Estate Planning FAQs

An estate is everything that you own all or a part of at the time of your death. Your estate will include any real property, such as your house, land and investment property, as well as all personal property which includes everything else such as cars, furniture, furnishings, jewelry, artwork, collectibles, financial assets such as CDs, bank accounts, investments, stocks, bonds, etc. in which you have an ownership interest. Upon your death, you can no longer own these items so your assets or “estate” will pass to the next lawful owner. Estates can be small and pass without court supervision or probate, or they can be very complex and involve many heirs over multiple generations, charities or tax issues.

The laws of each state provide a default set of rules that mandate how much and to whom your estate will pass upon your death, as well as who will serve as the executor (personal representative) and guardian of your minor children. These default rules are seldom consistent with your idea of who should receive your assets or with who should be named to serve as guardian for your children or executor of your estate. Estate planning is, in its simplest form, the process by which an individual or family arranges for the transfer of their assets in anticipation of their ultimate demise. Each estate plan needs to be carefully tailored to ensure that your personal preferences and objectives are clearly stated to ensure that your intentions will be carried out exactly as you desire. Some of these concerns may include: i) how much to provide for a spouse, children, parents, charities; ii) when these distributions should be made (i.e. upon your death, the death of both you and your spouse, upon your children reaching a certain age, graduating college, or based on the passage of time, etc.); iii) appointing guardians, executors, trustees and several successors to avoid the court naming someone to serve in these positions; iv) probate avoidance; v) minimizing estate taxes; vi) asset protection; vii) preserving family wealth from children's failed marriages and lawsuits; viii) age that children should receive some or all of their inheritance; ix) what happens to your estate if your spouse remarries and dies leaving all of your assets to their “new” spouse instead of to your children or charities; x) whether you want to protect your wealth during your lifetime from potential loss due from future creditors and lawsuits. It is imperative, especially for those with larger estates, asset protection concerns or blended families, to have an asset protection or estate planning attorney properly design their estate plan to accomplish some or all of these goals.

Not really. They are both common methods of providing for the distribution of wealth and will contain dispositive terms to specify who receives how much after your death, but the similarity stops there. A Will only operates or “speaks” once, which is at your death. A trust can be designed to provide for your lifetime care in the event of a temporary or permanent disability, as well as to carry out your death time wishes. Wills require the supervision of the Probate Court for all estates in excess of as $50,000 in Arizona and in excess of $100,000 in Illinois. Trusts that hold all of your assets can avoid the time and expense of a lengthy probate proceedings, as well as permitting your estate to be used for your care and/or your spouse's, children's or parent's care in case of your death or disability without incurring any probate related fees.

Probate is only required when i) someone dies intestate which means without a Will or ii) when someone dies with a “Will” based estate plan when the assets passing under the Will exceeds the State mandate limit requiring probate. This limit would typically require estates that are in excess of $50,000 (AZ) to $100,000 (IL) to be supervised by the Probate Court. The cost of probate varies in different jurisdictions; however, probate costs of five to ten percent of the estate, including executor fees, legal fees, accounting fees and court costs, would not be unusual. Executor fees may be based on fixed fees, hourly rates, percentage of the estate assets, complexity of the estate and tax issues, size and makeup of the estate assets as well as other factors including local practices, who is serving as executor (individual, bank, trust company, attorney, friend, family member) and their experience, but it wouldn't be unusual for the executor fees to be in the range of four to six percent of the estate and for the legal fees, accounting fees and court costs to consume another three to four percent.

Most Will-based plans are used for those with smaller estates, no dependent children, no investment properties or for those without asset protection concerns. Small estate affidavits may be used for those estates which are below the state mandated limits (i.e. $50,000 in Arizona or $100,000 in Illinois) and in other cases, probate may be avoided with beneficiary deeds, beneficiary designations, land trusts or other techniques which don't consume a large portion of the estate. An example of when a Will-based plan may be appropriate would be a young, recently married couple living in an apartment, with no children or significant assets, who are in good health and expected to live for many years.

Most people could benefit from a trust-based plan for several reasons, including the avoidance of probate, the comfort of including provisions specifying who would handle financial decisions in the event of their or their spouse's disability or death, the ability to create disability panels to empower the family instead of the court to make determinations of inability to properly manage their own financial matters and avoid a judicial proceeding to adjudicate someone as a disabled adult and have a court-appointed guardian named, to delay distributions to children when they reach the age of majority to ensure that they don't waste their inheritance at age 18 or 21, and to essentially provide for long term administration of their estate for their own benefit, as well as for their spouse's and children's benefit. Although estate tax planning can be done in both trust-based and will-based plans, most affluent persons seem to prefer to have these trusts created and funded during their lifetime and are comfortable with the knowledge that they have the right during their lifetime to make any changes or amendments that they desire. Another reason for trust-based plans is to specify who will serve as a disability or death time trustee to ensure that family members will not be burdened managing investments.

A properly planned estate needs to address many issues, some concerning the passing of assets at death and others pertaining to how your assets will be invested or used if you are physically or mentally unable to administer your own financial matters. The well planned estate also needs to consider: (i) the financial needs of other family members; (ii) when and how much of your estate will be made available to each person; (iii) whether distributions will be delayed until children are mature enough to properly handle their inheritance; (iv) if restrictions need to be considered for alcohol, gambling or drug dependencies; (v) if one or more persons should be disinherited; (vi) how your disability will be determined to prevent others from taking assets away from you; (vii) who will make medical decisions for you if you are unable to communicate with the medical staff; (viii) the effect of estate tax and what solutions may be available; (ix) who will be named as the executor, trustee, agents under powers of attorney. Some of the documents which should be included in a well planned estate include a Living Will, Power of Attorney for Healthcare, HIPAA Release & Authorization, Power of Attorney for Financial and Tax Matters, Last Will & Testament, Living or Testamentary Trust, Community or Separate Property Agreements, Domestic or Offshore Asset Protection Trusts, Insurance Trusts, Family Limited Partnerships or Family Limited Liability Companies, Private Foundations and Charitable Trusts.

Yes and no! Most estate planning attorneys are concerned with protecting your assets from unnecessary estate taxation after your death, while most clients are more concerned with protecting their hard earned money from creditors and lawsuits during their lifetime. They realize that the lifetime loss of some or all of their assets could adversely affect their lifestyle, as well as eliminate their estate tax concerns. These individuals primary concern is the lifetime protection of their accumulated wealth for their and their family's use and their secondary concern is the protection of their wealth from estate taxes after their passing. For these clients, Asset Protection Planning and possibly the use of a domestic asset protection trust or a foreign situs asset protection trust would be of paramount concern and would require that their estate plan incorporate appropriate asset protection solutions. For others with smaller estates or for those who aren't concerned with professional or business claims, automobile accidents or some other future claim arising which may result in the loss of their accumulated wealth, then the typical estate planning trust would not include any type of asset protection planning. The normal estate planning trust does not provide any type of asset protection or creditor protection other than estate tax minimization.

Yes. When planning for remarriage after the death of a spouse or after a failed relationship, most clients are quite motivated and view it as imperative to protect their wealth and non-marital property from future claims of a new spouse. This can become a rather complex area of the law which can have adverse tax ramifications, choice of law surprises, fraudulent transfer concerns as well as an impact on relationships, and you should consult a competent estate planning or asset protection attorney to discuss your personal situation. Some of the more common planning techniques may include:

• Prenuptial Agreement. The primary planning tool for those entering into numbered marriages is the Prenuptial or Pre-Marital Agreement. This document should detail the assets and values for each spouse and then state whatever their understanding is as to who is entitled to what in the event of divorce or death.
• QTIP Marital Trust. This may be the second most essential planning tool for ensuring that the income from the client's wealth will be available for use by the current spouse but that the principal remaining will pass only to the heirs that you have listed at the death of your new spouse. It may not be desirable to have the entire estate held in a QTIP Trust if the new spouse is quite young, as nothing would pass to the children if the spouse outlives the children. In these situations, a Family Trust could be allocated a certain amount and then distributed outright to the children or the trust funds held for a certain period of time and then distributed to the children at a time you have specified.
• Estate Planning Documents. New estate planning documents (i.e., Will, Trust, Healthcare Power of Attorney, Financial Power of Attorney, HIPAA Authorizations, Living Wills) need to be prepared any time a client divorces or remarries to ensure that the ex-spouse is removed as a decision maker or to ensure that the new spouse or another friend or family member is named as executor, trustee, agent under powers of attorney and that they have been empowered to make financial and health decisions and that the intended heirs will receive the proper assets or percentage of the estate. Control issues for business and non-citizen spouses may require some additional planning.
• Control Documents. Asset Protection Trusts, Family Limited Partnerships, Limited Liability Companies, Uniform Gift to Minors Accounts, Voting Trusts, Dynasty Trusts, Life Insurance Trusts and Charitable Trusts will all need to be reviewed to make sure that ex-spouses will not be able to access or control financial matters that you prefer to have handled by someone else in whom you may have more trust.

Some states recognize “common law” marriages and under the laws of those jurisdictions, if the parties were able to have been legally married and have expressed a present intent to marry and have cohabitated or lived together, then they may in fact be married! In some states merely telling a neighbor that you are married is adequate to prove that the parties intended to be married and the common law marriage arises. This is a concern for anyone who has lived together with someone in: Alabama, Colorado, District of Columbia, Georgia, Idaho, Iowa, Kansas, Montana, New Hampshire, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, or Utah. Other states that don't recognize common law marriages themselves will recognize a marriage validly entered into under the laws of another state. So, if you live in a common law marriage state and have cohabitated and otherwise done the acts necessary to result in common law marriage under the laws of that state, that common law marriage, once established, will be honored in your state and you will be considered married. Common law marriages can have a significant impact upon your estate plan and the “spouse” may have marital rights to inherit at the time of your passing. A common law marriage can disrupt any estate plan and could even invalidate a later “traditional” marriage.

Absolutely! Every person should have an estate plan to ensure that their estate passes exactly as they desire and this includes provisions for roommates and life partners. Additional issues usually arise when planning for unmarried couples; however, these issues merely reinforce the need to have a properly structured estate plan that details what your life partner can legally do upon your disability or death as concerns the use of your financial resources, the right to continue to reside in the residence, who is responsible for upkeep, major repairs, utilities, taxes and related household expenses, and to make sure that these expenses are not treated as taxable gifts between the unmarried partners which are currently limited to $13,000 per year per person.