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Estate Planning

Estate Planning Information Form

Benefits of Preparing a Will

Gray haired man Most people know that a will lets them determine who will receive their property when they die. Despite this significant benefit, relatively few people have wills.

If you die without a will, your property will be distributed according to state law. It may not be distributed the way you want, since it is distributed without considering the needs or circumstances of recipients.

A will can do more than just determine how property is distributed upon death. It can name an executor. The executor will oversee your estate's financial affairs during "probate," including making sure your debts are paid and that your property is distributed as stated in your will. Without a will, a judge chooses your executor.

A will can also set up a trust, which can help save taxes. Thus, for people with substantial assets (like a home), a will can be a cost-saving tool.

For married couples with young children, wills are essential. Each spouse should have a will in order to select a guardian for the children in case both parents die. The guardian will raise the children and manage their money. Without a will, the critical decision of who will be your children's guardian will be left to a judge.

Updating Your Will

It is a good idea to review your will with your lawyer every two to three years to make sure that it is up-to-date with your current family circumstances and tax laws. In addition, it is especially important to review and update your will when:

  • there is a birth or death in your family
  • your financial situation changes significantly
  • you want to name a new guardian or executor
  • you want to change how your property will be distributed
  • you move to a new state

Seek legal help in making or changing your will. Laws for making and changing wills are specific, and you will want to be sure everything is done right. Also, your lawyer can explain how estate taxes affect you and help you make a will that may reduce your taxes and leave more to your family.



Planning Your Estate: Beyond Your Will and Trust

The most well-known estate planning tools are wills and trusts. A will tells what happens to much of your property after death. It is a writing that says who you want to receive your property and how your possessions will be divided. It may also name the person you want to administer your estate and who you want to take care of your young children. A "trust" is a tool used to avoid delays and complexities of the court's probate process and also to avoid some taxes. Trusts let property pass, after death, without being part of the "probate" estate.

There are also other important ways for property to pass from you to someone else without being part of a will or trust. Some of these are life insurance, bank retirement accounts and owning property in "joint tenancy with right of survivorship." Another way for property to pass outside your estate is by making gifts during your life.

Life insurance is an insurance policy on someone's life. The policy pays money (the "policy benefit") to the person named as "beneficiary." You may buy a life insurance policy personally, and name a spouse, children or other loved ones to receive or share the policy benefit. Also, many businesses insure the lives of key officers. The owners know earnings will be hurt if a key person dies. An insurance benefit paid to the company at that time can lessen the impact of a key officer's death. Life insurance proceeds go to the "beneficiary" without needing to name that person in a will or trust.

Money in bank retirement accounts and many other bank accounts go to the person or persons named as beneficiaries or co-owners of the account. Apart from naming someone as co-owner or beneficiary of a bank account, other kinds of property can be owned by two or more persons in a form called "joint tenancy with right of survivorship." This method of holding property means that when any "joint tenant" dies, that person's interest in the property automatically goes to the other joint tenants. This ownership passing does not depend on the recipient being named in a will or trust.

Gifts given to loved ones, friends or charities while you are alive don't become part of your estate, since that property no longer belongs to you. Many people arrange for "planned gifts" as part of their estate planning activities. Planned gifts to charities have the additional benefit of providing tax deductions in the tax years when the gifts are made. Care must be taken in making planned gifts to family members because there can be estate taxes on gifts that exceed the tax-free amounts allowed by law.

These ways to pass property have important effects. These methods are estate planning tools that are additional to wills and trusts. Proper use of insurance, bank accounts, retirement accounts, joint tenancy and planned gifts can let property pass faster, avoid some taxes, avoid some complexities of the probate process and even provide tax benefits while you are alive. It's important to be careful to avoid conflicts or misunderstandings between the text of your will and trust, and your arrangements made with these other tools. For example, life insurance proceeds or joint tenancy property can pass to the specified person(s) even if a will or trust tries to direct these to someone else.
Estate plans need to be reviewed from time to time. This review should also include thinking about the contents of life insurance policies, bank accounts, retirement accounts, joint tenancy property, and gift giving so that these can be prepared the way you want, updated as needed, and coordinated with each other.



When to Update Your Will

Changes are part of life. Events, both planned and unplanned, change our jobs, homes and families. Changes in life can also impact your will.
Say you made a will during a happy time in your marriage, but later you separated. A spouse named in your will still benefits from it, no matter how long your separation lasts, unless you update the will to remove him or her. Or if you decide to live with a partner, who you have not married, that person may have no right to anything in your estate unless you update your will to include them.

Just as you should periodically review your plans for the future, it makes sense to periodically look at your will. Here are important events that are triggers to review and possibly update your will:

  • Any change in marital status - getting married, separated. If you are unmarried, a change in your relationship with a "significant other" is also a good time to think about reviewing your will.
  • Any change in members of your family, such as a birth or adoption of a child, or having new stepchildren. If your will gives property to a brother or sister, then if either of them has new children it may be time to change your will.
  • A significant relationship apart from or outside an existing marriage. This could also include the birth of a child. These matters are sensitive, but definite triggers for updating a will.
  • Death, incapacity, marriage of a beneficiary in your will, like a spouse, child, or other recipient, or death of an executor or guardian.
  • Significant change in your personal wealth. Dramatic stock market changes make swings in personal wealth common today. Wealth changes can also result from getting an inheritance, or a large raise or bonus at work.
  • You or a spouse moves to another state, or acquires property in another state.
  • Change in your relationships or views about a beneficiary or anyone in your will. If your fondness for a beneficiary or named executor or guardian changes, you may want to revise your will.

Even if none of these events has happened to you, it's still a good idea to review your will with your lawyer at least once every 2 to 3 years to make sure it's up-to-date with your family circumstances and tax laws.


How To Change Your Will

There are specific procedures for changing a will. So if you want to make a change, do not simply cross out the part you want to delete and write in your changes. Your changes may not be honored, and you could even void the entire will.

To make a valid change to your will, you must properly make a new will or add a "codicil," which is an amendment to your will.
Wills are a key part of most people's estate plans. But it is important to make sure your will is up-to-date. Your lawyer can advise you on changing your will to make sure that all changes are made according to the law and your wishes.


How Probate Works

Many people who hear the word "probate" conjure up images of the long and complicated process that takes place when someone dies. Although traditional probate procedures have tended to be lengthy and complex, many states now have simplified procedures for most estates, so that with a lawyer's help, most people shouldn't have too much difficulty serving as the personal representative of an estate (called the "executor" if a person dies with a will or "administrator" if the person dies without a will).

The probate process is conceptually simple: someone supervised by a court accounts for the decedent's property, pays debts and taxes, and distributes what remains according to the person's will or state law. Here's a closer look at what would be involved if you were named an executor or volunteered as administrator.

Opening the estate: You begin the probate process by submitting the will (if any) to the probate court in the decedent's county and notifying relatives, heirs and creditors of the death. The court will issue you documents authorizing you to act on the estate's behalf.

Investigating the estate: You next must locate all the property, determine its value, collect money owed the estate, and pay debts. Professional appraisals may be needed for some items.

Paying taxes: You are responsible for estate and inheritance taxes and for the decedent's final federal and state income tax returns. Only a small percentage of estates owe federal estate tax, but most states have an inheritance tax. Sometimes the estate pays it, sometimes the heirs.

Distributing the estate: You usually can't distribute property to heirs until you have receipts showing all taxes have been paid and you have filed an accounting with the court. There is a waiting period during which people can object to what you've done, but sometimes this comes after you've distributed the property. In any case, once you've filed the accounting and distributed the property, and the waiting period has expired, the estate is "settled" and your responsibility ends.

Non-Probate Property

Not all property goes through probate. Non-probate property is transferred automatically to another person. One example of such property is property held in "joint tenancy." It automatically goes to the surviving joint tenants. Another example is life insurance. The proceeds go to beneficiaries outside of probate.

Although probate in theory is simple - a person's will is verified, property gathered, debts and taxes paid, and remaining property distributed to heirs - the process can be complex and time-consuming, as it involves paperwork and court appearances. Legal assistance can be obtained to help the executor or administrator perform some or all of the duties of probating an estate, and to help you make the crucial decision of who will be your executor.


Proper Planning Can Avoid Guardianships

Some people have problems making decisions and handling their financial affairs as they get older. The cause may be due to health problems (like Alzheimer's disease), or it may be due to something else. Help from relatives or friends often lets the person lead a normal life, but in some cases, the person needs so much help that a guardianship is necessary.

A guardianship is usually a last resort. In a guardianship (called a "conservatorship" in some states), a court appoints someone to be the "guardian" of a person declared legally incompetent (the "ward"). The guardian gets the power to make some or all decisions for the ward (including financial and medical matters). As a result, the ward loses many rights.

Proper planning can avoid guardianships. Here are some tools commonly used.

Representative payee: A "representative payee" is a person appointed by a government agency (like the Social Security Administration) to receive and manage money for someone else. Representative payees are good for people who cannot get to a bank or forget to deposit checks. A person must be physically or mentally disabled to have a representative payee, but need not be found legally incompetent, so there is no court hearing.

Durable power of attorney: This lets you name someone to handle your financial affairs if you become incapacitated. It avoids a court proceeding by appointing someone before you become incapacitated.

A durable power of attorney for health care lets you name someone to make your medical decisions if you are incapacitated.

Living trusts: A trust is a legal entity into which you put your major assets. The "trustee" manages the trust. You can design your trust to take effect only if you become incapacitated. You avoid guardianship proceedings because you will have already given someone the power to manage the assets in your trust. Living trusts are also good because you can say what you want the trustee to do (for example, you can say you want the trust income used for your care).

In some cases, a guardianship is essential. It involves a court hearing, and usually begins with the potential guardian filing a petition. At the hearing, medical evaluations are presented so the court can decide if the person is incapacitated. If the court makes this finding, a guardian will be appointed.

Guardianships are often considered a drastic step. But through proper planning, people can avoid guardianships and help assure that if they ever become incapacitated, their business and other affairs will be managed how they want.


Are Your Will and Estate Plan Up To Date?

Having invested time and energy to prepare a will and estate plan, keeping these up to date makes sense. This means reviewing documents at least every two to three years and having your lawyer revise them to fit your current situation and estate planning goals.

Wills and estate plans need to be updated if there are changes in how you want your estate handled or in your personal circumstances. You may have a new child who you want to receive some of your estate. You may have married and want your new spouse or stepchildren included in your plan. Or you may simply be with a new partner who you want to receive a gift. You may have separated and want to change a gift made to your ex-spouse. There could have been the death of a beneficiary, executor or guardian for your children.

You may have different thoughts today about other relatives, friends or charities that your current will makes gifts to. Or maybe your plan was prepared when your children were young. If they are now adults or closer to adulthood, then outdated provisions on caring for young children should be changed.

Something else that changes for many people over the years is their financial situation. Some people save money over time and after a few years have more to distribute. For others, job loss, business reversals or stock market losses mean there is less money than when an earlier will was made. In either situation, a change in net worth often means your will should be changed to reallocate gifts.

An estate plan also includes the issue of health care. Maybe someone you previously named to make your health care decisions in the event you become incapacitated has moved and can't help you now. You should update your health care power of attorney.

Apart from many kinds of life and death events and other changes that impact a family or an individual, changes in tax and estate laws also make it wise to reexamine your estate plan. A good example is a recent federal law that reduces estate taxes each year and phases them out in 2010, but returns them in 2011. Estate plans based on the existence of estate taxes may need to be updated to reflect this unusual tax circumstance.

Many different events can make it necessary to update or revise your estate plan. Sometimes reviewing a will confirms no changes are needed. This is also a good result, because knowing your estate plan is in the proper form gives you peace of mind. Therefore, if your will or other estate planning documents were prepared a few years ago and haven't been reviewed for a while, it is wise to review them now, and consult your lawyer on whether they should be updated.



Do You Have These Important Estate Planning Documents?

Carefully planning your estate offers many benefits, including making sure your property goes where you want, saving taxes, saving money for your heirs, letting your estate be transferred faster, and helping you plan in case you become disabled. Certain tools are part of most estate plans. They include:

A will: Wills are used to say who you want to receive your property when you die. But wills can do other things as well. A will can say who you want to be in charge of distributing your property (your "executor"). It can also say who you want to serve as guardian for your children if you and your spouse die while they are minors.

A living trust: This can help avoid the delays and costs of probate, which is the court procedure of administering your will.

Trusts are legal devices that let someone stop being the "owner" of property but still control it. They help avoid probate because they allow property to be transferred without going through this process. Trusts can also help lower estate taxes.

Another use of living trusts is to help avoid conservatorship proceedings (called "guardianship" proceedings in some states) if you become incapacitated. Since you have already given someone the power to manage the assets in your trust, a court won't have to appoint someone.

Life insurance: When you die, this pays money to people you designate. The purpose might be to provide money for your loved ones. Insurance proceeds usually do not go through probate.

Health and disability insurance: Medical care for a serious injury or illness can wipe out a lifetime of savings. Health insurance, whether from an employer program or bought separately, and disability insurance, can help protect your savings if you cannot work or if you need costly medical care.

Retirement plan statements: Your employer may have sponsored a retirement or pension plan. Be sure you have the statement of terms and benefits of each plan, and the statements you received over the years summarizing your contributions, company contributions, and the amounts in your account.

Records of your other property: Make sure you have copies of the deed to real estate you own, your stock certificates or brokerage account statements, your insurance policies, bank statements for your savings accounts, and documents regarding any other properties. For whoever must assemble your assets upon your death, their task will be easier if records are available. Any property you own that cannot be located, for example, because no one knows about it or if records are not available, will eventually be turned over to the state.

Your bank account: Many people set up their bank account as a "Totten Trust." This is a legalistic way of saying your bank passbook account is set up to go directly to your heirs if you die.

A power of attorney: This lets you appoint someone to handle your financial affairs. It authorizes them to sign documents as if they were you. A usual power of attorney automatically expires if you become incompetent. But that could be when you need it most. So another form, called a "durable" power of attorney, stays valid until you die, as long as you do not revoke it.
If you want the power of attorney to take effect only when you are unable to act, you can grant a "springing" durable power of attorney. It takes effect in situations you specify, such as if your doctor and a trusted family member agree that you are incapacitated.

A health care power of attorney: This lets you appoint someone to make your medical decisions if you cannot make them yourself. The decisions can cover a variety of medical matters, including consent for hospitalization.

A living will: This document lets you specify the types of life prolonging treatment you want - or do not want - if you become terminally ill. It's called a living will because it takes effect while you are still alive.

Estate planning involves arranging your affairs to be handled by the people you want when you become unable to handle them yourself due to illness, incapacity or death. It involves thinking about the future and having the right documents to help make sure that your wishes are carried out. Your attorney can help you prepare a plan for managing your property while you are alive, and to make sure you have all the needed documents to manage your estate when the time comes.

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