By: Michael Sheehan

Estate Planning For Your Future – Why you need an estate plan

by Michael Sheehan, Preti Flaherty

Although most people hate to think about dying, creating and regularly updating your estate plan will allow you to provide for your family or loved ones after your death. A good estate planning attorney can help you understand your priorities to ensure that you leave the assets you worked all your life to secure in a way that accurately reflects your desires and protects those you love.

Estate Planning Fundamentals: The Will

Planning your estate involves many options, and improper planning can lead to pitfalls. Your plan can be tailored to meet specific needs, and begins with writing a will. A will allows anyone of sound mind over the age of 18 to control the distribution of property after death. If you have minor children, one very important function of a will is to name their legal guardian.

A person who dies without a will is considered “intestate.” When someone dies intestate, the law calls for the division of their property, according to a predetermined legal formula, between the spouse and children. Since no formula can take into account the varying needs of your loved ones and the specifics of your family situation, a will offers security against an unintended or improper result when your assets are distributed. In addition, in certain situations, the intestate formula can result in needless taxes. Having a will also helps ensure that the probate process moves along smoothly by reducing the chance that there will be disputes among your heirs – with a will, persons know that the plan is one that you developed and approved.

Estate planning also involves naming several important representatives to help manage matters when you are not able to do so.

Naming Representatives: Who and How to Choose

First, you must choose a Personal Representative to carry out the directions mapped out in your will. You may appoint an individual, certain financial institutions, an attorney or a family member. In choosing your Personal Representative, consider the often complex and demanding tasks for which they will be responsible, and choose someone who will be able to handle these important tasks carefully and thoughtfully:

• identifying and managing your estate’s assets
• collecting any debts owed to you
• paying estate expenses and debts you may have left behind
• completing your final tax form and paying any federal or state estate taxes
• distributing your assets to your beneficiaries

If you have young or disabled children, you should also choose a guardian. Again, make this decision after careful consideration. The guardian will care for your child, and should be someone who knows you, your children, and your parenting style and goals. Your child’s guardian should be someone who is capable of caring for your child, and who will guide him or through the difficult time following your death and thereafter to adulthood.

Raising children can bring a financial burden that your chosen guardian may not be able to bear. However, you don’t need to choose a guardian based on that person’s financial status or wealth. Creating a trust to ameliorate any financial burden ensures that your property is always used in your child’s interest.  Your will can establish a trust (known as a “testamentary trust”) and name a trustee to hold and manage your assets and distribute the income for the support or education of your children. The trustee does not need to be the same person as the guardian, and the nature of the respective positions is such that different persons are frequently chosen for each role. A trust can also be created for your children or other beneficiaries who may not be ready for the responsibility of fiscal management.

Living Trust

The Living Trust (or “Revocable Trust”) is a trust established during your life. It is a powerful tool when considering the disbursement of your estate because of its flexibility. Assets that are moved into your Living Trust are not subject to the probate process after your death.

By naming beneficiaries, and a trustee to oversee the trust, your assets are confidentially held. The terms of the trust can be altered or revoked at any time during your lifetime. You can also choose to fill all three roles until your death (grantor, trustee and beneficiary). You simply decide who will manage the assets and who will receive them after your death. This gives you almost limitless options in deciding who will control and benefit from the trust and when. As with a testamentary trust, a living trust can be used after to death to hold assets until your children or other beneficiaries are more mature. A funded Living Trust can be particularly helpful in the event of incompetence and can avoid the need for appointment of a conservator.

Conclusion

Because of the intestacy statutes, each person has an estate plan, whether they know it or not, and  whether the specified manner of division is appropriate to their situation or not. The only way to be sure that your wishes are followed and that your property is used for your loved ones in the manner you want and intend is to develop an estate plan using a will, Living Trust or a combination.

Quick Glossary of Terms:

As you explore the often complex world of estate planning, this quick glossary reference will help simplify many of the legal terms your attorney will use in planning for your future.

Will: a legal document that allows you to control the distribution of your property after your death, and lets you nominate the individuals responsible for distributing your property. The will is also your opportunity to legally appoint someone to perform certain duties after your death, such as serving as a guardian to your minor child.

Probate: the process through which an estate clears title to property and settles debt. If you have a will, probates proves that it is legally valid and then distributes your property according to the specifications of your will.

Intestate: the term used to describe someone who dies and did not have a will. For those who are intestate, the law calls for a division of your property according to a predetermined legal formula, between your spouse and children.

Personal Representative: the individual named in your will to perform tasks such as collecting any debts owed to you, paying estate expenses or any debts you may have left behind. You can appoint an individual, a corporate entity, an attorney or a family member as your Personal Representative. 

Guardian: the individual appointed in your will to fill the parental role of your minor children.

Trust/Trustee: a trust is the entity that holds benefits, such as income and assets, for others (usually minor children). The trustee is the individual named to distribute the income and assets of your trust.

Power of Attorney/Attorney-in-fact: a written statement (called a Durable Power of Attorney) that appoints a person to serve as your agent (usually called the “attorney-in-fact”) who is equipped to maintain and manage your property if you should become incompetent (usually from illness, or extended travel, or simply not wanting to handle your property yourself).

Advance Health Care Directive: a written statement that appoints a health care attorney-in-fact to assume the responsibilities you could not handle if you should become mentally or physically disabled. The attorney-in-fact would handle decisions related to your health care such as medical records, surgical procedures, the decision to suspend the use of life-sustaining equipment, etc.

Living Trust/Revocable Trust: a trust established and in operation during your lifetime. It can be altered or “revoked” at any time during your life, but upon your death, it becomes irrevocable.

Estate Tax: federal and state taxes on assets you leave behind. Estate taxes are based on the value of your assets (such as real estate, retirement plans, investments, etc.) when you die.

Unified Tax Credit: entitles everyone to leave property of a certain value to someone other than a spouse without taxation.