Estate Planning: Wills and Trusts

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.    

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. 

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.  

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.

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 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."