What is estate planning?
When someone dies, their property must be passed to someone else. Estate planning is choosing how this property is passed and to whom. A valuable estate plan also includes ways to minimize estate taxes and settlement costs. Estate plans should include what is going to happen to your investments, business, life insurance, and all other property when you die. Directions will be included in your estate plan to determine what will happen to all of your assets.
Why is it important to establish an estate plan?
If you do not have an estate plan established, the court will gain control of your assets. This can result in higher estate taxes, and the wrong people gaining your assets. If you die without an estate plan, your belongings will have to go through probate court. Probate is costly and can take a long amount of time, extending the amount of time it takes for your beneficiaries to receive your assets. Another problem that may arise if you do not appoint someone to be authority of your assets is familial debates. It is not uncommon for disputes to arise among family members over sums of money or family heirlooms.
What does my estate include?
Everything you own is included in your estate. Some examples of assets included in your estate are your home, business, any shared accounts, retirement accounts, life insurance policies, or any property owned by a trust.
How do I name a guardian for my children?
You can designate an individual to be the guardian of your children. The surviving spouse will of course be responsible for the children before a guardian would be. One alternate guardian should be named in case the primary guardian is unable or unwilling to be the guardian for your children.
What estate planning documents should I have?
A Living Trust can be used to name your beneficiaries and to manage your assets.
A will can be used to hand out your assets according to your wishes.
If you become disabled, a Durable Power of Attorney allows someone you trust to carry on your finances.
A Living Will lets others know what types of health care you would like to receive if you become incapacitated.
What is Probate and why does everyone want to avoid it?
Probate is the process of gathering all assets of the estate of a deceased individual (decedent), paying debts, and giving out the assets to the decedent’s beneficiaries. Probate can be costly and time-consuming.
What is a Revocable Living Trust?
A Revocable Trust is a document created to manage your estate and where your funds will g o after your death. A grantor/settlor is the individual who creates this trust, and the person whom the trust is entitled is called a trustee. You or any other person can be the trustee for your trust. As long as the grantor is not incapacitated, a trust can be altered or removed. This is why it is called a “Revocable Trust.”
What are the advantages of having a Living Trust?
A Living Trust will help you to avoid probate and allows you for your assets to be immediately transferred after you die. Your estate will be distributed privately, with more flexibility, and in a timely and cost-effective manner.
Will I lose any control over my property if I create a Revocable Living Trust?
You should not lose any control by transferring your assets to a Revocable Trust. As long as you are mentally competent, you will have full control over your trust and the assets in it. Your Revocable Trust can be changed at any time, or revoked completely. Instructions will be laid out directly from you regarding what you would like to happen to your assets if you become incapacitated or die.
Do I have to transfer all my assets to my Living Trust?
Life insurance policies, 401ks, IRAs, and most other retirement plans to not need to be transferred to your Living Trust. It is important to seek the counsel of informed attorneys, like Absolute Law Group, to let you know exactly what should be transferred to your Living Trust.
If I transfer title to real property to my Living Trust can the bank accelerate my mortgage?
No, your mortgage will not be accelerated as long as you are still residing there.
Will my estate be subject to death taxes?
There is a federal estate tax for estates valued about the federal exemption. The federal exemption is $5,000,000, and any value above this amount will be taxed at 40%. Even if your estate is lower than the federal exemption, you still may be required to pay state estate and inheritance taxes.
What is my taxable estate?
Your taxable estate is the total value of your estate and includes your home, real estate, businesses, life insurance, and retirement accounts.
What is the unlimited marital deduction?
The unlimited marital deduction is every married individual’s right to give an unlimited amount of assets to their spouse without federal gift or estate taxes. This can delay the payment of estate taxes at the passing of the first spouse because all assets will be included in the survivor’s taxable estate. This deduction is only available for citizens of the United States.
What is a credit shelter or A/B Trust and how does it work?
A credit shelter is utilized to reduce or eliminate federal estate taxes. Both spouses exemptions are preserved using the A/B Trust.
What is a Qualified Personal Residence Trust (QPRT) and how does it work?
A QPRT removes your home from your trust, but still allows you to live there. Your home is transferred to a trust, usually for a time of 10-15 years. During this time period, you still reside in your home. When this time period is up, the home will transfer to your beneficiaries. A QPRT provides leverage to your estate tax exemption. Because your beneficiaries will not receive the home until the trust ends, the value as a gift is reduced. This leaves more of your exemption for other assets.
What is an Irrevocable Life Insurance Trust (ILIT) and how does it work?
If you make an ILIT the owner of your policies, the value of your insurance can be removed from your estate. Death benefits will not be in your estate, as long as you live three years after making the ILIT the owner. Typically, the ILIT is also the beneficiary of your policy, allowing you the choice of keeping funds in your policy for years. This keeps funds safe from creditors, irresponsible spending, and even spouses.
What is a Family Limited Partnership (FLP) and how does it work?
A FLP allows you to transfer an asset to your children now, but still allows you to retain control. This protects the assets from creditors and future lawsuits. You and/or your spouse can set up a FLP and transfer assets to it. You will receive ownership interests in return. You can remove value from the part of your estate that is taxed by giving ownership interests to your children, Their interests cannot be sold or given away without your approval, and their value is often decreased. This allows you to transfer assets to your children at a reduced value, without relinquishing control.
PLANNING FOR INCAPACITY
What is a Durable Power of Attorney?
If the principal becomes incapacitated, a Power of Attorney document becomes invalid. One of the ways to combat this is with a Durable Power of Attorney, which would remain in place even if the principal becomes incapacitated. A Power of Attorney must specifically state that a Durable Power of Attorney will be in place in the case of the principal becoming incapacitated.
Who can establish a Power of Attorney?
Any individual 18 years of age or older who are mentally capable can establish a Power of Attorney.
Who may act as an agent under a Power of Attorney?
Any adult aged at least 18 years old who is competent may serve as an agent. The principal should take careful consideration in determining who their agent is, and they should be chosen based upon responsibility and trustworthiness. Individuals are not the only ones able to serve as agents, financial institutions can serve as agents also.
What is a Durable Power of Attorney for Health Care?
If you lose the mental or physical capabilities of making health care decisions for yourself, you can appoint someone to make these decisions for you. You will designate an individual to do this in a Durable Power of Attorney for Health Care. Instructions can also be given to your agent about what health care treatments you would or would not like to receive. Health care providers must follow your agent’s decisions as if they were your own.
What is a Living Will?
A Living Will is a document containing your instructions on what medical treatment you would like to receive if you become incapacitated.
What is a HIPAA Authorization?
Medical providers will not be able to release information regarding your health with anyone, unless you sign a HIPAA authorization form permitting the release of your information.