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Everyone has an estate plan, whether intentional or by default. If you
think you have no plan, because you have not made out a will or a trust,
you still have a plan--it is simply one that is dictated by the laws of
the state where you reside at your death. People who die without wills
or trusts are said to die interstate. State law provides the rules of
distribution that must be followed when a person dies interstate. In most
cases interstate estates must be probated, which involves a court
proceeding, and in many cases state law may require a distribution that
you would not want. It is a very good idea to avoid intestacy by having
a will or a "living trust" that is designed for your
particular needs. In most cases a revocable "living" trust is
better than a will.
Joint Tenancy
You also have an estate plan if your assets are held in joint tenancy.
Many people put their assets in joint tenancy for the purpose of
avoiding probate. What people do not understand is that joint tenancy
only avoids probate when there is a surviving joint tenant. In other
words, joint tenancy does not avoid probate all together--it only delays
it. When the last former joint tenant dies, the property will be
probated, unless it has been transferred to a trust. The joint tenancy
form of ownership may also have many unintended and unfavorable
consequences. For example, if a person places a home in joint tenancy
with a son or daughter the entire property is usually subject to
attachment by a creditor of any one of the joint tenants. Another
problem with joint tenancy is that once the asset that is held in joint
tenancy passes to the surviving joint tenant he or she owns the property
outright. Once again the property is subject to attachment by that
person's creditors. Also, the survivor has absolute control over the
property. If the surviving joint tenant is a surviving spouse who
remarries, it is quite possible that the property may never end up in
the hands of the decedent's children. There are also significant estate,
gift, and income tax problems that can arise from joint tenancy. Holding
property in joint tenancy usually has unintended bad results.
Designation of Beneficiaries
Another form of estate planning that may have unintended results is the
designation of beneficiaries of insurance and retirement plans. In this
area the problems arise from the failure to coordinate beneficiary
choices with the rest of the estate plan. Usually individuals are
designated as beneficiaries; but in some cases it is better to designate
trusts as beneficiaries. Beneficiary designations make no provision for
estate tax planning, and will not protect the beneficiary from creditors
or unscrupulous people. This area is too complex to discuss in this
article, but keep in mind that you should always ask your advisors about
coordinating beneficiary designations with the rest of the plan. In any
case, you should almost never designate your estate as a beneficiary.
As you can see, unintended and unfortunate results can occur without
proper planning.
Proper Estate Planning
What is proper estate planning? It involves a plan that is carefully
designed to meet your goals. It requires a cooperative effort between
you, your attorney, and other appropriate members of your estate
planning "team," such as a financial planner, a life insurance
agent, and a CPA. The plan should not be thought of as a series of
transactions whereby the financial adviser provides (sells) investments,
the insurance agent provides (sells) insurance, and the attorney
provides (sells) a trust or a will. In my view, that is the wrong
approach.
Instead of taking the transaction, i.e., product oriented, approach, you
should view estate planning as an ongoing process that evolves as your
needs, goals, and family change, as the laws change, and as new estate
planning tools and techniques are developed. It is a process of
continually evolving entrance, growth, maintenance, and exit strategies.
Proper planning requires professional thoroughness which respects the
overall well-being of you and your family.
Your goals should include the following:
-
Your control
of your assets during your life.
-
A business
exit strategy if you have an ownership interest in a business.
-
Providing
instructions for your care and the management of your assets for you
and your family if you become incompetent.
-
Protecting the
assets that you leave to your spouse and children from creditors and
unscrupulous persons.
-
A plan of
distribution that will leave your assets to whom you want, when you
want, and with whatever controls you want.
-
Avoiding
probate
-
Saving the
greatest amount of taxes and post death administrative costs
possibly--not only in your own estate, but in the estates of your
spouse and your descendants.
-
Saving the
greatest amount of taxes and post death administrative costs
possibly--not only in your own estate, but in the estates of your
spouse and your descendants.
Initial Meeting
Proper estate planning begins with a call to your attorney to schedule a
meeting. The attorney may or may not charge for the initial meeting. You
should ask if the meeting will be with the attorney or with a paralegal.
If the initial meeting is only with a paralegal, you may be dealing with
a "trust mill" office. If the initial meeting is with both the
attorney and a paralegal, or with just the attorney, you will probably
be better served. Also, ask if the attorney will want you to provide
information about your finances and your family in advance, so that the
attorney can prepare for the initial meeting. In our office we always
send a questionnaire to new estate planning clients which the client
must return before our initial meeting; that way some advance
preparation for the meeting can be done by the attorney. You should ask
how long the meeting will take. If you are told that it will be for no
more than ½ half hour, you might want to consider another the attorney.
Even with advance preparation it is my experience that good initial
planning meetings take between 1 ½ to 2 ½ hours.
After the initial meeting, documents will be prepared for your review.
Those should consist of, at least, a revocable "living" trust,
a "pour-over" will, a certificate of trust, a durable power of
attorney for asset management in the event of disability, a health care
power of attorney, and a physician's directive. Another meeting should
then be held. At that meeting the attorney should thoroughly explain the
documents to you. You should then be given an opportunity to thoroughly
review the documents before you sign them.
Funding the Trust
If you use a revocable "living" trust, which we recommend in
most cases, the trust must be properly funded as soon as possible. That
is, assets must be transferred to the trust. If this is not done, you
will have wasted your money and your assets will either have to be
probated through the "pour-over" will, or they will pass
outside of your plan. Find out if the attorney's office will do the
funding or if you will be left to do it yourself. Our office insists on
doing the funding to ensure that it will be done and that it will be
done correctly.
Plan Maintenance
Once your plan has been done, it must be maintained. I recommend estate
plan review conferences not less than every two years. If there are
changes in your family, your desires, or your financial situation, you
should always contact your attorney to see if your plan should be
changed.
Upon the death of a family member who has either a will or a revocable
"living" trust, it is extremely important to consult your
attorney as soon as possible. Even if there will be no probate and/or
estate tax to pay, there are many estate administration issues that must
be considered and addressed.
Proper Estate Planning Requirements
In summary, proper estate planning requires:
-
Your control
of your assets during your life.
-
A business
exit strategy if you have an ownership interest in a business.
-
Providing
instructions for your care and the management of your assets for you
and your family if you become incompetent.
-
Protecting the
assets that you leave to your spouse and children from creditors and
unscrupulous persons.
-
A plan of
distribution that will leave your assets to whom you want, when you
want, and with whatever controls you want.
-
Avoiding
probate
-
Saving the
greatest amount of taxes and post death administrative costs
possibly--not only in your own estate, but in the estates of your
spouse and your descendants.
-
Many trusts
and plans do not work because of one or more of what I call the
"3 Fs": Failure to fund, Failure to maintain, and Failure
to administer after death. Do not let any one of the 3 Fs occur to
you or your family members.
 
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