Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. A major concern for drafters of estate plans is federal and state tax law.
At Brodin Legal, I believe that estate planning is not solely about documents, but about results! Too often estate planning is equated with wills, trusts, durable powers of attorney and other legal documents. While it is true that documents are necessary to achieve a client’s estate planning goals, the estate planning process consists of much more than just the routine preparation of documents. The estate planning process involves: setting and defining goals; becoming familiar with the legal terms, tools and basic estate tax rules; gathering the necessary information; and finally designing, drafting, and implementing a customized estate plan that achieves individually tailored results.
In determining your individual estate planning goals we are actually create documents that define a set of detailed instructions for your family, friends, and trusted associates to follow. Many estate plans are created for the sole purpose of avoiding probate. While this is sometimes reason enough to justify the creation of an estate plan there are far more important issues to deal with in the documents. Once of these is preparing and planning for incapacity or death. One of the last things we want to do is create a situation where our family and ultimate beneficiaries can take care of us in the event we need someone to do so. Many plans create problems and conflicts between our children. It is important to understand the family dynamics and design systems that work in our family dynamics. The instructions in the plan should strengthen trust and relationships between your family members and not create conflicts.
A will, sometimes called a “last will and testament,” is a document that states your final wishes. It is read by a county court after your death, and the court makes sure that your final wishes are carried out. A will may be changed as often as changes in circumstances or choice dictate. In your will, you name someone to make sure your wishes are carried out. That person is called a personal representative. If you do not have a personal representative, the court will name one for you. It is very important to note that a will takes effect only after you die. If you want someone to take care of things if you become disabled or incompetent, you need to name them in a Durable Power of Attorney or Health Care Directive.
When Do You Need A Will?
You will need a will if you want to:
- Leave property to a friend or charity instead of family;
- Leave property to people who would not get anything under state laws about dividing property;
- Give certain items to certain people; or
- Leave someone out who would inherit from you by state law.
How Long Is A Will Effective?
A will is effective until it is changed or revoked. An existing will should be reviewed periodically. Changes in the family, the value and kind of property, or tax laws may make changes in the will necessary or advisable. All such changes in circumstances require careful analysis and reconsideration of all the provisions of a will.
What A Will Does
Most people use a will to leave instructions about what should happen to their property after they die. However, you can also use a will to:
- Name an executor;
- Name guardians for children and their property;
- Decide how debts and taxes will be paid; and
- Serve as a backup to a living trust;
What A Will Does Not Do
The following are things you should not expect to accomplish in your will:
- Leave certain types of property including property held in joint tenancy and property transferred to living trust;
- Proceeds of a life insurance policy for which you’ve named a beneficiary;
- Money in a pension plan, individual retirement account (IRA), 401(k) plan, or other retirement plan for which you’ve named a beneficiary on forms provided by the account administrator;
- Stocks or bonds held in beneficiary (transfer-on-death or TOD) form. If you want to change the beneficiary, contact the brokerage company;
- Money in a payable-on-death bank account. If you want to name a different beneficiary, just fill out a simple form at the bank;
- Leave funeral instructions;
- Reduce estate taxes;
- Avoid probate;
- Put certain conditions on gifts;
- Leave money for an illegal purpose; and
- Arrange care for a beneficiary with special needs.
Does A Will Avoid Probate?
Unfortunately, having a will does not avoid probate. However, if your estate is worth less than $50,000 your will may not have to go through probate.
The Probate Process
Probate is the legal process of safeguarding the assets of the estate, paying creditors, making tax filings, caring for the family, and ultimately distributing assets to the rightful recipients.The probate process places a significant responsibility on the appointed personal representative. With the help of an attorney experienced in probate, the representative can make these decisions and fulfill his or her legal responsibilities while protecting the interests of family and friends.
When Is Probate Required?
Not all property owned by a decedent must be transferred through probate. To determine whether probate is required, the decedent’s property must be listed and categorized as either probate or nonprobate property. All property can be categorized in one of these two ways. Once the asset is classified, the legal process required to transfer title of the asset to the appropriate persons becomes clearer.
A nonprobate asset is one in which title to the property passes without the necessity of having a court’s help. The most common types of nonprobate assets are those created by contracts, property law, and trusts. Examples include:
- Annuities, life insurance, and retirement plans with beneficiary designations;
- Property titled in joint tenancy;
- Property with transfer on death or payable on death designations; and
- Assets within a trust
A probate asset is one in which title to the property does not transfer by operation of law upon the death of the owner and therefore requires court involvement. Typical probate assets include:
- Property titled solely in the decedent’s name;
- Tenancy in common property;
- Assets designating the beneficiary as “the estate”;
- Assets with a deceased beneficiary and no successor beneficiaries listed; and
- Property without title, such as personal property.
These assets can only pass to the appropriate heir or beneficiary by legal action.
The Need For An Attorney:
The personal representative has many responsibilities during the probate. Given the complexity of the issues relating to the entire probate process, it is important for the personal representative’s protection and the protection of family and friends that the attorney for the personal representative is experienced in probate matters. Inexperience can lead to unnecessary delays, lack of protection for the family, and unnecessary fees and expense. In handling probate, there is no substitute for experience!
What Is A Living Trust?
A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.
A “living trust” is simply a trust you create while you’re alive, rather than one that is created at your death under the terms of your will.
Do I Need A Living Trust?
The main advantage of making a living trust is to spare your family the expense and delay of probate court proceedings after your death. But do you really need a trust? Minnesota uses the Uniform Probate Code, which simplifies the probate process, so making a living trust may be more trouble than it saves.
Revocable and Irrevocable Living Trusts:
Living trusts can be either revocable — that is, you can terminate the trust at any time — or they can be irrevocable, which means you give up any right of termination. If you desire the right to terminate the trust, this has to be spelled out in the trust agreement.
Irrevocable trusts are used when you want to make a gift of income to someone. This may result in estate, inheritance, and income tax savings, as you no longer own the property. Most people, however, prefer to retain control and use of their property during their lifetime. A revocable trust permits this while providing many advantages.
If I Have A Trust Do I Need A Will?
Yes, you always need a will. A will provides a backup plan for any property that doesn’t make it into your trust. For example, if you acquire new property and don’t add it to your trust before you die, that property won’t pass under the terms of the trust document. You can use a will to name someone to inherit property that you haven’t left to a particular person or entity in your trust.
What Are Some Advantages Of A Revocable Trust?
A revocable living trust can:
- Reduce probate expense and delays;
- Remain a private matter;
- Reduce taxes;
- Provide family security and protect your assets;
- Relieve you from record keeping and income collection; and
- Keep business interests and other property intact beyond your lifetime
How Do I Choose A Trustee?
Typically, you are the trustee of the trust during your lifetime. Upon death or incapacity, you can choose a trusted relative or professional, full-time trustee to administer your living trust.
What Is A Health Care Directive?
A Health Care Directive is a document that lets you name a Health Care Agent. A Health Care Agent is someone who can make decisions about your health care when you are not able to make decisions yourself. The Health Care Directive also lets you leave instructions about your health care.
What Is A Power Of Attorney?
A Power of Attorney is a written instrument whereby one person, as principal, appoints another person as his or her agent to perform certain kinds of acts on behalf of the principal. The person who executes the Power of Attorney is known as the “principal.” The person who is given the power to act for the principal is known as the “attorney-in-fact.” A person who has been named in a Power of Attorney must act in the utmost good faith and with undivided loyalty to the person who gave him or her the power. The “attorney-in-fact” must act with the highest principles of morality, fidelity, loyalty and fair dealing. It is also important to note that a Power of Attorney form need not be filed with the court.