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Estate
Planning Facts You Need to Know
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Creating Plans that Work
Most of us have
expectations ... and when it comes to our loved ones, and our
assets, we expect that things will go the way that we want... that
is, that our property should go to whom we want, when we want and
the way we want, while protecting our family from probate, saving
taxes wherever possible, and protecting our family in the event of
mental and/or physical disability.
The
information on this page will help you understand the general
concepts of estate planning.
Attend one of the FREE "Truth About Estate Planning"
Workshops to learn how to create a custom plan that works for you
and your family, and that meets your expectations.
Click Here
to learn more.
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What is an Estate Plan?
If
you've ever wondered, "What is an estate plan?" you'll find the
answers here, along with the stark reality of what exactly the
alternatives have to offer. If you're looking into a Will, you may
be in for less than you bargained for.
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What is Proper Estate Planning?
Proper estate planning allows you to plan for yourself and your
loved ones without giving up control of your affairs. Your estate
plan should allow you to plan for the possibility of your own
mental and/or physical disability. It should give what you own, to whom you want,
when you want, and the way you want. Your estate plan should save every tax dollar,
professional fee, and court cost that are legally possible to save.
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Goals of Estate Planning:
Without effective estate planning, people with estate values
exceeding $1,500,000 may pay up to $555,800 in unnecessary estate
taxes. Poor planning can increase professional fees and court
costs, can cause problems for your loved ones after you are gone,
and, worse yet, can frustrate a person’s intentions - this means
that your loved ones may not receive the property which you wanted
them to receive. On the other hand, proper estate planning gives
you the power to create a wonderful bounty for your families, while
minimizing taxes, professional fees and court costs. Maybe no other
action has such a profound, beneficial effect on a family as the
decision to create or update a person’s estate plan.
The
primary goal of most individuals is to transfer as much of their
estates as possible to their children and other family members with
a minimum amount of estate and/or gift taxes. Whether your estate
is $5,000 or $5 million, our goal is for you to control
what you own while you are alive and able, provide for yourself and
your loved ones if you become disabled, and upon your death, leave
what you own, to whom you want, when you want, and the way you want,
while minimizing every expense, tax, and delay.
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THE BEST WAY TO ADDRESS ESTATE PLANNING
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Individuals and couples should begin planning their estates by
meeting with an attorney who understands the issues. The attorney
should propose a plan that meets your personal goals for your
family, passes on your hopes and dreams to your loved ones, and provides for
you during your life, and your loved ones at your death, while
minimizing taxes, professional fees, and court costs, wherever
possible. Proper planning can save
your family and your loved ones needless heartache and expense. Estate
planning can have a profound effect on a family’s future happiness
and prosperity.
Creating a proper estate plan is easy with the help of your attorney
and advisors.
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SOME TERMINOLOGY
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Estate Tax:
Estate taxes generally reduce what you intend to leave to your loved
ones. For example, individuals with estates valued above $1,000,000 --- including the value of life insurance
proceeds and retirement plans --- could pay unnecessary estate taxes. The estate tax must be paid within nine (9) months after your death or the
surviving spouse's death. The sheer size of this tax liability can cause great
family hardship and threaten family business interests. Proper
planning, however, can help reduce estate taxes, and can virtually
eliminate all estate taxes for married couples with estates valued
up to $3,000,000.
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Probate:
Whether you die
with a Will (this is called "dying testate") or die without a Will
(this is called "dying intestate"), property you hold in your own
name (your "estate") must be "probated". Probate is the process by
which the court (in New York, the court is called the "Surrogate's
Court", and in Connecticut the court is called the "Probate Court")
verifies the validity of the Will, and allows the property to be
distributed by the terms of the Will. A typical probate may last up
to 2 years, and some probates may last even longer. Any appearances
before the court will be public proceedings. All the
assets and debts of the estate are public record --- available to
anyone interested in seeing them. Also, typical probate proceedings
will incur court costs and probably attorney’s fees that grow with
the size and complexity of your estate. By contrast, property held
by a properly designed and funded Living Trust may not go through
probate, thus avoiding the expense, time, and publicity of probate.
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SIMPLE ESTATE PLANNING APPROACHES
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1. Joint Tenancy with Right of Survivorship:
Married couples often hold title to their property as Joint Tenants
with Right of Survivorship (or, "JTWROS"). This means that the
surviving spouse will become the sole owner of the property on the
death of the other spouse. Unfortunately, holding title to major
assets as JTWROS can ruin an otherwise good estate plan. While
ownership as JTWROS may save the property from estate taxation upon
the first spouse's death, the property will be included in the
taxable estate of the surviving spouse. This only defers estate
taxes, it does nothing to save estate taxes. Also, the Will or Trust has no control over property that is held as JTWROS. As
a result, JTWROS may create problems never dreamed of by the
family.
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2. A Simple Will:
A
Will is a set of written instructions telling the court how you
would like your affairs administered and property distributed after
your death. A Will is not effective until the death of its
maker. This means that a Will has no control over your property in
the event of disability and no protection from creditors, while you
are alive. The term "simple will" generally refers to a Will which
leaves everything to a surviving spouse or, if the maker is
unmarried, to the children. Property passing under a simple Will
does not avoid probate, like a Living Trust may.
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WHY WOULD A PERSON NEED ESTATE PLANNING?
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1. Disability During Your Life:
A
proper estate plan may provide control over your personal and
financial affairs in the event you or loved ones become disabled.
If a person, because of mental incapacity, becomes unable to manage
his or her personal and/or financial affairs, the court may have to
appoint a guardian to act on behalf of the incapacitated
person. While the court generally gives preference to a family
member, it is free to appoint anyone it chooses. The guardian must
report to the court what he or she is doing with the incapacitated
person’s assets, may have to get a court order to sell assets, and
may be limited in the usage of those assets. A guardianship may
involve court filing, accountings, and attorney fees, time delays and embarrassing court
hearings. A Living Trust may help avoid the necessity of a
guardianship proceeding.
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2. Instructions for Loved Ones:
How
can you leave instructions on the care for children or loved
ones? Is there a way to control how money will be invested or used
when you are no longer around? Simple Wills, passing property held
in JTWROS to a surviving joint tenant, and life insurance
beneficiary designations offer no way to leave instructions. Either
a Will with a testamentary trust or a Living Trust offer
you a chance to leave instructions for loved ones and for the
management of the estate.
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3. Providing for Young Children:
Children under 18 years of age cannot receive money or property
outright. A windfall from either insurance proceeds or inheritance
means a trip to court to establish a guardianship and provide for
the management of the money and property until the child reaches
18. These arrangements are very expensive and time-consuming. If
you establish a trust for the children, you can name the trustees
and decide how the property will be managed and distributed while
avoiding the expense of a guardianship for financial matters.
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4. Divorced Parents:
Single parents want to provide for their children, but frequently do
not want their ex-spouses to have control over the
proceeds. Divorced parents can achieve this goal easily by creating
a Living Trust or a Will with a testamentary trust that appoints a
responsible person --- other than the ex-spouse --- as the trustee
to manage the money or property for the children.
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5. Children From a Prior Marriage:
Couples are frequently concerned about how to provide for both the
surviving spouse and children from prior marriages. With proper
planning, a Will with a testamentary trust or a Living Trust will benefit not only the
surviving spouse, but also the children from the prior marriage.
Remember, that proper estate planning allows you to control who
receives your property.
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ADVANCED ESTATE PLANNING
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1. Wills with Testamentary Trusts:
A
Will with a testamentary trust is more complex than a simple Will.
However, it is still important to note that any type of Will is not
effective during the life of its maker - that is, a Will is only
effective at death. Also, any type of Will is still subject to the
expense, time and publicity of probate. Also, the type of asset
which may be controlled by a Will is limited - this is especially
true if you own real estate in more than one state. Any real estate
owned in another state may not be controlled by your Will. You will
be required to go to the trouble and the expense of probate
proceedings in each state where you own real property.
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2. A Living Trust:
A
Living Trust is made during your lifetime, and is effective as soon
as it is signed by the necessary parties. You can change or revoke
it anytime while you are alive and competent. The Living Trust is
designed to hold all of your property, and during your life you have
full and complete control over the management of your property. If you become
disabled, then the trustees you appoint in the Living Trust will
manage your property according to your rules which are spelled out
in the Living Trust agreement, without the need for a guardianship
of your estate. When you die, the trustees will distribute your
assets (including non-probate assets) as you planned, even forming
trusts after your death to provide for your children or
grandchildren. In addition, a properly designed Living Trust will
take advantage of all favorable estate tax benefits and creditor
protections, while avoiding
any dangerous estate tax problems. And, a Living Trust is valid in
every state, and may hold real estate which you may own in other
states - avoiding the need for probate proceedings in states where
you own real property.
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3. Irrevocable Life Insurance Trust:
If
you are single, with an estate valued over $1,000,000, or married
with a combined estate valued over $2,000,000, your estate(s) will
be liable for estate taxes. Life insurance proceeds are includable
in the policy owner's estate for estate tax purposes. However, by
making a Life Insurance Trust the owner and beneficiary of your life
insurance, the proceeds from your existing policies, and any new
policies, will be excluded from your estate, thereby avoiding estate
tax liability on these assets. Also, even if you do not currently
own life insurance, a Life Insurance Trust, which then buys
insurance on your life, is a great way to provide money to your
estate which your estate may need to pay any remaining estate taxes
and/or to care for your loved ones.
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