- I. What is the purpose of an effective estate plan, and why is it necessary?
An effective estate plan ensures that one’s assets are distributed in the manner in which is intended at the time of death, in an orderly and efficient manner. Effective estate planning techniques help to avoid conflict between family members and problems for loved ones at the time of one’s disability or death. It can preserve assets for heirs and maximize their inheritance by avoiding unnecessary legal fees, costs and expenses. An effective estate plan also can prevent or discourage litigation later between heirs or beneficiaries by specifically providing for distribution at the time of death, and who will be in charge of administering the estate, and avoids disputes. It simply is a written statement of one’s wishes to be adhered to at the time of death.
- II. What are the elements of an effective Estate Plan?
An effective estate plan includes a Last Will and Testament, A Durable Power of Attorney for Financial Matters, A Living Will/Durable Healthcare Power of Attorney and often includes preparation of a deed to transfer real estate outside of probate to the intended recipients avoiding the costs associated with probate court. This includes Joint with Right of Survivorship Deeds and Transfer on Death Affidavits for Real Estate. The Estate Plan may also include some type of a trust which may be helpful in certain circumstances. I will discuss trusts in more detail shortly.
- The Last Will and Testament
A Last Will and Testament is a document that dictates how probate assets are to be disposed of at the time of death. Probate assets are assets that are owned by an individual at the time of death. Probate assets consist of checking, investment or other accounts that are in the decedent’s name alone, and any other asset that is not titled to be transferred outside of probate, or as a “non probate” asset, i.e. TOD (transfer on death) or POD (payable on death), or JWROS (joint with right of survivorship).
CAVEAT ABOUT PROBATE ASSETS: Probate assets are required to be liquidated to pay debts of the decedent if there are insufficient assets to satisfy the legitimate debts and creditor claims against the estate. This is why avoiding probate is often the best possible plan, since it can avoid payment of claims against a decedent’s estate at the time of their death and maximize the recovery for one’s heirs or intended beneficiaries by providing for the transfer of property outside of the probate process.
A.(1) Elements of a Last Will and Testament:
The Last Will & Testament specifies who will serve as Executor or Fiduciary for the Estate to handle the estate administration process and grants the Executor the necessary authority to act on your behalf at the time of your death. It also includes specific directions for the disposition of the probate assets at the time of death. It may contain specific bequests of a certain monetary amount, or may simply leave the entire estate in fractional shares or percentages to named beneficiaries. It may provide that the survivor or last surviving beneficiary takes all or that the grandchildren are included to receive their parents share should the children predecease you. Simply said, a Last Will & Testament is a written statement the probate court will adhere to in ensuring the probate assets are distributed to those you chose and provided for in the Last Will And Testament at the time of death, during the probate administration process.
(a) Why do I need a will?
A person needs a will because there are certain assets that cannot be pre-planned, like a future stream of income from a structured settlement, or other entitlement to future payments. Likewise, an unexpected inheritance cannot be pre-planned. Moreover, if a person does not have a will, then no one has been named to supervise the probate proceeding. The court will then appoint someone to administer the estate, and the Administrator, or Fiduciary, has no authority other than that provided by law. An applicant must be bonded by an insurance company to be eligible for appointment as Administrator, which is expensive and requires the applicant have good credit. The costs for the bond are paid by the Applicant/Administrator, however if there are sufficient funds in the estate, those costs can be reimbursed to the individual.
A will dispenses with all of those formalities and expedites the probate process thereby saving attorney fees and costs to the estate and the heirs in connection with probating the estate. If there is no will, then everyone who is an heir has an equal right to the assets, and you cannot give more to one than another because the law treats them equally if the degree of consanguinity is the same (i.e. the relationship). All children will receive the same amount whereby with a will, you can leave everything to one person or a little to many, at your option. Without a Will, the assets go to the heirs or next of kin as determined by law under the statute of descent and distribution, whereas with a will, they will go where designated in the will itself.
- The Durable Power of Attorney
A Durable Financial Power Of Attorney allows a person to appoint someone else to act as their personal representative when they are unable to manage their own affairs due to a mental or physical disability or illness. The power of attorney allows the designated representative to perform any act that the individual would do, if they were not disabled. The authority is very broad and generally is unlimited. A power of attorney must be signed when one is healthy and of sound mind. Otherwise, a guardianship would have to be established. A power of attorney enables a person to avoid the time and expense of a probate court proceeding for the appointment of a guardian, which is a lengthy, procedural and expensive process where a medical provider must certify the proposed ward “incompetent.” The ability to choose and appoint a personal representative through a power of attorney is much easier and less expensive, and a better result since bi-annual accountings are required for any guardianship whereas the power of attorney reports to no one. It is effective until and unless revoked, and is an excellent way to ensure the person you have selected will take over and manage your affairs for you when you are not able.
- Living Will/Health Care Power of Attorney
The Living will is simply a written statement that a person does not want their death artificially prolonged if they are permanently unconscious or terminally ill. The document notifies the HealthCare Provider as to who will make important health care decisions on your behalf, when you are not able. It includes consent for medical treatment and to withhold consent and terminate treatment if you are permanently unconscious or terminally ill.
Similarly, the Health Care Power of Attorney is simply a power of attorney only for health care decisions. Similar to a general durable power of attorney, it provides broad authority for the designated representative to make important and life altering heath care decisions for you once you have been determined, medically, to no longer be able to make those decisions for yourself. It is not a do not resuscitate order and does not affect any comfort care whatsoever.
- Survivorship Deeds or Transfer on Death Affidavits
A survivorship deed is a legal document that retitles your real estate into a joint title with right of survivorship, and so inherently there would be two owners in this scenario. This is most commonly used for married couples who want their real property to go to their spouse outside of probate at the time of their death. If there are children from a prior marriage, this may not be the best choice. Individuals who are not married but who wish to transfer their assets, like real estate, to someone outside of probate, would use a Transfer on Death Affidavit to designate the intended recipient of the property at the time of their death. This can be changed at any time and the property can still be sold with the signature of the current owner, unlike a survivorship deed, which requires the signature of all legal owners to sell the asset. Not always the best choice if children are involved or the probable co-owner since disagreements often will arise between co-owners as to what is best for everyone involved.
- Living or Testamentary Trusts, and Supplemental Needs Trusts
(E)(1) When should a person consider a Living or Testamentary Trust?
If a person has minor children who would inherit substantial assets from their estate in the event of the death of both parents, or who would be the beneficiary of large life insurance policies payable upon death, a living trust is a not only a good idea but an essential tool to protect both the assets and the beneficiaries from a calamitous result. Likewise, a Trust is also very beneficial if you have children from a prior marriage who may be disinherited by a spouse after your death. A living trust can prevent any changes being made to your estate plan after your death through irrevocability upon death. In a living trust, assets are titled in the name of the trustee during life and can provide for a successor Trustee to manage your affairs after incompetency.
E(2) Supplemental Services or Needs Trusts
If you have a disabled heir, a trust is also necessary to avoid the probable interruption or disruption of available and necessary benefits the ward is receiving which would be disrupted by a large inheritance. A supplemental needs or special needs or supplemental services trust can be employed to enable your designated trustee to care for your disabled beneficiary for their lifetime, without ever interrupting any available governmental benefits they may be receiving. It also allows one person to be in charge (the designated Trustee) and avoids the expense of probate proceedings. However, there is no court supervision of the trustee and that can be problematic at times when there is little accountability.
- III. What are the advantages/disadvantages of avoiding probate and what does probate cost?
Much has been written about the perils of the probate process. However, there are both advantages and disadvantages of avoiding probate. Avoiding probate means there is no court supervision of the estate proceeding. There is no time frame to comply with as far as completion of the process. There is no one supervising the trustee on behalf of the beneficiaries. Avoiding probate can save some costs, but there is still work to be done at the time of death by the Trustee in a trust and the Trustee generally charges for the work performed, a percentage fee on a monthly or quarterly basis. Therefore, Trusts are not without fees or costs. Furthermore, court supervision can be good if there is a concern over accounting or the payment of expenses and fees by the Trustee as generally they have broad authority to spend trust assets as they deem appropriate and there is little accounting involved. It is often difficult to obtain any information concerning the assets, income and or expenses of the Trust from the Trustee, who is acting independently with broad authority. As a result, and considering all aspects, probate is not that costly really or time consuming as it generally does not take longer than a few months to settle up ones affairs through a probate proceeding. Plus you have the added measure of knowing everything was accounted for and distributed in a timely manner with Court supervision.