These are some of the most frequently asked estate planning questions to help you better understand the estate planning process. While some of the answers to the questions which follow may not apply in your situation, you may find the answers to be informative nonetheless.
Where is the best place to keep my signed original estate planning documents?
The best place is probably in a safe deposit box because it will protect the documents from theft, fire, accidental loss, and most other types of damage or harm. A potential problem, though, is getting it opened after your death.
If you decide to keep your estate planning documents in a safe deposit box, consider naming a family member or your Personal Representative or trustee as a joint holder on the box. That should simplify matters following your death because someone will be able to get into the box without delay.
Another place to keep your original estate planning documents is with the attorney who drafted them. However, I have decided not to retain original documents because of concern over theft, fire, flood, storms, or other loss of the document. It would also be prohibitively expensive to store hundreds or thousands of original documents. Also, what would happen if I were to die or my lawfirm were to cease operations?
Many people keep their original estate planning documents at home in a secure place. If you have a safe at home, that can be a good place to keep them. Be aware though, when thieves enter your home and discover a locked safe, they often take the whole safe thinking they'll find cash and jewelry. The last thing they want is a file containing your estate planning documents, but that's one of the things they'll get if you keep them in your safe. Therefore, unless your safe is bolted to the foundation of your house, it may not be the best place to keep your originals.
More people than you would expect keep original Wills and other estate planning documents in an air-tight plastic bag at the bottom of their freezers. Freezers are well insulated and heavy, and have a way of withstanding fires, hurricanes, and tornadoes. Also, they don't die or move away, and they are stolen far less frequently than in-home safes.
Should I give copies of my Will and other estate planning documents to my children and to the Personal Representatives of my estate?
For some people, their estate planning documents are as private as their income tax returns, and nobody is ever given copies. For other people, estate planning documents are no different than a spare key to the house, and every family member and Personal Representative and/or trustee named in the documents is given a copy.
If you are the type of person who values your privacy, who does not especially trust your children, Personal Representative, or trustee, or if you have written a Will or trust which does not treat all the children equally, then it may not be a good idea to hand out copies. Also, you may have more money than your children expect, and depending on how your Will or trust is written, giving them a copy may be letting them know too much about your personal business.
On the other hand, if you have a fairly open relationship with all your children, you regularly discuss finances with them, and you are leaving your estate to them in equal shares, then go ahead and give everyone a copy. Of course, if you decide to change your Will or revocable trust, you should be sure to give all the same people copies of the new documents. If you don't, then there may be some arguments following your death over which document controls the disposition of your estate.
What gifts can I make without having to pay gift taxes?
Every year, you can give any person you want as much as $15,000 without any gift tax consequences. This dollar amount is known as the annual exclusion, and it is now indexed for inflation. It will be increasing from time to time in $1,000 increments.
If you are married, the amount you can give to each person doubles to $30,000 since the person receiving the gift can receive $15,000 from each spouse. Gifts can be in the form of cash, stocks, bonds, real estate, or anything else of value. Buying real estate or bonds in the names of one or more other persons is the same as making a gift of that property to them. The value of the gift would be the amount of money you spent to buy the property or the bond.
You can also make tuition payments for any person you choose, and these payments do not count toward the $15,000 annual limit. Payments you make for medical expenses don't count against the $15,000 limit either. However, if you make a tuition or medical payment, be sure to pay the school, hospital or doctor directly, as a check made payable to a person which is used for tuition or medical care counts towards the $15,000 annual limit.
If you want to give more than $15,000 to any one person, to the extent your gifts exceed $15,000, you will use up a portion of your $11,700,000 lifetime exemption. This is the amount each person can give away without having to pay gift or estate taxes. By way of example, if you give one of your children $45,000 this year, you can exclude the first $15,000 under the annual exclusion, and the other $30,000 will leave you with a remaining lifetime exemption of $11,670,000.
Keep in mind that if the gifts to any person exceed $15,000 during a single calendar year, you will be required to file a gift tax return by April 15th of the following year to report the gift. That is how the IRS keeps track of how much of your $11,700,000 lifetime exemption is still available. Once you have given away more than the $11,700,000 lifetime limit, you must start paying gift taxes. The estate and gift tax rate is presently 40%.
Before making large gifts, it is often a good idea to talk to an estate planning attorney. Once gifts are made, you can't go back and do things a better way. For instance, if you are planning to make really large gifts, then it may be wise to create trusts for the benefit of your children. There are a number of important advantages to creating trusts, with few downsides.
For whom are living trusts most appropriate? What are the pros and cons?
Living trusts are useful estate planning tools, and they have an important place in many people's estate plans. If you find any one of the following benefits appealing, then a living trust may be appropriate for you.
Benefit #1: No Probate. When a person dies, most properties pass either under a person's Will or under a living trust. Some properties--such as life insurance, IRAs, and certain types of bank and brokerage accounts--pass directly to named beneficiaries. If property passes under a Will, then the Will must be probated at the courthouse. Probate entails hiring a lawyer, filing a number of papers with the court, attending one or more hearings, and providing a written inventory to the court valuing the properties which passed under the Will.
Some people don't want this type of involvement with the court, so they opt for a living trust. By transferring all properties which would otherwise pass under your Will to a living trust, you can avoid the probate proceeding. For estates which owe no estate taxes, there is usually less work for the lawyers, and that translates into reduced estate administration costs.
Court involvement is not eliminated entirely however. Florida now requires the trustee of a living trust to file a notice of the trust with the appropriate court containing information about the person who created the trust and the trustee. Also, in certain circumstances, the trustee may be required to pay expenses of administering the decedent's estate as well as the claims of creditors against the decedent's estate.
Benefit #2: More Privacy. As mentioned above, when a person dies with a Will, an inventory must be filed with the court. You may not want your friends, neighbors, or the media to be able to read a listing of what you own and what it is worth. After all, an inventory is a public record. With a living trust, your properties and their values remain private.
Benefit #3: Plan For Future Incapacity. You may be worried that one day you won't be able to manage your own finances, and you may want to name someone to handle these types of matters for you. You can address this potential problem with a power of attorney or with a living trust. A power of attorney will usually be accepted by banks, title companies and the like, but there is always the risk that an institution's legal department will reject it. The same person who may be denied the ability to use a power of attorney will likely be allowed to do anything he or she wants when acting as trustee of a living trust.
Benefit #4: Harder to Challenge. If you are planning to disinherit one of your children or grandchildren, you may be better off with a living trust because there is nothing filed at the courthouse. Also, it is a little harder to contest a living trust than a Will. Many people are interested in doing as much as possible to prevent a successful challenge to their estate plan.
Benefit #5: Avoid Out-of-state Probate. If you own property in another state, you can avoid a costly probate proceeding in that state by transferring the property to a living trust.
Before you establish a living trust you need to understand the downsides, which include the following:
Disadvantage #1: Time-consuming to Set Up. Depending on how many different types of properties and accounts you own, it can take quite some time to switch everything over to the name of your living trust.
Disadvantage #2: Complicated. Wills are usually shorter and simpler to understand than living trusts. Also, with a Will, you can sign it and forget about it. But with a living trust, you need to put your property into the trust and run your life out of it for as long as you live. For many people, this downside outweighs all the potential benefits.
Disadvantage #3: Time-consuming to Revoke. A year after you set up the living trust, you may decide you don't want it any more. At this point, you will need to return to every bank and brokerage house, and undo everything you had done to establish the trust. You can expect more lawyers' fees too.
Disadvantage #4: Post-Death Costs Not Eliminated. If you have a taxable estate (which is generally an estate over $11,700,000), there will be a lot of work to be done after death regardless of whether probate is required. Typically, there are tax returns to file, trusts to establish, assets to value, and more. Avoiding probate will only marginally reduce the cost of administering a taxable estate.
Disadvantage #5: May Still Need to Probate Will. If you leave just one bank account or one piece of real estate out of the trust, probate will still be necessary. And probate takes about as long when there is one asset as when there are twenty.
What is the difference between a Designation of Health Care Surrogate and a Living Will?
A Designation of Health Care Surrogate is a document that allows you to name an agent to make medical treatment decisions for you in accordance with your wishes if you are not able to do so yourself.
A Living Will is a document that allows you to address what kind of medical treatment you would like to receive if you ever face a terminal or irreversible medical condition. It is often referred to as the document where you tell the doctors to "pull the plug." Most people request that all treatments other than those needed to keep them comfortable be discontinued or withheld so they can be allowed to die as gently as possible.
The main difference between the two documents is that the Living Will is where you actually express your own specific preferences as to the use of life sustaining treatment, and the Designation of Health Care Surrogate is where you name one or more persons to make most medical decisions for you.
It is not uncommon to combine a Living Will and a Designation of Health Care Surrogate into a single form. Preparing the two documents as separate forms or as a single form are both valid ways to address the medical issues.
Which assets are handled outside of probate?
There are a number of different kinds of properties that may pass outside the provisions of your Will.
The list includes life insurance, retirement plans, individual retirement accounts, and annuities. When you purchased or set up these types of assets and accounts, you were probably asked to fill out a form listing the beneficiaries who will receive payments upon your death. These investments will pass to the named beneficiaries regardless of whether you have a Will. However, if you don't have a beneficiary named, if the beneficiary named is your "estate," or if all the beneficiaries are dead, then those investments will be paid to your estate and pass under your Will.
Certain bank and brokerage accounts will also pass outside your Will. For instance, payable-on-death accounts (sometimes called "POD" accounts) will be distributed to the named beneficiary. Additionally, accounts set up by one or more persons as joint tenants with rights of survivorship will pass to the surviving account holder or holders.
Some banks allow you to set up what they call trust accounts even though there is no written trust agreement. These types of accounts will pass to a named beneficiary without going through probate as well.
Not all joint accounts pass to the survivor. When joint accounts are set up as tenants in common, the portion of the account that was owned by the decedent passes under his or her Will.
Many people have decided to create revocable or irrevocable trusts as part of their estate plan. Virtually all such trusts are designed to pass directly to persons or other trusts named in the document rather than under a Will.
You may find that most of your estate consists of non-probate property. Therefore, it is extremely important to coordinate the beneficiaries of all these properties to make certain your assets will be distributed as you want when you pass away.