Estate Planning: Wills and Trusts

Legal Life and Family Planning

We know that many families delay their estate planning process and we understand why.  It is daunting to have to think about and confront personal, private issues, such as mortality, money, illnesses, secrets and family estrangements.  Very often people are anxious or insecure about making the wrong decision.  Yet addressing these challenges is one of the most meaningful and considerate acts of respect and love you can do for your family.  Having a legal counselor you trust and that cares will help assuage the associated trepidation with this process.  It is imperative that you and your family get the attention and hand-holding you need.
 

Every family has unique circumstances.  Whether you have a blended or non-traditional family or have family members that are estranged, with special needs or struggling with addiction, a customized legal life plan designed specifically to suit your family's unique's needs can navigate these circumstances to your exact preferences bringing you and your family protection, security and peace of mind.  


A comprehensive legal life plan should include the following documents:


  • Will or Trust
  • Durable Financial Power of Attorney
  • Healthcare Directive 
  • Guardianship Documentation, for minor children
  • Communication to Heirs/Beneficiaries/Guardians


In addition to financial wealth, our Life and Legacy Planning also encompasses crafting an Ethical Will for your far more valuable intellectual, spiritual and human assets – who you are and what you care about, including your values, insights, stories and wisdom.

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Inheritance for Children

 

If you’re like me, you want to leave an inheritance for your children. It’s likely part of what you are working so hard to do. But, far too often, the way we leave those inheritances actually does more harm than good. Something no parent wants.  Click here to read my article "Five Reasons to Never Give An Outright Inheritance to Your Children - and What to Do Instead!"

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Basic Estate Planning Terminology and Concepts

Will - Last Will and Testament

What is a Will?

A Last Will and Testament is a legal document that permits a person, the testator, to make decisions on how his/her estate will be managed and distributed after death.  A Will can be a main vehicle for distributing assets or it could be part of a larger estate plan. A "Pour Over Will" is used when someone is using Trusts as a primary estate planning tool.  Any assets that have not been funded into the Trust get "poured over" into a Will and distributed accordingly.    

Probate Court/Administration

In N.J., if you have a Will, your beneficiaries will need to go through the probate process. If you die without a Will or your Will is determined to be invalid, (called "intestate"), your estate will go through the state's intestacy "Administration" process.   In Pennsylvania, an estate goes through the probate process whether there is a Will or not.  The word "probate" means to prove (or validate) a Will in court.  Thus probate is the legal process attendant to validating a Will and administering and finalizing the financial affairs of an estate.  In N.J. there are 3 different levels of probate:  

  • Informal (through the Surrogate's Office):  the expedited process for transferring the title of assets when the heirs and beneficiaries have no issues/disputes and there are no creditor problems to resolve;
  • Formal and Unsupervised:  the court is initially involved (perhaps to validate the Will) but the estate administration process is conducted independently by the personal representative (or Executor/Executrix)
  • Formal and Supervised:  the court is fully involved in supervising the entire probate process and typically must approve all estate disbursements. 


Depending on the circumstances and whether there are any challenges or conflicts, the probate process could take anywhere from 3 to 18 months during which time the assets cannot be distributed to beneficiaries.  The longer the probate process, the more expensive it becomes.  The costs are generally paid for by the assets of the estate, which is typically estimated to be 3-5% of the value of the entire estate.  All probated matters are public record, meaning that anyone can access a Will and see the distributions. 

Estate and Executor

An "estate" is the term used to identify the assets of a deceased individual (who is called a "decedent,")  There are different ways to identify an estate depending on the purpose.  Examples of types of estates include: 


  • Gross Estate:  the total value of all assets including real and personal property, whether tangible or intangible;
  • Probate Estate: the specific assets that must go through probate, which typically includes assets held in the decedent's name alone and excludes assets held in a Trust; 
  • Taxable Estate:  the assets that are subject to different types of tax;  
  • Guardian Estate:  the assets of a minor or incapacitated individual governed by an appointed guardian;
  • Trust Estate: the value of the assets contained in a trust that typically pass outside of the probate process.


If you have a Will, you likely identified an Executor/Executrix to handle the administration of your estate. If there is no Will, the court will appoint a Personal Representative.  The Executor or Personal Representative is responsible for the following efforts:


  • Finding the Will and beginning the probate/administration process;
  • Identifying and safeguarding the assets of the estate;
  • Finding and notifying the heirs/beneficiaries;
  • Identifying all debts and paying all creditors and expenses (from the estate assets)
  • Filing estate tax return and paying any applicable taxes (from the estate assets); and
  • Complying with the requirements of state and federal law.


After this process is completed, then any remaining assets can be distributed to beneficiaries either in accordance with the instructions in a Will or subject to the state's intestacy law.  

Power of Attorney

A Power of Attorney (POA) is a document that authorizes a trusted person (called your "agent") to make decisions on your behalf.   The agent acting on your behalf may only undertake decisions as to the specific issues and only to the extent identified in the POA.  Typically there are POAs for financial decisions and medical decisions.  You could name the same agent for both or different people.  A medical POA should be part of your Healthcare Directive (see below) in the event you are unable to make medical decisions on your own.


A standard financial power of attorney legally authorizes the agent to take care of important financial matters for you such as paying your bills, managing your investments, and buying or selling real estate.  A POA can be relied upon by a third-party (such as a bank) to effectuate the decisions made by your agent on your behalf.  An ordinary power of attorney ceases if you become incapacitated.


In contrast a "durable" (or "enduring") power of attorney simply means that the authorization for an agent to act on your behalf stays in effect even if you become incapacitated or otherwise unable to handle financial matters on your own.  Without a POA in effect, if you become temporarily or permanently incapacitated, no one would be able to handle financial matters on your behalf without getting a court order.

Healthcare Directive

Advance directives are legal documents that allow you to plan and make your own end-of-life wishes known in the event that you are unable to communicate. An effective Healthcare Directive should include the following documents:


  • Medical Power of Attorney: gives authority to an agent that you identify to make medical decisions for you in the event you do not have the ability to do so. 
  • Living Will:  a type of advance directive that guides your family and healthcare providers through the medical treatment you wish to receive if you are unable to communicate your wishes, including whether, and in what circumstances, you want your life to be prolonged by life-sustaining medical procedures;
  • Do Not Resuscitate Order is a specific type of advance directive that directs medical personnel as to your preference for resuscitation;
  • HIPAA Authorizations:     HIPAA Authorizations (referring to the federal Health Insurance Portability and Accountability Act of 1996 ) permit a medical facility or provider to share information about your medical condition to the named individuals;
  • Organ Donation Form (if applicable) 


When it comes to selecting a Medical Power of Attorney, you should select someone you trust, such as a close family member or good friend who understands your wishes and feels comfortable making healthcare decisions for you.  You should have ongoing conversations with this person to talk about your intentions and preferences at the end of life.  You should ensure that the person you name feels comfortable and confident about the type of medical care you want to receive.  

Incapacity and Guardianships

Incapacity exists when a person is unable to make decisions and to govern him/herself.  Long-term incapacity arises, for example, when a person has dementia or a chronic, debilitating mental or physical illness that prohibits him/her from making informed decisions.  Short-term incapacity arises, for example, if someone is in a serious accident with temporary mental impairment or in a coma. Absent powers of attorney or other specific instructions from you, a court will guardians for minors and incapacitated adults to make decisions for you and/or your children.  This may include the appointment of a third-party professional who not only likely bills hourly for his/her services but, most importantly, doesn't know you or your family.  This process of having someone appointed to govern your affairs is often referred to as "living probate." 

Trust Based Planning

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What is a Trust?

A Trust is an agreement created by a Grantor that appoints a Trustee to manage and hold assets for the benefit of a Beneficiary.  The roles of these three main parties are:


  • Grantor: creates and initially funds the trust with assets for the benefit of the beneficiary;
  • Trustee: person who manages the agreement and holds title to assets and carries out its provisions.  The Trustee is a fiduciary and must act in the the best interest of all beneficiaries; and
  • Beneficiary: Person or entity/charity that benefits from Trust.


There are many types of Trusts that mainly fall into two very broad categories:  


  • Revocable Living Trust:  is a legal document created and remains in existence only during a Grantor's life.  It is designed to hold ownership of assets and contains specific instructions for the use and preservation of assets.  Its provisions can be changed at any time during the Grantor's life (thus "revocable").  It typically covers three distinct phases: i) during the Grantor's  life; ii) during the Grantor's possible incapacitation; and iii) what happens after the Grantor's death.  At the Grantor's death, all assets properly held in a Revocable Living Trust avoid probate. Because this Trust is fully subject to being revoked or amended during the Grantor's life, this type of Trust does not avoid taxes or provide asset protection.  After the Grantor dies, a Revocable Living Trust converts in whole or part to an Irrevocable Trust.
  • Irrevocable Trust:  a type of Trust that typically cannot be changed by the Grantor after it is created.  This Trust holds assets outside of the Grantor's estate so it is generally used for asset/creditor protection and to avoid estate and other taxes. There are numerous types of irrevocable trusts depending on the specific needs and concerns of the Grantor and beneficiaries. 


Assets held in Trust do not go through the probate process saving your loved ones time and money.

Maintain Privacy

Many people are unaware that a Last Will and Testament will need to be probated in state court, which is a matter of public record.  If you leave a Will that goes to probate, every bequest (amount and to whom) is public record for your friends, neighbors and even unscrupulous individuals masking as financial advisers to see.   With a Trust, all assets properly funded in the trust are administered through the estate privately.  In a conservatorship/guardianship hearing, all your private affairs may be discussed in open court. A Trust can protect your privacy in most situations. 


A Pour-Over Will is created with a Trust and only assets that are not properly funded in the Trust will need to be probated.

Avoid Unnecessary Taxes and Expenses

You want to ensure that your assets are not unnecessarily absorbed by state or federal taxes.  Also by avoiding probate and the court's appointment of a professional executor/personal representative who bills hourly for managing or administering your estate, you can help streamline both the time line and cost associated with estate administration.  


Asset/Creditor Protection

Because of the flexibility inherent in Trust-based planning, you are able to design protection plans that insulate assets from creditors or lawsuits.  There are different degrees of protection available based on the extent to which you are willing to cede control of those assets

Maintain Control

Assets passing through a Trust may be less susceptible to the sort of challenges that may occur with a will transfer.   It is much easier to segregate assets so there is no confusion (i.e., real estate in one trust and corporate ownership interests in another).  Further, the Grantor can determine when and how distributions are made to beneficiaries including condition-based distributions, such as at specific ages or certain events (education, graduation, home purchase, marriage, starting a business)

Special Needs/Comprehensive Incapacity/Disability Planning

Trusts permit a Grantor to provide protection for numerous situations including any family members with special needs as well as his/her own incapacity and disability.   A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided it is adequately funded and you named a competent and trustworthy Trustee. 

 

Kids Protection Plan

If you have minor children or are concerned about the care of any minor children in the event of their parents' or caregivers' incapacity or a tragedy, please read about our distinctive Kids Protection Plan.

Find out about a Kids Protection Plan Here

To protect your family, your assets and/or your business while ensuring you pass on your intangible wealth including your invaluable stories, values and wisdom, call us today!

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