Should You Avoid Probate?

Should You Avoid Probate?

The living trust is often marketed as a vehicle that allows you to "avoid probate" upon your death. Probate is the court-supervised process of administering your estate and transferring your property at death pursuant to the terms of your will.  Probate is rarely the calamity naysayers claim.  In addition, many types of property routinely pass outside of the probate process, even without the cost of establishing a living trust.  Such property includes life insurance or retirement plan proceeds, which pass to a named beneficiary by designation rather than pursuant to your will, and real estate or bank or brokerage accounts held in joint names with right of survivorship.

While it is true that the property passing under the terms of a living trust upon your death will "avoid probate," it should be noted that there may or may not be actual value in that result. Probate laws are different in every state. In some states there are statutorily mandated court or attorney fees while in others those fees may be minimal. Many states have expedited or simplified court proceedings that are efficient and inexpensive for small or simple estates. A properly drafted will in many states can eliminate some of the steps otherwise required in the probate proceedings. In addition, much of the delay and red tape customarily associated with probate is a result of tax laws and tax filing requirements, which cannot be eliminated through a living trust and the avoidance of probate.  Finally, a living trust can almost never totally avoid probate, and a simple will is needed to "pour over" to the trust any property that has not been transferred to the trust during your lifetime.

Property that passes at death through a revocable living trust must be transferred to the trust, administered by a trustee who may or may not charge fees, and then transferred out of the trust to the beneficiaries. There may be other costs, such as real estate transfer taxes or fees, depending upon the jurisdiction.  The costs associated with these steps and the costs associated with tax filings are often ignored by living trust marketers.  A comparison of the costs of probate and those of a living trust should be made on a case by case basis.

Living trusts, in fact, have great value as part of estate planning, but not necessarily to avoid probate.  A living trust, if properly prepared and administered, can be a very effective tool to manage assets in the event of illness, disability or the effects of aging. In light of the aging population, the use of living trusts to minimize the risk of elder financial abuse and address similar issues, should be an important consideration in an estate plan.

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/the_probate_process.html

What is Probate

What is Probate?

Probate is the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries. The laws of each state vary, so it is a good idea to consult an attorney to determine whether a probate proceeding is necessary, whether the fiduciary must be bonded (a requirement that is often waived in the will) and what reports must be prepared. Most probate proceedings are neither expensive nor prolonged, which is contrary to the claims of many vendors selling living trust and other products.

The basic job of administration and accounting for assets must be done whether the estate is handled by an executor in probate or whether probate is avoided because all assets were transferred to a living trust during lifetime or jointly owned.  Many states have simplified or streamlined their probate processes over the years.  In such states, there is now less reason to use probate avoidance techniques unless there are other valid reasons to continue to minimize probate.  In planning your estate, more important than minimizing probate is minimizing the real issues that can make probate difficult, such as lawsuits by heirs

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/the_probate_process.html

Organ and Tissue Donation

Organ and Tissue Donation

In many states you can include in your advance directive your preference to become an organ or tissue donor at the time of death. State law varies, and you should check with your attorney. Even if your state is one in which your driver's license contains an organ or tissue donor statement, you need to let your health care proxy, your family, and your physician know your desire to become a donor. In some states you also need to be registered as an organ and tissue donor. Given the long list of people who die each year waiting for organ donations, donating your organs and tissue can be a tremendous help to those in need.  Be certain to consider religious and other issues that may impact your decision to become a donor. 

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/living_wills_health_care_proxies_advance_health_care_directives.html

Obtaining and Maintaining Living Wills and Health Care Proxies

Obtaining and Maintaining Living Wills and Health Care Proxies

Your lawyer can provide you with these documents. Generally, these documents require at least two witnesses, who must be adults as defined under your state law. It is the policy of some hospitals and other medical institutions not to permit their employees to witness the signing of such documents. Most states have other restrictions as to who may witness such documents. Generally, the persons who act as witnesses are not permitted to be individuals entitled to any inheritance as a result of your death, either by will or by state law.  Often, state law does not permit persons to witness such documents if they are related to you by blood or by marriage or if they are responsible for payment of your medical bills.  Some lawyers recommend that these documents be notarized as well as witnessed.

While all states recognize these types of documents, the law varies as to whether a state will recognize a document prepared in another state. It is not necessary to prepare additional documents in case you might vacation in another state. If you spend a considerable amount of time living in more than one state, however, you should consider having such documents prepared in each of the states in which you spend significant periods of time.

Should you change your mind about your health care treatment or end of life decisions or your choice of health care proxy, you can simply destroy the documents you have and create new ones. Once you have a living will, health care proxy, or advance health care directive, you should keep it among your important papers. Make sure a responsible adult, such as the named health care proxy, knows where you keep these documents. If you have a regular physician who keeps your medical records, you should provide a copy of the document to him or her for your medical records. In the event you are admitted to a hospital, you should take this document with you at the time you are admitted and permit the hospital to place a copy of it into your medical file.  It is also a good idea to discuss the decisions you have made in your document with family members so that they may better know and understand your wishes concerning these matters.

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/living_wills_health_care_proxies_advance_health_care_directives.html

Why Have Health Directives?

Why Have Health Directives?

Regardless of the name your state gives to these documents, their purpose is to allow you to express your preferences concerning medical treatment in an extreme medical situation when you cannot communicate, including at the end of your life. By expressing such preferences in a written legal document, you are ensuring that your preferences are made known. Physicians prefer these documents because they provide a written expression from you as to your medical care and designate for the physician the person he or she should consult concerning unanswered medical questions. Rather than the physician having to obtain a consensus answer from your family as to your treatment, the physician knows your preferences and knows who you want to provide decisions when you cannot do so.  Also, providing such information and designating a health care proxy means that the physician knows whose direction is to be followed in the event your family disagrees as to what medical treatment you would want.

In addition to helping your physician, these documents express your wishes to your family so that they do not have to guess about what you would want.  Making your wishes known in advance prevents family members from making hard choices at what likely will be one of the most stressful times in their lives.

Health Care Proxy

Health Care Proxy

A "health care proxy," sometimes called a "health care surrogate" or "durable medical power of attorney," is a durable power of attorney specifically designed to cover medical treatment.  You appoint a person and grant to him or her the authority to make medical decisions for you in the event you are unable to express your preferences about medical treatment. Most commonly, this situation occurs either because you are unconscious or because your mental state is such that you do not have the legal capacity to make your own decisions. As with living wills, depending on your state of residence, the health care proxy may be a standard or statutory form or it may be may be drafted specifically for you by your lawyer.  Normally, one person (not multiple persons to act at one time) is appointed as your health care proxy.  It is quite common, however, for you to appoint one or more alternate persons (successors) in the event your first choice proxy is unavailable. You should confirm prior to appointing someone as your proxy that he or she will in fact be willing and able to carry out your wishes. If your preferred proxy  has, for example, a religious view that prevents him or her from carrying out your wishes, you should name someone else.  As in the case of a living will, medical professionals will make the initial determination as to whether you have the capacity to make your own medical treatment decisions.

Why Have Health Directives?

Regardless of the name your state gives to these documents, their purpose is to allow you to express your preferences concerning medical treatment in an extreme medical situation when you cannot communicate, including at the end of your life. By expressing such preferences in a written legal document, you are ensuring that your preferences are made known. Physicians prefer these documents because they provide a written expression from you as to your medical care and designate for the physician the person he or she should consult concerning unanswered medical questions. Rather than the physician having to obtain a consensus answer from your family as to your treatment, the physician knows your preferences and knows who you want to provide decisions when you cannot do so.  Also, providing such information and designating a health care proxy means that the physician knows whose direction is to be followed in the event your family disagrees as to what medical treatment you would want.

In addition to helping your physician, these documents express your wishes to your family so that they do not have to guess about what you would want.  Making your wishes known in advance prevents family members from making hard choices at what likely will be one of the most stressful times in their lives.

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/living_wills_health_care_proxies_advance_health_care_directives.html

Living Wills

Living Wills, Health Care Proxies, & Advance Health Care Directives

back to estate planning FAQs

Introduction

With the increasing ability of medical science to sustain our lives, people are living much longer than ever before. Unfortunately, as we grow older, or if we experience health challenges, we may find ourselves in a position in which decisions need to be made as to how we wish to be treated in a variety of medical situations. This is especially true at the end of our lives, but can be true at any time as a result of the impact of an accident, injury, or illness. If we are in a condition such that we no longer can express our preferences about treatment, decisions will be made for us by others if we have not planned for our own treatment in advance. Advance health care directives allow us to deal with these situations. Without such directives, our families may find it necessary to obtain court orders to deal with our medical situations.

State laws vary concerning the appropriate documents to cover these situations. All fifty states permit you to express your wishes as to medical treatment in terminal illness or injury situations, and to appoint someone to communicate for you in the event you cannot communicate for yourself. Depending on the state, these documents are known as "living wills," "medical directives," "health care proxies," or "advance health care directives." Some states have a standardized or statutory form, while other states allow you to draft your own document.  But even if you use a standard or statutory form, you should review it to be sure that it comports with your personal wishes. Never sign a document presented to you as standard unless you have read and understood it and confirmed that it does in fact reflect your desires.

Living Wills

A living will is your written expression of how you want to be treated in certain medical circumstances. Depending on state law, this document may permit you to express whether you wish to be given life-sustaining treatments in the event you are terminally ill or injured, to decide in advance whether you wish to be provided food and water via intravenous devices ("tube feeding"), and to give other medical directions that impact your care, including the end of life. "Life-sustaining treatment" means the use of available medical machinery and techniques, such as heart-lung machines, ventilators, and other medical equipment and techniques that may sustain and possibly extend your life, but which may not by themselves cure your condition. Be very careful signing any such document without reviewing the implications to you. For example, some of the commonly used clauses in living wills may forbid the provision of assisted breathing, including devices you presently may be using if, for example, you are living with COPD.  Most important, many of the provisions of such a document have profound religious and philosophical implications. Be certain that whatever you sign is consistent with your beliefs and wishes. In addition to terminal illness or injury situations, most states also permit you to express your preferences as to treatment using life-sustaining equipment or tube feeding for medical conditions that leave you permanently unconscious and without detectable brain activity.

A living will applies in situations in which the decision to use such treatments may prolong your life for a limited period of time and not obtaining such treatment would result in your death.  Having a living will does not mean that medical professionals would deny you pain medications and other treatments that would relieve pain or otherwise make you more comfortable. Living wills do not determine your medical treatment in situations that do not affect your continued life, such as routine medical treatment and non life-threatening medical conditions. Most states permit you to include other medical directions that you wish your physicians to be aware of regarding the types of treatment you do or do not wish to receive.  In all states the determination as to whether you are in such a medical condition is determined by medical professionals, usually your attending physician and at least one other medical doctor who has examined you or reviewed your medical situation.

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/living_wills_health_care_proxies_advance_health_care_directives.html

Power of Attorney

An important part of lifetime planning is the power of attorney. A power of attorney is accepted in all states, but the rules and requirements differ from state to state. A power of attorney gives one or more persons the power to act on your behalf as your agent. The power may be limited to a particular activity, such as closing the sale of your home, or be general in its application. The power may give temporary or permanent authority to act on your behalf. The power may take effect immediately, or only upon the occurrence of a future event, usually a determination that you are unable to act for yourself due to mental or physical disability. The latter is called a "springing" power of attorney.  A power of attorney may be revoked, but most states require written notice of revocation to the person named to act for you.

The person named in a power of attorney to act on your behalf is commonly referred to as your "agent" or "attorney-in-fact." With a valid power of attorney, your agent can take any action permitted in the document. Often your agent must present the actual document to invoke the power. For example, if another person is acting on your behalf to sell an automobile, the motor vehicles department generally will require that the power of attorney be presented before your agent's authority to sign the title will be honored. Similarly, an agent who signs documents to buy or sell real property on your behalf must present the power of attorney to the title company. Similarly, the agent has to present the power of attorney to a broker or banker to effect the sale of securities or opening and closing bank accounts. However, your agent generally should not need to present the power of attorney when signing checks for you.

Why would anyone give such sweeping authority to another person? One answer is convenience. If you are buying or selling assets and do not wish to appear in person to close the transaction, you may take advantage of a power of attorney. Another important reason to use power of attorney is to prepare for situations when you may not be able to act on your own behalf due to absence or incapacity. Such a disability may be temporary, for example, due to travel, accident, or illness, or it may be permanent.

If you do not have a power of attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint one or more people to act for you. People appointed in this manner are referred to as guardians, conservators, or committees, depending upon your local state law. If a court proceeding, sometimes known as intervention, is needed, you may not have the ability to choose the person who will act for you. Few people want to be subject to a public proceeding in this manner so being proactive to create the appropriate document to avoid this is important. A power of attorney allows you to choose who will act for you and defines his or her authority and its limits, if any. In some instances, greater security against having a guardianship imposed on you may be achieved by you also creating a revocable living trust.

Who Should Be Your Agent?

You may wish to choose a family member to act on your behalf. Many people name their spouses or one or more children. In naming more than one person to act as agent at the same time, be alert to the possibility that all may not be available to act when needed, or they may not agree. The designation of co-agents should indicate whether you wish to have the majority act in the absence of full availability and agreement. Regardless of whether you name co-agents, you should always name one or more successor agents to address the possibility that the person you name as agent may be unavailable or unable to act when the time comes.

There are no special qualifications necessary for someone to act as an attorney-in-fact except that the person must not be a minor or otherwise incapacitated. The best choice is someone you trust. Integrity, not financial acumen, is often the most important trait of a potential agent.

How The Agent Should Sign?

Assume Michael Douglas appoints his wife, Catherine Zeta-Jones, as his agent in a written power of attorney. Catherine, as agent, must sign as follows: Michael Douglas, by Catherine Zeta-Jones under POA or Catherine Zeta-Jones, attorney-in-fact for Michael Douglas.  If you are ever called upon to take action as someone’s agent, you should consult with an attorney about actions you can and cannot take and whether there are any precautionary steps you should take to minimize the likelihood of someone challenging your actions. This is especially important if you take actions that directly or indirectly benefit you personally.

What Kinds of Powers Should I Give My Agent?

In addition to managing your day-to-day financial affairs, your attorney-in-fact can take steps to implement your estate plan. Although an agent cannot revise your will on your behalf, some jurisdictions permit an attorney-in-fact to create or amend trusts for you during your lifetime, or to transfer your assets to trusts you created. Even without amending your will or creating trusts, an agent can affect the outcome of how your assets are distributed by changing the ownership (title) to assets. It is prudent to include in the power of attorney a clear statement of whether you wish your agent to have these powers.

Gifts are an important tool for many estate plans, and your attorney-in-fact can make gifts on your behalf, subject to guidelines that you set forth in your power of attorney. For example, you may wish to permit your attorney-in-fact to make "annual exclusion" gifts (up to $14,000 in value per recipient per year in 2013) on your behalf to your children and grandchildren. It is important that the lawyer who prepares your power of attorney draft the document in a way that does not expose your attorney-in-fact to unintended estate tax consequences. While some states permit attorneys-in-fact to make gifts as a matter of statute, others require explicit authorization in the power of attorney. If you have older documents you should review them with your attorney. Because of the high estate tax exemption ($5 million inflation adjusted) many people who had given agents the right to make gifts may no longer wish to include this power. Others, however, in order to empower their agent to minimize state estate tax might continue or add such a power. Finally, there may be reasons not to limit the gifts your attorney-in-fact may make to annual exclusion gifts in order to facilitate Medicaid planning or to minimize or avoid state estate tax beyond what annual exclusion gifts alone might permit.

In addition to the power of your agent to make gifts on your behalf, many powers of your attorney-in-fact are governed by state law. Generally, the law of the state in which you reside at the time you sign a power of attorney will govern the powers and actions of your agent under that document. If you own real estate, such as a vacation home, or valuable personal property, such as collectibles, in a second state, you should check with an attorney to make sure that your power of attorney properly covers such property.

What if I move?

Generally, a power of attorney that is valid when you sign it will remain valid even if you change your state of residence. Although it should not be necessary to sign a new power of attorney merely because you have moved to a new state, it is a good idea to take the opportunity to update your power of attorney. The update ideally should be part of a review and update of your overall estate plan to be sure that nuances of the new state law (and any other changes in circumstances that have occurred since your existing documents were signed) are addressed.

Will my Power of Attorney expire?

Some states used to require the renewal of a power of attorney for continuing validity. Today, most states permit a "durable" power of attorney that remains valid once signed until you die or revoke the document. You should periodically meet with your lawyer, however, to revisit your power of attorney and consider whether your choice of agent still meets your needs and learn whether developments in state law affect your power of attorney. Some powers of attorney expressly include termination dates to minimize the risk of former friends or spouses continuing to serve as agents. It is vital that you review the continued effectiveness of your documents periodically.
source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/revocable_trusts.html

What is a Revocable Living Trust?

Much has been written regarding the use of "living trusts" (also known as a "revocable trust," "inter vivos trust," or “loving trust”) as a solution for a wide variety of problems associated with estate planning that wills cannot address. Some attorneys regularly recommend the use of such trusts, while others believe that their value has been somewhat overstated. The choice of a living trust should be made after consideration of a number of factors.

The term "living trust" is generally used to describe a trust that you create during your lifetime.  A living trust can help you manage your assets or protect you should you become ill, disabled or simply challenged by the symptoms of aging. Most living trusts are written to permit you to revoke or amend them whenever you wish to do so.  These trusts do not help you avoid estate tax because your power to revoke or amend them causes them to continue to be includable in your estate.  These trusts do help you avoid probate, which may not always be necessary depending on the cost and complexity of probate in your estate.

You also can create an "irrevocable" living trust, but this type of trust may not be revoked or changed, and such a trust is almost exclusively done to produce certain tax or asset protection results, which are beyond the scope of this summary.

A "living trust" is legally in existence during your lifetime, has a trustee who currently serves, and owns property which (generally) you have transferred to it during your lifetime. While you are living, the trustee (who may be you, although a co-trustee might also be named along with you) is generally responsible for managing the property as you direct for your benefit. Upon your death, the trustee is generally directed to either distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries. Like a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also (a) provide you with a vehicle for managing your property during your lifetime, and (b) authorize the trustee to manage the property and use it for your benefit (and your family) if you should become incapacitated, thereby avoiding the appointment of a guardian for that purpose.

source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/revocable_trusts.html

Life Insurance

Life Insurance

If you own life insurance on your own life, you may either
(a) designate one or more beneficiaries to receive the insurance proceeds upon your death, or
(b) make the proceeds payable to your probate estate or to a trust created by you during your lifetime or by your will.
If insurance proceeds are payable to your estate, they will be distributed as part of your general estate in accordance with the terms of your will or, if you die without a will, according to the applicable state laws of intestate succession. If the proceeds are payable to a trust, they will be held and distributed in the same manner as the other trust assets and may be protected from creditors' claims. Insurance proceeds that are payable directly to a minor child generally will necessitate the court appointment of a legal guardian or conservator. This can be avoided by naming a trust or custodial account under the state transfers-to-minors law as the beneficiary. Trusts often are used for insurance proceeds, even if the trust beneficiary is not a minor, to protect the assets from a creditors, divorce, to provide income tax planning and distribution flexibility, and to provide centralized or professional management of the proceeds. 

Insurance plays an important role in financial, retirement and estate planning and should be coordinated with all other aspects of your estate plan. The laws pertaining to the taxability of insurance proceeds are complex, so it is important that all matters pertaining to life insurance be carefully reviewed with your attorney and insurance advisor. For example, your insurance coverage should be reviewed at least every two or three years to assure that the policy is performing as intended, the insurance company remains in solid financial position, and that the ownership of the policy and its beneficiary designations still comport with your wishes.source http://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/an_introduction_to_wills.html