Wills, Trusts, and Powers of Attorney
Regardless of your health or age, everyone over 18 needs to complete certain legal documents to protect themselves and their family. So what documents do you need in place?
Contemplating losing capacity on a permanent or temporary basis is rarely top of mind but the possibility of an unexpected accident or diagnosis. The Certified Elder Law attorneys at Hurley Elder Care Law can prepare these critical documents and execute them in our offices, your home and if necessary a hospital or nursing home setting.
A General Durable Power of Attorney for Financial Matters is important if you earn any income or own any property. Completing this document will allow someone you trust to step in and act on your behalf should you become unable. Having a GDPOA in place will allow the practical task of day-to-day life to be managed like; paying your bills, communicating with the insurance company and even fixing the roof!
Completing a Georgia Advance Directive for Healthcare is critical for anyone over age 18. This document allows you to appoint the person you trust to make healthcare decisions for you should you become unable. It also provides options for more detailed advanced care planning such as resuscitation, feeding tubes and antibiotics.
A will is a legal document that gives instructions on how to handle your property when you die. It acts as a guide so your estate (real property, bank accounts, investments and your “stuff”) can be distributed according to your wishes. The Certified Elder Law Attorney’s (CELA) at Hurley Elder Care Law will work with you to draft a will specific to your needs that appoints an executor who will carry out the instructions specified in your will.
Trusts are not just estate planning tools for the wealthy! In fact over the last few decades, people across all income brackets have used trust to plan their estates and to avoid the costs and delays of probate. A trust is a separate legal entity that controls the assets you place into it. Determining if a trust is the right tool for you is an important part of designing an overall estate plan. The Certified Elder Law Attorney’s at Hurley Elder Care Law can review your family’s situation and recommend a plan that will minimize many of the bureaucratic headaches for your survivors, ease the potential conflict among family members and maximize the assets that can be distributed to your heirs.
Estate Planning Basics
When you hear the phrase “estate planning,” the first thought that comes to mind may be taxes. But estate planning is about more than just reducing taxes. It’s about ensuring your assets are distributed according to your wishes. That’s why, even with the estate tax reduction (and eventual repeal in 2010) under the 2001 tax act, estate planning is still critical. In addition, estate taxes still pose a threat with respect to wealth available to transfer to the next generation. Remember, the “sunset” provision means that in 2011 the estate tax will return to where it stood before the 2001 tax act, unless Congress takes further action to change the law.
In addition, the act includes other provisions that increase the complexity of estate planning, such as repeal of the generation-skipping transfer (GST) tax (in 2010, with reinstatement in 2011); reduction in the top gift tax rate but no repeal of the gift tax; increases in GST and estate tax exemptions; and repeal of the step-up in income tax basis at death.
As a result, estate planning is more important than ever — without proper planning, estate taxes may still claim a large share of what you’ve spent a lifetime building
Because estate planning is not just about reducing taxes but also about making sure your assets are distributed as you wish both now and after you’re gone, you need to consider three questions before you begin your estate planning.
1| Who should inherit your assets?
If you are married, before you can decide who should inherit your assets, you must consider marital rights. States have different laws designed to protect surviving spouses. If you die without a will or living trust, state law will dictate how much passes to your spouse. Even with a will or living trust, if you provide less for your spouse than state law deems appropriate, the law will allow the survivor to elect to receive the greater amount.
Once you’ve considered your spouse’s rights, ask yourself these questions:
Should your children share equally in your estate?
Do you wish to include grandchildren or others as beneficiaries?
Would you like to leave any assets to charity?
2| Which assets should they inherit?
You may want to consider special questions when transferring certain types of assets.
If you own a business, should the stock pass only to your children who are active in the business? Should you compensate the others with assets of comparable value?
If you own rental properties, should all beneficiaries inherit them? Do they all have the ability to manage property? What are the cash needs of each beneficiary?
3| When and how should they inherit the assets?
To determine when and how your beneficiaries should inherit your assets, you need to focus on three factors:
The potential age and maturity of the beneficiaries,
The financial needs of you and your spouse during your lifetimes, and
The tax implications.
Outright bequests offer simplicity, flexibility and some tax advantages, but you have no control over what the recipient does with the assets once they are transferred. Trusts can be useful when the beneficiaries are young or immature, when your estate is large, and for tax planning reasons. They also can provide the professional asset management capabilities an individual beneficiary lacks.
WILL OR LIVING TRUST?
You have two basic choices for transferring your assets on your death: the will, which is the standard method, and the living trust, which is rapidly growing in popularity. If you die without either a will or a living trust, state law controls the disposition of your property. And settling your estate likely will be more troublesome — and more costly.
The primary difference between a will and a living trust is that assets placed in your living trust avoid probate at your death.
Neither the will nor the living trust document, in and of itself, reduces estate taxes — though both can be drafted to do this. Whether a will or a living trust is better for you depends on many personal factors. Let’s take a closer look at each vehicle.
If you choose just a will, your estate will have to go through probate. Probate is a court-supervised process to protect the rights of creditors and beneficiaries and to ensure the orderly and timely transfer of assets. The probate process has six steps:
1. Notification of interested parties. Most states require disclosure of the estate’s approximate value as well as the names and addresses of interested parties. These include all beneficiaries named in the will, natural heirs and creditors.
2. Appointment of an executor. If you haven’t named an executor, the court will appoint one to oversee the estate’s liquidation and distribution. To read more about selecting an executor and the role of personal representatives, click here.
3. Accumulation of assets. Essentially, all assets you owned or controlled at the time of your death need to be accounted for.
4. Payment of claims. The type and length of notice required to establish a deadline for creditors to file their claims vary by state. If a creditor does not file its claim on time, the claim generally is barred.
5. Filing of tax returns. This includes final income and estate taxes.
6. Distribution of residuary estate. After the estate has paid debts and taxes, the executor can distribute the remaining assets to the beneficiaries and close the estate.
Because probate is time-consuming, potentially expensive and public, avoiding probate is a common estate planning goal. A living trust (also referred to as a revocable trust, declaration of trust or inter vivos trust) acts as a will substitute, providing instructions for the management of your assets on your death and, if funded, during your life. You will still also need to have a short will, often referred to as a “pour over” will.
How does a living trust work? You transfer assets into a trust for your own benefit during your lifetime. You can serve as trustee or select a professional trustee. To read more about selecting a trustee and the role of personal representatives, click here. You completely avoid probate only if all of your assets are in the living trust when you die, or your assets are held in a manner that allows them to pass automatically by operation of law (for example, a joint bank account). The pour over will can specify how assets you didn’t transfer to your living trust during your life will be transferred at death.
Essentially, you retain the same control you had before you established the trust. Whether or not you serve as trustee, you retain the right to revoke the trust and appoint and remove trustees. If you name a professional trustee to manage trust assets, you can require the trustee to consult with you before buying or selling assets. The trust does not need to file an income tax return until after you die. Instead, you pay the tax on any income the trust earns as if you had never created the trust.
A living trust offers additional benefits. First, unlike probate, your assets are not exposed to public record. Besides keeping your affairs private, this makes it more difficult for anyone to challenge the disposition of your estate. Second, a living trust can serve as a vehicle for managing your financial assets if you become mentally incapacitated or disabled. A properly drawn living trust avoids embarrassing guardianship proceedings and related costs, and it offers greater protection and control than a durable power of attorney because the trustee can manage trust assets for your benefit.
Who should draw up your will or living trust?
A lawyer! Don’t try to do it yourself. Estate law is much too complicated. You should seek competent legal advice before finalizing your estate plan. While you may want to use your financial advisor to formulate your estate plan, wills and trusts are legal documents. Only an attorney who specializes in estate matters should draft them.
Keep In My Community Property
Some of the strategies in this booklet depend on the ownership of assets. Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin have community property systems. (Alaska’s is elective.) Under such a system, each spouse usually has a one-half interest in property acquired during marriage. If you live in a community property state, keep this in mind as you relate our ideas to your situation.
Title Assets Right
Only assets titled in your living trust’s name avoid probate. When you create the trust, make sure you direct your legal advisor to change the title of all assets you want managed by your trust’s provisions.
Professional vs. Individual Executor or Trustee
The advantages of a professional executor or trustee include being a specialist in handling estates or trusts, no emotional bias, impartiality, independence (sensitive to but not hindered by emotional considerations), and financial expertise.