ESTATE PLANNING: WILLS, TRUSTS, POWER OF ATTORNEY, ADVANCED MEDICAL DIRECTIVES

Estate/Inheritance Tax

The threshold for Estate tax has reached $12,000,000.00.  99% of households are not affected by Estate or Inheritance tax in any way.

Nonetheless, even though Estate tax is not ordinarily an issue, planning is required to accomplish distribution of your assets as you desire.

When we discuss Estate planning with clients, we need an outline of the major assets and liabilities of the household:  House/other real estate/bank accounts/investment accounts/retirement accounts/life insurance and otherwise. 

Also, we need to know the desired disposition of the assets (who will be the beneficiaries).

Frequently Occurring Scenarios

1. If the household is a husband and wife, and the only children are their children, it is often a fairly straightforward process to set up an estate plan and the necessary documents.

   Usually, the spouses want to leave everything to each other and then to the children equally.  If the children are under age 18, provisions should be made for guardianship and having a trustee (usually a close family member) to handle the assets until the children are of age.  Finding the right person to fill these roles is often the most difficult part for the married with young children clients.

2. Parties are in a second or subsequent marriage, and children are from prior marriages.

   Spouses usually want the surviving spouse to receive all or most of the assets, but want assurance that the surviving spouse will treat both sets of children equally.  Will/trust documents can be setup accomplishing this, but after the first spouse dies, the surviving spouse can change the will/trust or otherwise give away assets or otherwise deviate from the original plan.  I have seen this happen more than a few times. Possible solutions:  each party leaves something directly to their own children, or each party have life insurance in place for their own children as beneficiaries.

Power of Attorney/Advance Medical Directive

We also discuss Power of Attorney (POA) and Advance Medical Directive (AMD) when we discuss Estate Planning.

A POA is an authorization or grant of authority to someone else (an agent) to conduct certain specific matters for you (Limited POA) or to conduct any and all your business (General POA).  POAs are almost always durable (surviving the disability of the maker of the POA).

A POA is used during a person’s lifetime.  The POA is not effective after the maker’s death.

Issues to be considered:

1. Whether the POA is contingent or not.  The POA can be made contingent (to go into effect upon the happening of a specific event such as the disability of the maker) or to go into effect immediately.  Each has its pros and cons which need to be discussed.

2. Whether to name one person to act under the POA and another person an alternate or whether to name multiple people POA; either of whom may act, or all of them must act together.  Each of these has advantages and disadvantages.

3. Whether a POA should have the power to make gifts of the makers assets.  This can be extremely helpful in order to transfer assets or to remove the assets from the person’s name so as to qualify for Medicaid (Nursing home problem).  However, authorization to make gifts can certainly be abused by the POA.

Advance Medical Directive (AMD) is a statement of intention, and also a designation of one or more persons to make medical decisions on behalf of the maker of the AMD in the event of incapacity.  This is a very useful document. 

Wills

The Will is a traditional method of disposing of one’s assets.  A will must be probated and then the estate administered by a designated Executor.  The Virginia probate process is fairly simple compared to most states, but there is still considerable record keeping and bookkeeping required and accounts to be filed.  When the beneficiaries of the will and the Executors are the same persons, “probate” is very simple.  If this is the case “avoiding probate” is usually not an issue. 

Trusts

Advantages:

• Trusts are private documents (never recorded in the Clerk’s Office like Wills are) so privacy is maintained.

• Trusts avoid the Court probate process as the Trustee controls the assets free of any supervision or control from the Court.

• Trusts can provide for management of assets in the event of disability.

Disadvantages:

• Trusts are more expensive to create.  Your upfront costs are higher.

• Your assets need to be retitled into the Trust.  This adds additional upfront expense.  However, if an asset is not retitled it is not part of the Trust.

• The Trustee is unsupervised.  The probate process can be cumbersome, but the Executor is required to account to the Court, the Trustee is not.

  We can talk and suggest the most efficient way to carry out your wishes.

Examples of Situations that Defeat Estate Planning Documents

Beneficiary designations are the single problem that defeat an Estate Plan most often.  Regardless of what your Will or Trust provides, if an asset is subject to a beneficiary designation the asset goes to the beneficiary and is not part of your estate and does not go according to your Will or Trust. It goes to the beneficiary.  Examples that can have beneficiary designations are life insurance, land deeds with survivorship, TOD/survivorship on bank accounts, CDs, investment accounts or different retirement accounts.

Liabilities of the Estate

A person could have a number of assets, but also a number of debts.  It is frequently an issue as to whether or not a debt of the estate has to be paid from funds that would otherwise go to a specific beneficiary.  If a person leaves a property to a beneficiary, but the property is subject to a deed of trust, does the beneficiary receive the property free and clear and the estate pay the balance on the debt?  Does a property go to a beneficiary subject to a Deed of Trust, or would the Deed of Trust be paid from estate funds?

Do it Yourself Wills

I would urge you not to try a do-it-yourself, fill in the blank, will.  This is a situation that is so fraught with problems from using an inappropriate or ill devised form, or not realizing the consequences of what you are doing with the forms.  Also, the execution of wills is somewhat complicated, and we certainly prefer to have wills executed at the office where the witnesses and notary are all present together.  I have seen do-it-yourself wills that fail to waive the bonding requirement of the Executor, that fail to give the Executor power over real estate, that fail to name a residuary beneficiary, that fail to have provision for beneficiary under the age of eighteen, and weren’t clear as to the beneficiary  I certainly believe what we charge for Wills/Trusts/POAs/AMDs is reasonable.  We would be happy to discuss the pricing with you upfront.