Estate Planning FAQs

Hello and welcome to our Estate Planning Frequently Asked Questions page. For more information on anything below, please contact us.

Q1.    What happens if I die without a will?

A.    If you fail to plan your estate and die without a will, the law will create a plan for you. The entire system, which is set forth by statute, is too complex for a discussion here, but some surprising and frequently undesirable results can occur. The law prescribes both the persons to whom your property will pass and the division of your estate among those persons. The distributions provided by law are inflexible and may not satisfy your desires as to distribution of your estate. In addition, the amount to be distributed to your children will require a cumbersome and costly legal guardianship if the children are minors at the time of your death.

The problems of dying without a will are aggravated if a married couple owns a family business with fifty percent owned by each spouse. If one of the spouses dies without a will, the ownership interest of the deceased spouse will pass to the surviving spouse and minor children, and a legal guardianship will be required to manage the portion of the business interest that passes to the minor children. The surviving spouse will have the guardianship for the minor children as a “partner“in the family business. In accordance with the requirements of a guardianship, the surviving spouse may have to post a bond and make a detailed periodic accounting to a court for all business transactions.

Q2.    What is a personal representative?

A.    Your personal representative is the person who will serve as the primary representative of your estate. You may be more familiar with the terms ““executor“or “administrator“for such an individual.

Q3.    What is “administration“of my estate?

A.    Administration of an estate involves the collection of assets, payment of liabilities, and distribution of properties to the beneficiaries or heirs. Administration of an estate is conducted under some degree of court au-thority and supervision.

Some of the factors that we will consider in determining which procedures or devices to use are:

(1)    The value of your estate subject to administration;

(2)    The applicable statute of limitations;

(3)    The degree of trust, co-operation, and agreement among the beneficiaries and creditors of your estate;

(4)    Your express wishes regarding administration, as stated in your will;

(5)    The complexities of the administration;

(6)    The degree of protection from liability needed by the successors or by the personal representative or both; and

(7)    Proof of title to property requirements.

Wherever possible and appropriate, we try to use informal administration that to a large extent operates inde-pendently of court supervision. Informal administration is less cumbersome and time consuming, and therefore is less expensive.

Q4.    What is a trustee?

A.    A trustee is one to whom property is transferred for the benefit of someone else (the beneficiary). We find that our new estate planning clients frequently misunderstand trusts. Many of our clients have heard a horror story about a trust, and the story often involves an impoverished widow-beneficiary who cannot extract enough money from the well-funded trust to maintain herself.

Present law, well-drafted trustees' powers, and professional trustees now make this concept of trusts obsolete. A trust can be designed to produce almost any result desired by the client, if the client gives the trustee sufficient funds with which to work. We usually recommend that trustees be given very broad and adaptable powers to provide flexibility for future events. The trustee should be empowered to do what is best for the beneficiary, without being hampered by inappropriate restrictions.

If a trust appears suitable for your estate plan, you will want to carefully select the trustee. The family member who comes to mind as a logical first choice may not really want to deal with the management of your assets. If a corporate trustee appears appropriate, we will suggest that you have a conference with the representative of the proposed bank or trust company. Further, you should consider giving someone, such as a committee, the power to change trustees.

Q5.    Is a handwritten will legally effective?

A.    A handwritten will may be a valid holographic will if the signature and material provisions are in the handwriting of the testator. Such a will need not be witnessed or comply with the requirements for an attested will. The holographic will may be adequate, but such wills are a fruitful source of litigation, often because they have been composed by someone with no legal training.

Q6.    Why should my will be more than one page long?

A.    Your will need not be any longer than one page. Indeed, any lawyer should be able to turn out an abbreviated will for a relatively small fee.

The problem, however, is that such a will may not accomplish your objectives for your beneficiaries. We prefer to draft wills to cover the various factual and legal situations that reasonably may be expected to arise. The alter-native is to hope that, by coincidence, the will may fit the facts at your death.

You may therefore be presented with a lengthy instrument. This “burden“ to you may be a possible blessing to your family when they later find that you have anticipated what might have been cumbersome problems.

Q7.    How will my estate be taxed at my death?

A.    Your estate may be subject to at least two taxes: the federal estate tax and a state inheritance tax. This discussion will be confined to the federal estate tax.

The federal estate tax is calculated on your “taxable estate.” The taxable estate is the excess of your “gross estate” over allowable deductions. The gross estate is based on the fair market value of your property at the time of your death. At the option of your executor, an alternate valuation date of six months from the date of your death can be used.

Your gross estate will include the value of all property in which you own an interest at the time of your death. Additionally, your gross estate may include property that you do not own, but over which you retained or received certain rights or powers.

The estate tax scheme provides you with a “marital deduction” for bequests of property to your surviving spouse. The marital deduction in effect allows interspousal transfers to pass tax free and defers payment of estate taxes on the property transferred until the death of the surviving spouse. In order to qualify for the marital deduction, property must be transferred to the surviving spouse in a fashion that satisfies the technical requirements of the Internal Revenue Code, such as an outright transfer or in certain types of trusts. There are special rules where the surviving spouse is not a U.S. citizen. It is important that you let us know if either spouse is not a U.S. citizen.

The federal estate tax and the federal gift tax have been combined into one progressive set of rates. The rates increase with each taxable gift and with the value of the estate.

The “unified credit” against the gift or estate tax permits the tax-free transfer of prescribed amounts of property. It is called a unified credit because the amount of the credit is the same for both gift and estate taxes and any credit used during a person's lifetime against gift taxes will reduce the credit against the subsequent estate tax.

Q8.    What is the Generation-Skipping Transfer Tax?

A.    The generation-skipping transfer tax is a federal transfer tax that is separate from the gift and estate taxes. Generally it applies to a transfer of property to a grandchild (the transfer skips the child's generation). It also applies to a transfer in trust for a child's lifetime with the property being distributed to grandchildren upon the child's death.

If the tax is imposed, then the transfer is taxed at the highest estate tax rate (55% at present).

Q9.    What property will not pass under my will?

A.    Proceeds from life insurance policies and retirement benefits will pass in accordance with the beneficiary designations. In addition, property held in certain joint tenancies with right of survivorship (e.g., joint bank or brokerage accounts with right of survivorship) will pass to the surviving account holder. Therefore, you should review the beneficiary designations and account agreements to be sure they are coordinated with your will.

Q10.    Who will raise my minor children after my death?

A.    The other parent, but if the other parent is not living, this becomes a selection you can make in your will. If you fail to do so, the court will make the choice for you. Needless to say, you should assume the responsibility for this important decision and not leave it up to the judge.

Clients frequently tell us that they have chosen one of their parents as the ““guardian” in the event of both clients' deaths. A quick mathematical computation may shed light on the advisability of this choice. For example, assume that the client's youngest child is 3 years old and the client's parent is 58. When that child is 15 (i.e., during a time when adult-child communication can be difficult under the best of conditions), the grandparent will be 70.

Under these circumstances another choice may be better for your child. You should look first to your contem-poraries in your families (such as brothers, sisters, or cousins). If none is appropriate, then consider friends with children in the same age range as yours. In any case, you should consult with the proposed guardian to ensure that the person is agreeable to assuming this significant responsibility.

If both parents die, your minor children may be left with substantial property interests that need management and protection. Because the guardian has only limited power over the minor's property, protective proceedings may be initiated in which the court will appoint a conservator to administer the children's property and affairs. In some instances, the conservator may fulfill the duties of the guardian as well. A court appointed conservatorship can be a cumbersome and expensive manner of dealing with the property of the minors, however, and it should be avoided. The conservatorship can be avoided by proper planning for the use of trusts or custodianships for minors.

If you have planned your estate properly, the guardian should not experience financial strain in raising your children. We usually suggest that upon the death of you and your spouse, a trust be established for your minor children. The trustee should be encouraged to make generous distributions to assist the guardian--and even pro-vide the funds to pay for any necessary expansion of the guardian's home.

Q11.    How frequently should I review my estate plan?

A.    As a general rule, we suggest that you contact us every four or five years for a conference to review your estate plan and to update the information in your permanent file. We also recommend that you contact us in the event of a dramatic change in your finances or in your family situation. For example, a substantial increase in your estate (through increased life insurance, inheritance, gifts, or successful investments) may create opportunities for tax savings, as well as call for further family financial planning. A divorce will, of course, completely reopen the matter of planning your estate. Likewise, do not hesitate to contact us any time you have a question as to whether or not changes in tax or other substantive laws may affect your estate plan. While we sometimes send information to our clients on changes in law, we do not assume the responsibility of doing so, regardless of whether or not we retain the original copy of the will.

Q12.    What is a power of attorney?

A.    A power of attorney is an instrument in writing by which one person, as principal, appoints another as his agent and gives him the authority to perform certain specified acts or kinds of acts on behalf of the principal. The person holding a power of attorney is known as an “attorney in fact” or “agent.” We have found that many clients want to appoint someone to act for them, particularly in the event of disability.

Generally, a power of attorney terminates on the disability of the principal, but the Uniform Probate Code con-tains provisions that make a power of attorney more “durable” than under the law of some jurisdictions. Such a power of attorney is referred to as a “durable” power of attorney. Under these provisions, a written power of at-torney specifically may provide that the subsequent disability or incapacity of the principal does not affect the power of the appointed attorney in fact. These provisions also permit a power that will become effective in the future at the time of disability.

Who should be the agent? In view of the authority and discretion conferred by a general power of attorney, the agent must be someone in whom the principal has complete trust and confidence. The agent should not be the same person who determines the principal's incapacity, however.

Q13.    What is a Directive to Physicians?

A.    A directive to physicians (also known as a living will) is a document which provides instructions to an attending physician to withhold or withdraw life sustaining procedures in the event of a terminal condition.

A person may provide in his directive for a designated individual to make the important decision to withhold or withdraw life sustaining procedures with the attending physician.

Q14.    What is a Durable Power of Attorney for Health Care?

A.    A durable power of attorney for health care is an instrument in writing by which one person, as principal, appoints another as his agent to make health care decisions where the principal is incapable of doing so or is in-capable of communicating with his physician.

The durable power of attorney for health care is usually coordinated with the directive to physicians.

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