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ESTATE PLAN FAQ'S 1. What is estate planning?2. Why is an estate plan so important? 3. What is included in a complete estate plan? 4. What is a Will? 5. What is a Durable Power of Attorney? 6. What is a Health Care Proxy (MA) / Living Will (CT)? 7. What is an Advance Directive? 8. What's the point of a Living Trust? 9. If I set up a Living Trust, can I be my own Trustee? 10. Will a Living Trust avoid income taxes? 11. Can I transfer real estate into a Living Trust? 12. Isn't a Living Trust only for the rich? 13. If I don't create an estate plan, won't the government provide one for me? 14. What is Probate and how come everyone wants to avoid it? 15. Don't I avoid Probate if I have a Will? 16. Don't I avoid Probate if I have a Trust? 17. The possibility of a disabling injury or illness scares me. What would happen if I were mentally disabled and had no estate plan or just a will? 18. Once I have an estate plan prepared and in place, under what changes of events or circumstances should I consider reviewing my Life and Estate Planning?
1. What is estate
planning? On the financial side, a good estate plan coordinates what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as retirement accounts), and other property in the event you became disabled or if you die. On the personal side, a good estate plan includes directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you select would do that for you.
2. Why is an estate plan so important? Proper estate planning is very important in order for you to build, maintain and preserve assets for your family and to provide for the security and support of family members in the event of your incapacity or death. Equally important, the knowledge that your personal planning is in place will provide you with comfort and peace of mind in your daily affairs. Your estate plan will provide exactly where your property will go after your death. If you are married, it will determine how your spouse will be provided for. If you have minor children, it will name the persons who will be responsible for their care and custody. If your children are too young to handle the assets they inherit, your estate plan will designate the persons to manage your property and use it to educate and support your children until they reach a suitable age to receive their inheritances outright. It will also permit you to designate the purposes for, and the ages at which your children will receive the assets you leave to them. The way in which your assets are left also dictates in large part the amount of estate tax that will have to be paid at the time of your death. With good planning, your estate plan can maximize the amount you leave for your family by minimizing the estate taxes payable at your death. Without a proper estate plan, all of these
matters are left to chance.
3. What is
included in a complete estate plan?
4. What is a
Will? The problem with only having a Will is that it is your ticket to Probate. If you have a Living Trust and have properly transferred your assets into it, you will avoid Probate. Note that if you have a Trust, you still need what's called a 'Pour-over Will' to appoint a Guardian for your children and to cover any assets that were inadvertently not transferred into your Trust.
5. What is a
Durable Power of Attorney?
6. What is a Health Care Proxy (MA) / Living Will (CT)? This document allows you to appoint a health
care agent who will be called upon to make decisions about your
medical care only if your health care provider determines that
you are unable to make or communicate such choices for yourself
– for example, if you were unconscious, paralyzed or mentally
incapacitated. You should appoint a party who you believe will
make decisions that are consistent with your religious or moral
beliefs, including any instructions you may have put in a living
will. A copy of your signed Health Care Proxy (MA) / Living Will
(CT) should be given to your physician(s) so that it will be available
to the physician as part of your medical record.
7. What is an Advance Directive? Although not legally enforceable in Massachusetts, an advance directive is a document in which you describe the kinds of medical treatment you would agree to, or not agree to, if you were unable to make or communicate those choices yourself. An advance directive is not binding in Massachusetts because Massachusetts does not have a law requiring hospitals or other health care providers to follow the instructions contained in an advance directive. However, an advance directive can provide valuable guidance to a health care provider or court that is trying to make a health care choice on your behalf. In Connecticut, your wishes regarding medical treatment are contained in the Living Will and, therefore, does not require a separate document.
8. What's the
point of a Living Trust? First, on your death, would you prefer that: a) Your family spend 1 to 2 years doing paperwork at the Probate Court, pay $10,000 to $20,000 in lawyer's fees, and leave a public record of exactly what you owned and the names and addresses of who inherited it—which is what happens when you only have a Will; or b) Have your family handle things privately in a fraction of the time (usually a few months), at a fraction of the cost (usually zero to a few thousand dollars), and leave no public record? If you prefer the private, quicker and more cost effective method, a Living Trust is for you. Second, if something happens to you, would you prefer that your children: a) Receive their entire inheritance outright at age 18 and probably not use it in the wisest of fashions; or b) Have someone older and wiser (whom you have chosen) use the inheritance to pay for your children's education, housing, etc. until an age you choose for them to inherit the money outright (for example half at age 25, half at age 30)? If you chose the 'older and wiser' route, once again, a Trust is for you.
9. If I set up a Living Trust, can I be my own trustee? YES. In fact, people who create most Living Trusts act as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your hand-picked successor trustee assumes control over your affairs, not the court's appointee.
10. Will a Living Trust avoid income taxes? NO. The purpose of creating a Living Trust is to avoid living probate, death probate, and reduce or even eliminate federal estate taxes. It's not a vehicle for reducing income taxes. In fact, if you're the trustee of your Living Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created.
11. Can I transfer real estate into a Living Trust? YES. In fact, all real estate should be transferred into your Living Trust. Otherwise, upon your death, depending on how you hold the title, there will be a death probate in every state in which you hold real property. When your real property is owned by your Living Trust, there is no probate anywhere.
12. Isn't a Living Trust only for the rich? NO. A Living Trust can help anyone protect his or her family from unnecessary probate fees, attorney's fees, court costs and federal estate taxes. In fact, if your estate is greater than $100,000, you'll find that a Living Trust offers substantial benefits for you and your family.
13. If I don't create an estate plan, won't the government provide one for me? Yes, in the event of your death, the court will distribute your assets according to the laws of intestacy. To accept the "default" plan of the State, in the event of a lifetime incapacity or disability, family members and/or friends will probably proceed to the Probate Court to determine who among them will run your financial affairs with the direction of the Probate Court and the Judge of Probate. Thus, it may be necessary for the court to appoint a Guardian or a Conservator for you and your assets during your lifetime, or to make health decisions and/or financial decisions. The person or persons named by the court may not be one(s) whom you would choose. Upon your demise, the Probate Court would most probably be involved in a death probate proceeding for assets which are in your name. If you have specific contract rights regarding life insurance, annuities, retirement plans and the like, those assets will be distributed outright in accordance with beneficiary designation or the "box" you have checked with the contract administrator without much direction whatsoever. Additionally, if true "joint property" is involved, presumably the surviving tenant will take sole possession of the property to do with as he/she wishes. Then some person(s) may have to prepare and file Estate Tax Returns and Income Tax Returns for you, and a number of death administration issues may have to be undertaken, probably with the on-going supervision of the Probate Court, being a public proceeding and always under the control of the Probate Judge. This could prove to be fairly slow, time consuming and expensive. The "default" plan in which your assets are maintained during your lifetime or distributed after your demise might be totally different from what you would otherwise have wished had you become proactive and taken advantage of your planning opportunities
14. What
is Probate and how come everyone wants to avoid it? The reason why most people want to avoid Probate is that it takes a long time (an average of 1 to 2 years of paperwork), is very expensive, and leaves a public record of exactly what you owned and the names and addresses of who inherited it. With a little planning, everyone can avoid putting their families through Probate.
15. Don't
I Avoid Probate if I have a Will?
16. Don't
I Avoid Probate if I have a Trust?
17. The possibility of a disabling injury or illness scares me. What would happen if I were mentally disabled and had no estate plan or just a will? Unfortunately, you would be subject to "living probate," also known as a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. These "court-appointed agents" must file a strict accounting of your finances with the court. The process is often expensive and time-consuming. Back to Top18. Once
I have an estate plan prepared and in place, under what changes
of events or circumstances should I consider reviewing my Life
and Estate Planning? Life and Estate Planning is an on-going process and it is important that our plan is up-to-date to meet all of your current personal circumstances. Thus, a plan put in effect in 1985 is probably very much outdated. We usually recommend that clients make a New Year's resolution to review their Life and Estate Plan at the beginning of each calendar year to see what changes in their planning may be appropriate in view of the past year's events. If this is not done annually then certainly every two or three years is critical. Some fairly obvious "life events" which could require (or suggest) a need to amend or change the plan (or at least review the plan) would include change of marital status such as remarriage or divorce, death of a spouse, substantial change in total assets value, death or incapacity of an Executor, Guardian, Trustee, or a person named in a Power of Attorney, moving to another state, acquisition of real estate in another state, birth or adoption or death of a child or grandchild, serious illness of a family member, change in business interest or retirement plans, change in insurability for life insurance, change in financial position of a beneficiary, change in beneficiary's outlook toward financial responsibilities, demonstrated financial irresponsibility of a beneficiary, and change in the tax laws of the State or the Federal government. This list is in no way all-inclusive and each person should review his or her own circumstances to determine whether a plan change should be made.
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