WHY DO I NEED AN ESTATE PLAN?

Upon death, ownership of the deceased's property must be transferred to the proper persons, whether it is family, friends, children, or charities. If a person dies with or without a will, a proceeding called "probate" is initiated. 

During probate, all debts of the deceased, including taxes, are paid and what is left over is distributed to the beneficiaries either under the terms of the will or under state law if the deceased dies without a will. Probate is also the place where persons can object to the terms of the will. Objections can arise for many reasons, including allegations by certain parties that the will was made when the deceased was not of sound mind, the existence of a will made at a later date, or that the will was forged or that the deceased's decision was improperly influenced. Typically, parties that object to a will are seeking to have the will invalidated so that they will inherit more property. 

Further, probate is a public proceeding. Thus anyone can access the probate records which will include the value of the deceased's estate, and who received what property. This attribute of probate makes the proceeding very invasive.

Probate has a reputation for being very unpleasant, and many people who have gone through it wish that it could have been avoided. Why is probate so unpleasant? First, probate moves along very slowly and it probes into highly personal matters in a public way. Often it can take years for a will to pass through probate. Furthermore, this process occurs during a grieving period.

WILLS

In certain circumstances a will is an excellent estate planning solution for passing smaller sums of assets to family or charities. A will is a legal document that describes how your assets should be distributed in the event of death.  Upon death, the will is scrutinized by the courts and becomes a part of the public record. Control over the will at this point is in the hands of attorneys and judges.

TRUSTS

For estate planning purposes, a trust (more formally known as a "revocable living trust") is the setting up of an independent entity that will continue on beyond the lifetime of the person who created it. When a person establishes a trust and passes away, the trust continues to exist and carryout the deceased's wishes.

A trust is characterized by three parties. First, the trust document names a "trustee" who is the person or organization that administers the trust. Second, the the trust names "beneficiaries", or the persons or organizations that benefit from the trust. Finally, the person who creates the trust and deposits their property into the trust is the "settlor".

Once the trust is formed, the assets of the person who formed the trust (the settlor) are poured into the trust. The trust holds the assets; but since the trust is revocable, the settlor retains control of the assets during their lifetime.

Further, a trust gives great flexibility in how the gift is distributed, which is very useful since children are often the beneficiaries of a trust. For example, for children under eighteen years of age, it may be wise to have any assets that are earmarked for such children held in trust until the child reaches an appropriate age. In addition, specific directions can be left as to how the trust assets should be distributed before the child reaches the pre-determined age.

For example, one could place specific assets in trust, such as a stock portfolio, with directions that the income from the portfolio is to be used only for educational purposes until the child reaches twenty-one.

Further, one may designate who should become the new guardian(s) of one's child if something unforeseen happens to the parents.

The use of a trust avoids probate because a trust is not subjected to the probate process. As a result, there is no public exposure of the deceased estate, no statutory lawyer's fees, and the process is much easier and simpler with less delay. Further, a trust can be used to mitigate taxes on the property passed to one's heirs.

SUMMARY OF ADVANTAGES OF TRUSTS OVER WILLS

1. No probate process regardless of the size of the estate.
2. A trust is private and much more difficult to contest than a will.
3. A living trust will take advantage of a double exemption from Estate Tax, for married persons.
4. Trusts limit taxes and reduce legal fees.

WHAT HAPPENS AFTER A TRUST IS CREATED AND THE CREATOR IS STILL ALIVE?

Primarily, it will be as if nothing has changed. Tax returns are filed just like before and the management of assets is just like before. One is free to move assets in and out of the revocable trust or modify them however desired during their lifetime.

The only significant difference that a trust will create is that title to certain assets, such as one's principal home, will be held in the the name of the trust.

POWERS OF ATTORNEY 

The power of attorney creates power in a designated person (not necessarily a lawyer) to handle one's affairs in the event of incapacitation or mental incompetence. Car accidents, illness, or other catastrophe can cause a person to be incapacitated and in such a scenario it may be important to have one's interests represented. For example, if a person is incapacitated and then unable to get the insurance proceeds they are entitled to, such a person may require a person with power of attorney to advocate for them.

A power of attorney does not mean that you necessarily grant power to your attorney. For estate planning purposes, "Power of Attorney" refers to two specific powers. First, power of attorney for health care. Second, the power of attorney for finances.

A power of attorney for health care gives the designated party the right to make health care decisions on one's behalf. The power of attorney for finance enables the designated person to make financial decisions. This includes the power to write personal checks.

Powers of attorney are a necessary addition to both wills and trusts.

LIVING WILLS

Living wills, often referred to as Health Care Directives, instruct the health care provider as to the person's wishes for treatment in the event of incapacitation. In wake of Terri Schiavo, such documents are becoming more common to ensure one's wishes are satisfied in the event of tragedy, and to prevent family-infighting as also witnessed by the Terri Schiavo case.

If you are incapacitated, your living will forces your healthcare provider to abide by your treatment wishes. Further, your living will can designate persons who can speak on your behalf in situations that the living will does not cover.