Robert D. Gillen, Esq., is happy to
share the insights he has developed in estate planning.
Click on the Frequently Asked Question you wish to learn
more about:
What is an Estate?
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.
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Why Does an Estate Need to
be Planned?
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.
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Do Wills and Trusts both
Accomplish the Same Thing?
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.
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Why is Probate Required?
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.
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If Probate Consumes 5% to 10% of the Estate, Why Use a Will-Based Plan?
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.
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Who Benefits from Trust-Based Estate Plans?
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.
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What Documents Are
Typically Included in a Well Planned Estate?
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.
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Is Asset Protection
Planning or Asset Protection Trusts Part of Estate Planning?
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.
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Is Special Planning Required
for Second or Third Marriages?
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.
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What Are Common Law
Marriages?
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.
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My Friend and I are Not
Married but Live Together. Is it Possible to Have an Estate
Plan Prepared for Me and My Partner?
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.
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