend.
Absolutely. When leaving money to a charity, however, it is important to take into account certain taxes and exemptions that will be applied to your contribution. Leaving money to a charity in your will typically results in a charitable tax credit of up to 50 percent and may result in other exemptions from estate tax calculations. In most cases, leaving money to a charity will result in a reduction of the inheritance tax that must be paid during the administration of your estate. When identifying the charities to which you would like to donate, it is important to ensure that they do maintain a government-recognized charitable organization status.
Individuals who leave large gifts to charities in their wills should be aware that a family member might contest the bequest. Some family members feel slighted when they realize that the family member bequeathed more to a charity than to him or her. The probate system allows a family member to file an objection to the executor’s administration of the decedent’s will. These objections can include an objection to the amount of money provided to a charity.
A trustee can also be directed to make a contribution to a charity upon your passing. The trust documents can contain language that directs the trustee to provide a specific monetary amount or percentage of the value of the trust’s assets to a charity after your death or upon the dissolution of the trust. The specific charity or charities can also be identified.
Trusts are governed by state law, and the rules and procedures regarding the types of disputes that may be brought and the individuals who have standing to bring a dispute vary among jurisdictions. Generally, however, a person must prove that he or she has standing to bring a challenge against the trust. The concept of standing is a legal term of art, which means that the individual experienced direct harm or would experience imminent harm if the trust terms were enforced as written. For example, if Bill creates a trust leaving all of his assets “to all my children, Sue and Betty,” and later has a third child, the third child has standing to sue the trust on the basis that he or she was not specifically named in the trust provision. Since the trust clearly indicates that Bill wants to leave his assets to “all” of his children, the omission of the third child would seem to contravene Bill’s intent.
A trust can also be challenged on a technical basis. Each state has specific rules that must be adhered to when drafting a trust. For example, most states require the settlor of the trust (the person who creates it) to be at least 18 years of age at the time the trust is created. Additionally, a trust may be challenged on the basis that fraud was involved in its creation or in the execution of its provisions. For example, if the settlor of the trust was under duress at the time that he or she executed the trust, which involves physical force or a threat of physical force, the terms of the trust can be challenged. If the trust was set up to result in the performance of an illegal act, like money laundering, the trust can be challenged on the basis that there is fraud in the execution of its provisions. There are additional bases for challenging a trust, and it is important to check with your local state provisions before pursuing a potential claim.
A guardianship is a legally recognized status that is typically used when an individual can no longer make sound or safe decisions regarding the care of his or her person or property, or has become exposed or susceptible to undue influence and fraud. A guardianship essentially involves removing an individual’s legal rights, so great care and attention is paid during the appointment process. To appoint a guardian, an individual must make an application to the court that provides a detailed and thorough explanation of the events or concerns necessitating the appointment of a guardian. Typically, most states require that the individual seeking the appointment of a guardian provide sufficient notice to all individuals affected by the proceeding, in addition to providing the individual in question with independent legal counsel. The law also usually requires a heightened standard of proof, clear and convincing evidence, of the individual’s lack of capacity and provides the individual in question with the right to a jury trial.
After the court appoints a guardian, he or she will have many responsibilities when it comes to the individual’s care and well-being. The guardian will consent to and oversee any medical treatment that the individual receives in addition to determining the individual’s location of residence. The guardian can make end-of-life decisions on behalf of the individual and will have the authority to make financial decisions in addition to determining when it is appropriate to release the individual’s private information. Due to the broad scope of authority that a guardian receives, it is extremely important to take great care when pursuing the appointment of a guardian.