Estate Planning - National Center for Life and LibertyEstate Planning PROBATE, WILLS, AND TRUSTS 1PART: introduction None of us likes to think of a world without us in it or a world

SEPTEMBER 2018

resourceof the month

NATIONAL CENTERFOR LIFE AND LIBERTY

NCLLMAXIMUM MINISTRY.MINIMUM LIABILITY.

Estate Planning PROBATE, WILLS, AND TRUSTS

PART

1:

introductionNone of us likes to think of a world without us in it or a

world in which we are incapacitated and unable to make

decisions for ourselves. Yet all of us have witnessed the

tragedy of a life cut short or radically altered after an accident, a

health complication, or a criminal act. If nothing else, watching a loved one

die or knowing someone who has become incapacitated is a poignant reminder of

the uncertainty and brevity of life. Indeed, in the book of Ecclesiastes, King Solomon

identified various “seasons” of life that each of us goes through in our time on earth:

a time to weep and a time of laugh; a time to mourn and a time to dance; a time to kill

and a time to heal; a time to get and a time to lose; a time to be born and a time to die.

Despite its ill-perceived reputation, estate planning is not only for the elderly and

wealthy. Rather, it is something that every adult should pursue—especially those who

are married, have children, or have any assets. Unfortunately, many will die or become

disabled or incompetent without having given any thought at all for the family they will

leave behind or for those who will need to care for them if they become incompetent.

The reality is that if you do not have a plan for where your children and your assets will

go after you die, the state will implement its own plan on your behalf—and the state’s

plan will likely not be what you would have chosen. Without an estate plan, if you

become incapacitated, you may have people making your health care decisions who do

not know you or your wishes or have your best interest in mind. Developing an estate

plan, no matter how many or how few actual assets you have, allows you to set forth

these types of decisions while you are alive and capable and gives both you and your

family peace of mind.

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WHAT IS AN ESTATE PLAN?An estate plan has three basic components:

1. A will or trust to determine who will care for your children and where your property and assets will go in the event of your death

2. A power of attorney to determine who will pay your bills and take care of your finances if you become incompetent to handle these matters

3. A health care power of attorney to appoint a health care designee and to instruct your family members or caregivers about what medical decisions you would want to make in the event you are no longer able to make these decisions for yourself

Estate planning also includes other types of planning that may not necessarily be included within the three “estate plan” documents set forth above. These would include life insurance, disability income insurance, long-term-care insurance, and plans for the transfer of a business at your retirement, disability, or death. While the documents listed above are all an important part of your estate plan, the focus of this resource is on wills and trusts. (Note that a “living will” is not the same as a traditional “will”; a living will is a document providing directives for end-of-life care. End-of-life-care documents, including living wills and healthcare powers of attorney, will be discussed in Estate Planning: Part 2—Healthcare Documents.)

WHAT IS A WILL?A will is a written statement directing who will wrap up your financial affairs and who will receive your money and other property when you die. A will can also name a guardian to care for your minor children, a disabled relative, or even your pets.

Estate Planning PART 1


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WHAT IS MY “ESTATE”?Any property left in your name at the time of your death is called your “estate.” This includes property in your sole name, held in a partnership, in a joint ownership arrangement, or through a trust and all other monies that would be generated upon your death, such as through life insurance. Your estate specifically includes:

• Real property and things attached to it (houses, buildings, barns, etc.)

• All personal property (automobiles, bank accounts, stocks and bonds, mutual funds, cash, furniture, jewelry, art, collectibles, etc.)

• All businesses and business interests (sole proprietorships, partnerships, corporate stock, joint ventures, and any goodwill, inventory, tools and equipment, accounts receivable, and other business property, etc.)

• Powers of appointment (the right to direct who gets someone else’s property)

• Life insurance and annuity contracts, pension benefits, IRAs, 403(b)s, etc.

• All debts and obligations owed to others

• All claims you have against others, such as for the pain and suffering from an auto accident


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WHAT IS PROBATE?Probate is the legal procedure by which assets owned by a person who has died (a “decedent”) are legally transferred to those who are to receive those assets, either pursuant to a will or in accordance with state intestate laws. Intestate laws are the laws detailing how a decedent’s property is to be distributed if there is no will or if there is a will but certain assets are not able to be disposed of pursuant to the will (e.g., money left to a beneficiary named in a will who has since died and no other alternatives exist under the will for who should get that money). State intestate laws provide that in the absence of a will, your estate will be distributed to your legal heirs (in most states, this will be your spouse, your children, your parents, and then other relatives, in that order).

The technical name for people or groups you name in your will to receive your property upon your death is “legatees” or “devisees” (the term “beneficiary” is a broader term used to refer to anyone who receives property pursuant to a will, a trust, an estate that does not have a will, or other type of payable-on-death account). Note that beneficiaries, legatees, and/or devisees may or may not also be your legal heirs.

The person named in your will to be in charge of your estate when you die is called the “executor” or, in some states, the “personal representative.” If a person dies without a will, the court will appoint an “estate administrator,” which functions the same as an executor or personal administrator. The job of all these titles is to investigate what you own at the time of your death, make a list and collect all your property (or deeds to property), care for your property until it is sold or passed on to the people you have selected to inherit it from you (or who will receive it if you did not have a will), pay your bills, file your final tax returns, and finish up any other required financial business after your death.

Once your final bills and medical expenses are paid and your remaining financial business has been completed, any remaining money or other property will be distributed to those individuals or groups named in your will. (You might want to consider whether or not you would want to leave any of your assets to your church or to a favorite charity.)

The process of probating a will—distributing all assets and transferring titles—typically takes anywhere from six months to two years. If issues arise among heirs or legatees/devisees as to the validity of a will, its provisions, or any changes that may have been made to the will (called a “codicil”), the process of completing probate could take several years.


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WHY DO I NEED A WILL?A carefully crafted will is your most reliable guarantee that distribution of your assets will be conducted according to your wishes. In addition, your will:

• Enables you, if your family includes minor children or other dependent relatives, to specify who will assume responsibility for their care and/or upbringing, as well as how you wish them to be raised or cared for

• Presents the most dependable way of communicating any special intentions you have (arrangements for the continuing care of pets, for example)

• Provides the best means of indicating who should receive items and special “keepsakes” or family heirlooms that hold sentimental value

WHAT HAPPENS IF I DIEWITHOUT A WILL?Not having a will means that you:

• Surrender to the government all important decisions affecting the well-being and future security of your heirs, including who will raise your children

• Are at risk of having your assets divided in a way that is not to your liking

• Forego opportunities to reduce taxes through various finance and/or trust arrangements


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WHEN AND HOW OFTEN SHOULDI REVIEW MY WILL?Your will may be changed as often as you wish and should be reviewed when any major life circumstances occur, or, if there are no major changes, at least every five years. If the change you desire to make is relatively simple, an amendment to the document, known as a codicil, can be executed with the help of an attorney. If you decide to write a new will altogether, the new document should specifically revoke (vacate) all prior wills. Keep in mind that revoking a will automatically revokes its codicils, but revoking a codicil does not necessarily revoke a will.

Review your will when any of the following events occur:

• A change in marital status

• The birth of a child

• A change in your state of residence

• A significant change in the value or character of your assets

• A change in intended beneficiaries

• The death of a beneficiary

• The death of a guardian, trustee, or personal representative named in your will

• The change of a guardian, for whatever reason (guardian has died, moved away, or is no longer living in a manner in which you wish to have your children raised or cared for)

• A change in tax laws affecting federal estate tax deductions and calculations


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WHAT DOES THE TERM“JOINT TENANCY” MEAN,AND WHY DOES IT MATTER?“Joint tenancy” is a way by which two or more persons may jointly own property. The two primary types of joint tenancy are those “with rights of survivorship” and those “without rights of survivorship.” Any property owned in joint tenancy with right of survivorship with another person will go automatically to the surviving co-owner(s) upon the death of one owner and will not have to go through probate (regardless of whatever the will might say about that property). Any property belonging to a decedent that was held in a joint tenancy without the right of survivorship will typically become part of the deceased’s estate and will go through probate.

Money and property held in joint tenancy ownership with right of survivorship might include a bank account, a car, or a house (these are often presumptively titled in that manner when there are two or more persons holding title). Similarly, any property held in a payable-on-death account will automatically belong to the named beneficiary upon the death of the owner. For example, life insurance proceeds will go automatically to the named beneficiary upon the death of the insured person without having to go through probate.

The advantage of holding an asset in joint tenancy with right of survivorship is that the asset, such as a bank account or a car, will immediately become the possession of the co-owner without waiting for a will to go through the probate process. There are also some tax advantages to a joint tenancy for assets such as a house or other property.


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WHAT IS A REVOCABLE LIVING TRUST, AND HOW IS IT DIFFERENT FROM A WILL?A revocable living trust is an alternative to a will that allows the beneficiaries of the trust to avoid probate for all the assets that are in the trust. A revocable living trust is essentially a “vessel” into which you, as the “grantor” or “settlor,” place all your assets while you are still alive (and it is “revocable” because you can stop it at any time or change its terms, beneficiaries, trustees, etc.). Assets are “placed” into the trust by transferring legal title from you to the trust itself. Typically, the grantor will also be both the trustee (which means he will manage the assets in the trust) and the beneficiary (he will receive the benefits/distributions from the trust) during his lifetime. The trust also typically names a successor trustee to manage the assets in the trust in the event of the grantor/original trustee’s death, incapacity, or resignation as trustee and would name beneficiaries who are entitled to receive the benefits of the trust under the conditions set forth in the trust, such as the right to receive income from the trust’s investments after the original grantor has died. The person who serves as trustee is legally obligated to use the property in the trust for the benefit of the beneficiaries listed in the trust only to your trustee and beneficiaries.


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HOW DOES A REVOCABLE LIVING TRUST AVOID PROBATE?When an estate is conveyed through a will, a probate court must validate the will before its provisions may be carried out. This probate process can take as long as two years before any assets would be distributed to your heirs. Assets held in a living trust, however, are not subject to probate. There are several advantages to avoiding probate:

Expedited distribution. A living trust allows assets to be distributed to your heirs as quickly as your trust agreement instructs and the taxing authorities allow, without the additional delays of probate. Your spouse or children, for instance, could receive income to provide for living expenses almost immediately.

Expense reduction. The expenses of probate are completely avoided for all assets held in your living trust.

Privacy and confidentiality. When a will is entered into probate, all of its provisions become a matter of public record. Since a living trust is a private arrangement, its terms are not made public upon your death. Your assets and intentions are known only to your trustee and beneficiaries.

WHICH SHOULD I CHOOSE: A WILL OR A LIVING TRUST?A variety of factors will determine whether it is best to have a will or a living trust, depending on the type of trust you would establish. The most important factor is that a trust is not an all-encompassing estate planning document; even if you have a trust, you will still need a will if you have minor children and wish to designate a guardian, as that cannot be done within the terms of a trust document. You may also need a will to dispose of any assets not included in the trust. Second, a living trust is quite a bit more expensive to set up than a will, so the question of whether to set up a trust or not will depend on the size of your estate and whether the benefits outweigh the costs to establish and manage the trust. Generally speaking, if an estate is valued over a million dollars or if you have real estate in multiple states (which will require multiple probates, resulting in more attorney and executor fees and court costs), it may make financial sense to set up a living trust.


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MY CHILD HAS SPECIAL NEEDS.WHAT EXTRA ESTATE PLANNINGWILL I NEED TO DO?If you have a disabled child or other family members who are disabled or likely to become disabled, they will require special protection. You can use careful estate planning to maximize resources and to enhance quality of life for loved ones even after you are no longer here to care for them.

In your will, be sure to name a guardian for your loved one with special needs—someone who understands and knows the needs and challenges that come with caring for this person and is willing to accept this responsibility. Keep in mind that leaving money directly to a child or adult with special needs may disqualify him or her from receiving government benefits, such as Supplemental Security Income (SSI) or Medicaid because such programs are income-based. Setting up a “special needs” trust is one way in which to help your loved one without jeopardizing his or her eligibility for these benefits.

After creating the special needs trust document, you can designate a trustee and assets to go into the trust. The trustee will then be legally obligated to use those assets for the benefit of your child or relative (paying for medical or placement services, daily needs, medical bills, housing, etc.). Since the assets in the trust are not titled in the name of the child, they will not affect the child’s income level for purposes of benefit eligibility. This will allow your relative to receive or inherit property that otherwise may be lost or wasted through exploitation, neglect, orpoor judgment.


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WHAT INFORMATION DO I NEED BEFOREI SEE AN ATTORNEY ABOUT PREPARINGAN ESTATE PLAN?Identify your circumstances. Think about any special circumstances in your life that might affect how your will is prepared. Do you have children from a previous marriage? Do you own your own business? Have you been through a divorce? Do you have any children or other relatives with special needs to consider? Do you have a child who does not handle money well or who is involved in a troubled lifestyle? Do you have grandchildren from a child who has since died?

List your assets. Sit down and make a list of all your assets—all the things you own. Your list should include real estate, personal property (jewelry, art collection, tools, etc.) vehicles, life insurance, stocks, bonds, bank accounts, retirement accounts, as well as the names and addresses of the people who are to receive them.

Designate beneficiaries. Think about which persons or groups you want to give your assets to upon your death. People generally leave their assets to their spouse and/or children. Do you want your children to have equal amounts? What about grandchildren of a deceased child? Do you want to include a bequest to your church or to a favorite charity?

Determine who you want to be the guardian for minor or disabled children orother relatives. Think about two or three possible people who could fill these roles. Make sure to ask them if they would be willing to act in this capacity for your family and find out their current addresses.

Name an executor/personal representative and/or trustee. Decide whom you wish to appoint as the executor of your estate, and if you have a trust, the trustee of that trust. The executor/personal representative will be responsible for making sure the decisions outlined in your will are respected and will oversee the transfer


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of your property. The trustee will act as legal owner of the assets in your trust and will be responsible for tax filings for the trust and for investing/distributing the assets according to the terms of the trust. You should have a primary person and an alternate person or group in mind for each of these positions. Make sure to ask the persons who you wish to fill these roles if they are willing to take on these responsibilities and find out their present addresses. Quite often, spouses or a responsible child or friend are chosen and can serve as executors or personal representatives. In choosing a trustee, it is best to consider a person or corporation that has tax, investment, or accounting experience—particularly if managing investments for the beneficiaries will be part of the trustee’s responsibilities.

Leave a note. Aside from an official will, it is also helpful to leave additional instructions for those you leave behind. This writing is called a “letter of personal instruction.” Your letter could include any wishes for funeral arrangements. It should explain the locations of important documents and account numbers along with a list of items not covered in the will and what you would like done with them.

WHEN IS THE BEST TIME TO BEGIN MY ESTATE PLAN?The only time you can prepare and implement an estate plan is while you arealive and have the legal capacity to enter into a contract. If you are unable to manage your own affairs or suffer from some other disability that affects your legal capacity, your estate plan may be challenged and your wishes may neverbe carried out. Others may assert that you lacked capacity at the time you created the plan or that you were subjected to fraud, coercion, or undue influence during the creation and implementation of your plan. To prevent these kindsof challenges, the best time to start an estate plan is while you have the capacity to do so.

If you have minor children or pets, if you care about your property or what will become of it when you die, if you have concerns about your health care treatment should you become incapacitated, or if you have concern about what will happen to your loved ones after you die, then you need an estate plan—and the sooner the better.