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Frequently asked questions about estate planning

What are the purposes of an estate plan
The purposes of an estate plan are to: 1) plan for the management and disposition of your property while you are alive and after your death; and 2) plan your health care if you become unable to take care of yourself.

Who needs an Estate Plan?
Most adults should have an estate plan, regardless of the value of their estates.  An estate plan is necessary to name the beneficiaries who will receive your property after your death.  If your estate has substantial value, a good estate plan can assist in preserving your property for your heirs and reducing or eliminating federal estate taxes on your death.  Everyone should designate the person or persons who are to manage their financial affairs, care for them and make health care decisions in the event they become incapacitated.

Factors that require estate planning
If any of the following situations apply to you, consider adopting an estate plan to accomplish your objectives:

  1. You own real property or personal that you want to give to one or more beneficiaries who would not inherit the property if you were to die without a Will
  2. You have children under age 18 for whom you need to designate a guardian or a conservator
  3. You have children from another marriage and you want them to receive a portion of your property
  4. You want to give property to friends and/or charities or schools rather than family members
  5. Your estate may be subject to federal estate taxes
  6. You want to eliminate or reduce your federal estate tax liability
  7. You want to pick the person or persons who will be responsible for your financial affairs if you were to become incapacitated
  8. You want to pick the person or persons who will be responsible for making health care decisions for you if you are incapacitated
  9. You want to state your medical treatment desires, donate  your organs, provide for burial or cremation, or do not want to be kept alive by life support if you are in a terminal condition

What is Probate?
Probate is a Superior Court procedure by which probate assets belonging to a decedent are collected and administered by the decedent's personal representative and transferred by the personal representative to the beneficiaries named in the decedent's Will.  The personal representative is also responsible to pay the liabilities of the decedent from the probate assets. 

What are the advantages of Probate?
One advantage of probate is that when a notice to creditors is published, all debts and liabilities of the decedent are terminated with respect to creditors who fail to file a claim against the estate within the four month period.  Another advantage of probate is that the probate court can resolve any disputes involving the decedent's estate and disposition of its assets.

What are the disadvantages of Probate?
Estates that go through probate become matters of public record.  Any one can examine the probate court's file, including the inventory of probate assets.  Probate also takes time, a minimum of six months or more.  Although some states do not provide for statutory attorneys' fees based on the value of the probate assets, probate legal fees can be several thousand dollars.

What property avoids Probate?
Whether assets will be subject to probate depends on several factors.  The following types of property are not included in a decedent's probate estate and therefore avoid probate:

  1. Property that is held in trust.
  2. Property owned as joint tenants with right of survivorship or community property with right of survivorship is not included in the probate estate of a decedent. 
  3. Property that is held by a third party that passes to one or more designated beneficiaries by virtue of a contract such as life insurance proceeds, retirement plan assets subject to a valid beneficiary designation and financial institution "pay on death" accounts.

Who gets my probate estate if I die without a Will or Trust?
If a person dies with probate assets and no Will, the state law of intestate succession provides who will inherit the decedent's probate assets. Some states' law of intestate succession disposes of probate assets of a decedent who does not have a Will according to the following in the order listed:

  • If the decedent was married and had no surviving issue (children, grandchildren, etc.), or if there are surviving issue all of whom are issue of the surviving spouse, all of the decedent's separate property and all of the decedent's one-half interest in community property passes to the surviving spouse.
  • If the decedent was married and there are surviving issue one or more of whom are not issue of the surviving spouse, one-half of the intestate separate property passes to the surviving spouse, but the surviving spouse does not get any interest in the one-half of the community property that belonged to the decedent.
  • Any part of the estate not passing to the decedent's surviving spouse or the entire intestate estate if there is no surviving spouse passes in the following order to the following persons who survive the decedent:
    • To the decedent's descendants by representation.
    • If there is no surviving descendant, to the decedent's parents equally if both survive or to the surviving parent.
    • If there is no surviving descendant or parent, to the descendants of the decedent's parents or either of them by representation.
    • If there is no surviving descendant, parent or descendant of a parent, but the decedent is survived by one or more grandparents or descendants of grandparents, half of the estate passes to the decedent's paternal grandparents equally if both survive or to the surviving paternal grandparent or the descendants of the decedent's paternal grandparents or either of them if both are deceased with the descendants taking by representation. The other half passes to the decedent's maternal relatives in the same manner. If there is no surviving grandparent or descendant of a grandparent on either the paternal or the maternal side, the entire estate passes to the decedent's relatives on the other side in the same manner as the half.

If no one is qualified to claim the estate under any of the rules set forth above, the intestate estate passes to the state.

When is an estate subject to federal estate taxes, and at what rate?
If on the date of your death your estate exceeds the applicable exclusion amount, your estate may have to pay federal estate taxes.  The exclusion amount, and the respective tax rate, depend on the year of death and is as follows:

Lifetime Exemption
Maximum Estate Tax Rate

What is a Living Trust?
A trust is a legal arrangement that involves a trustor (the person who creates the trust) who names a trustee to: 1) hold legal title to property assigned to the trustee by the trustor, and 2) administer the property pursuant to the terms and conditions of a trust agreement.  Usually the initial trustee(s) of a living trust are its creator or creators.

The term "living trust" (sometimes also called "intervivos trust") refers to a trust that the trustor creates during the trustor's lifetime.  Some trusts are "testamentary trusts," which is the name given to trusts that are created in a Will and that become effective only after the death of the trustor.

A trust can be revocable or irrevocable.  A revocable trust is a trust that the trustor can amend or terminate.  An irrevocable trust is a trust that cannot be amended by the trustor.

The terms and conditions of a trust should be set forth in a written trust agreement.  The trust agreement provides how the trustee is manage the trust property, the beneficiaries of the trust, and when and how much trust property is to be distributed to the beneficiaries.

What are the advantages of a Trust ?
The reason most people create a trust is so that their assets avoid probate.  Assets that are held by the trustee in trust are not subject to probate and may be managed and distributed by the trustee or successor trustee immediately on the death of the trustor.  The assets held in trust avoid the expense, time and inconvenience associated with probate.

Unlike a probate where everything about the probate estate is a matter of public record open for inspection at the court house, trusts can be used to keep confidential the names of the beneficiaries and the nature and value of the property held in trust.

A trust can also be used to eliminate or reduce federal estate taxes.  However, neither of those goals will be achieved unless the trustor actually transfers his or her property into the trust before death.  To get real estate transferred to a trust, the trustor must sign and record a deed conveying the property to the trustee.  The title to other assets must also be changed to name the trustee as the legal owner of the property.