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Estate planning is a process. It involves people—your family, other individuals and, in many cases, charitable organizations of your choice. It also involves your assets (your property) and the various forms of ownership and title that those assets may take. And it addresses your future needs in case you ever become unable to care for yourself.
Through estate planning, you can determine:
- How and by whom your assets will be managed for your benefit during your lifetime if you ever become unable to manage them yourself.
- When and under what circumstances it makes sense to distribute your assets during your lifetime.
- How and to whom your assets will be distributed after your death.
- How and by whom your personal care will be managed and how health care decisions will be made during your lifetime if you become unable to care for yourself.
Many people mistakenly think that estate planning only involves the writing of a will. Estate planning, however, can also involve financial, tax, medical and business planning. A will is part of the planning process, but you will need other documents as well to fully address your estate planning needs.
So you are sitting around listing your new year resolutions: quit smoking, lose ten pounds, start jogging, and most importantly hire an attorney to draft that will you have been putting off for years. Alright, so no one made it their resolution to have a will drafted, but it still makes for a nice segue into my first blog entry of the year:
What advantages does a living trust offer over a will?
A will is a document that describes the final disposition of all your assets after you die.Upon death your will is submitted to and approved by the probate court.A trust is a document that controls all assets transferred to it.It is helpful to think of a trust document as a large Rubbermaid bin that holds all of your assets and you alone control these assets as the sole trustee.Upon your death a successive trustee named within the trust document then controls those assets.
Perhaps the most cited advantage of a trust over a will is the avoidance of probate.Under a will the transfer of property is overseen by the probate court which can generate substantial attorney fees.Compare that to trust whereby property is immediately transferred to a trustee upon the death of the testator thereby circumventing the need for probate.Thus, a living will is especially helpful to those who own property in different states as they can avoid numerous probate procedures.
Additionally, since a trust does not need to be submitted to the probate court it is not public record and as such cannot be seen by just anyone.A will on the other hand is public record and can be seen by any curious citizen.
In the unfortunate event of your disability a living trust is more desirable than a traditional will.If your total assets are held in a trust then a successive trustee will automatically have the power to control and manage your property.However, if you have a simple will then you would also need a durable power of attorney or a court appointed conservator to have the same effect.
Whether or not a trust or a living will is best for you must be determined on a case-by-case basis and there are many advantages and disadvantages not mentioned in this brief posting.This summary is meant to serve as a primer and should not take the place of consulting an attorney.Be sure to check back soon for my next post where I will address some situations in which a will may be a more appropriate final disposition vehicle than a living trust.
A good friend of mine walked into the office the other day and said, “Hey, can you read over my pour-will and trust?” After a quick read-through, it was clear that her will lacked adequate flexibility, a problem that plagues many out-of-the-box wills and trusts.
Here’s how it goes down: Client walks into a large real property law firm and says, “I need a will.” At this point they will be directed to fill out a client interview form asking them to list all of their assets. After completing the boilerplate client interview, an attorney will sit down and run through a checklist of issues, explaining anything that the client may not understand. The attorney then pulls goes to the firm’s “form bank” and begins pulling standard clauses from older forms until she has a will that seems to properly effectuate the client’s intent of disposition.
Ok, so far, so good, right? Well, not exactly. Many times the client has tunnel vision and fails to consider that the circumstances as they exist today may not continue unchanged until death. For example, let’s say that Mrs. Jones has two children, Bill and Suzy. Bill is 25 years old, single, with no children. Suzy is married and has three children. Mrs. Jones has $1.2MM in assets, $800,000 of which is the equity in her home. She also claims $200k in an IRA with her children as beneficiaries. Additionally, she has $200k in a personal checking account. Mrs. Jones says, “I would like my children to share all my real property (the house) and my grandchildren to share any remaining cash.” Alright, Mrs. Jones we can certainly do that and the standard form used by the firm can easily be pieced together to accomplish this objective.
But wait. … Let’s just suppose for a moment that Mrs. Jones retires 5 years from now and shortly thereafter ends up selling her current house, never thinking how this may affect her testamentary desires as set-forth in her will that was crafted years before. Although she is currently looking to buy an even bigger house in Florida so that she can retire in style, she never got around to purchasing the new house before she dies two years later of a heart attack. The result is that Bill ends up with $100k, while Suzy and her children end up with a windfall. What now? Possible litigation nightmare? A family torn apart? This is typically a result that no one is happy with, and one that could have been avoided had the attorney written the will providing the sort of flexibility that allows for ultimate disposition to most closely effectuate the testator’s intent, while also recognizing that circumstances may change over time.
Alright, your attorney has just handed you an A B trust and now you are set, right?
I want to briefly bring to your attention the tax advantages of giving a large lifetime gift. Just because you will have an plan in place that allows you to take advantage of the unified credit, this does not mean that you have to wait until death to do so. The real advantage to gifting before you die is two fold. First, you will be able to watch your loved ones enjoy the gift. Second, the income generated from the gift will not be included in your gross estate (with some exceptions that depending on how long you live after making the gift). The latter benefit to you can be quite substantial. For example, a 1 million dollar gift growing at 10% a year for 20 year could shelter a staggering amount of $6,727,499.95 by keeping it out of the gross estate.
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