We have all heard stories and experiences of families fighting over real estate or personal property after a loved one has passed away. Creating a plan for the smooth transition of your Estate and to make sure your loved ones are taken care of may all be addressed through meeting with an Estate Planning Attorney. To better understand your Estate Planning options, as well as the right path for you, here are some common estate planning questions.
What is Estate Planning?
Estate Planning means the preparation of several documents to protect your assets and property upon your death, to protect your loved ones upon your death, and to ensure that your estate passes pursuant to your wishes. Some of the more common Estate Planning documents prepared by an Estate Planning Attorney are as follows:
- Declaration Relating to Life-Sustaining Procedures (Living Will);
- Medical Power of Attorney;
- Declaration regarding Disposition of Final Remains;
- General Power of Attorney;
- Last Will & Testament; and
- Revocable/Irrevocable Trusts.
What is a Living Will?
A Living Will, which is also known as a Declaration Relating to Life-Sustaining Procedures, actually has nothing to do with “living” or the passing of property upon your death. Rather, a Living Will addresses whether you want to be connected to various life-sustaining machines, if you should succumb to an incurable and irrevocable state of permanent unconsciousness. For example, if a doctor should determine that you are brain dead and recommends various machines to continue your vital life functions, you are declaring now, pursuant to the Living Will, that you do not wish to be connected to any life sustaining procedures/machines. Life Sustaining Procedures are any medical procedure, treatment, or intervention which utilizes mechanical or artificial means to sustain, restore, or replace spontaneous vital function (such as breathing) and, when applied to a patient with a terminal condition, only serves to prolong the dying process. Life sustaining procedures do not include any medical procedure deemed necessary to provide comfort, care, or to alleviate pain. The benefit of a Living Will is that it eliminates the burden on your relatives or spouse to make the decision whether to disconnect you from life support, as well as removes the extreme financial burden to your family based upon the cost of long-term life sustaining procedures.
What is a Medical Power of Attorney?
A Medical Power of Attorney, which is also known as a Durable Power of Attorney for Health Care Decisions, allows you to name someone over the age of 18 to make health care decisions should you be unable to make them yourself (such as in a coma or unconscious). A Medical Power of Attorney only requires that you are unconscious or otherwise incapable of making medical decisions (such as some type of incapacity or disability), which differs from a Living Will, which requires you to be unconscious and in a terminable, irreversible condition. Furthermore, a Medical Power of Attorney only addresses the treatment and diagnoses of a medical condition and does not involve the withdrawal of life sustaining treatment.
What is a Declaration of Designee for Final Disposition of Remains?
This Declaration document allows you to name a person to make decisions for your funeral and burial. For example, if you want a certain type of funeral or to be buried in a certain cemetery, and you do not believe your children will follow your wishes, then you can name a third party (such as a friend) to be in charge of making your funeral and burial decisions. This Declaration can be included as part of your Medical Power of Attorney and Living Will.
What is a General Power of Attorney?
Like a Medical Power of Attorney, you appoint an “Agent” to make financial decisions should you become incapable of making them yourself. These non-medical issues may include many business and financial type decisions (such as buying and selling real estate, accessing bank records, writing paying taxes, contacting life insurance or investment companies regarding your investments, completing applications for Medicaid coverage, and handling a lawsuit on your behalf). A General Power of Attorney could be effective immediately upon signing or only upon you being found incompetent and unable to make decisions on your own. A General Power of Attorney terminates upon your death and, therefore, the Agent’s authorization to make decisions for you also terminates upon your death.
What is a Last Will & Testament?
The purpose of a Last Will & Testament is to designate, in writing, how you want your personal property and real estate disposed of upon your death. Before preparing a Will, you need to consider what types of assets and property are actually covered by a Last Will & Testament. A Will only covers those assets (“Probate Assets”) which are in your sole name (such as real estate, bank accounts, motor vehicles, etc.). A Will does not cover any property that you own jointly with a third party, that you have payable on death to a third party, or that you have in a life insurance policy or investment contract that designates a beneficiary. These types of assets are referred to as “Non-Probate Assets.”
In preparing your Will to distribute your Probate Assets, you will need to make the following decisions:
- Who do you want to be the Executor or Personal Representative of your Last Will & Testament? This is the person who would hire a Probate Attorney and be in charge of gathering and distributing your assets under the Will, as well as making sure your final expenses and bills are paid.
- Do you want to leave any particular personal property or a sum of money to a particular person? For example, “I leave $5,000 to my son, John Doe.” or “I leave my 1965 Ford Mustang to my nephew, Jack Doe.”
- Who do you want to receive the property under your Will (i.e. Beneficiary of your Will)? If that person should pass away before you, then who do you want to receive your assets? For example, your Will may leave everything to your spouse. But if he/she predeceases you, then to your children (equally); or if one of your children should predecease, then to their children (i.e. your grandchildren).
- If you are leaving any assets to minors (such as your grandchildren), do you want to create a Testamentary Trust until they reach a certain age? The Trust would identify a Trustee (a person in charge of holding and investing the money until the beneficiary comes of age), as well as the distribution dates. For example, you can distribute ½ of the Trust at age 21 and the other ½ of the Trust at age 25.
- If you have minor children and, who do you want to nominate as Guardian for the them and Conservator for their property in the event something should happen to both parents? While a legal proceeding would formally be required to nominate such person, the Court does give preference to the parents wishes in their Wills.
What is Probate of a Last Will & Testament?
Probate is the court-monitored procedure which allow your Probate Assets to be distributed and released to your heirs and beneficiaries. The Probate process could be required so that real estate can be sold or investment assets cashed in and distributed. The Probate may be initiated in the Court for the County in which you passed away, or it could be filed in a foreign State in the event you own real estate in another State. For example, you could have a probate filed in Woodbury County, Iowa, as you resided there, but also a 2nd probate filed in Dakota County, Nebraska, as you owned farm property there.
In situations where a family owns farm property or other real estate in multiple States, a Revocable Trust (as discussed below) may be a great option to avoid considerable hassle upon your death due to multiple probates.
What is a Revocable Trust/Irrevocable Trust?
A Revocable Trust and an Irrevocable Trust, unlike a testamentary trust which you can create in your Will and takes effect upon your death, is created during your lifetime. A Revocable Trust (also known as a “Living Trust”) is created and funded by your assets during your life and is revocable, which means it can be amended at any point during your life. An Irrevocable Trust does not allow for revocation. Once the Irrevocable Trust is established, it generally cannot be amended or revoked.
- What are the pros and cons of a Revocable Trust?
The main benefit in our current environment is a Revocable Trust allows your Estate to pass without the need for Court involvement (unlike a Last Will & Testament, which must be submitted to a Probate Court). You are the Trustee of your Revocable Trust and can remove and dispose of the Trust Assets at any time, at your sole discretion. The down side to a Revocable Trust is that assets funded into it will still be considered your own personal assets for creditors or Federal Estate Tax purposes. This means that a Revocable Trust offers no creditor protection if you are sued, so all assets held in the name of the trust at the time of your death will be subject to both state and federal estate taxes.
For those families who want to have their children avoid the hassle of probating their Will or if a family has real estate in multiple states, Revocable Trusts are a great option.
- What are the pros and cons of an Irrevocable Trust?
The main benefit of an Irrevocable Trust is it allows for reduction of your Estate for Federal Estate Tax purposes. While the current 2020 federal estate tax exceeds $11 million, which means that if your Estate is worth less than $11 million, you are not required to submit or pay any federal estate tax. An Irrevocable Trust may be an option to consider if your Estate is currently in excess of the $11 million exemption. The down side of the Irrevocable Trust is you are giving up control over those Trusts Assets. The Trustee of the Irrevocable Trust now has full control over the Trust Assets, and you are unable to be the Trustee of the Irrevocable Trust.
- What are the terms and conditions of my Trust?
Much like the determination of your wishes in a Last Will and Testament, you make the same decisions while implementing your Trust. Who do I want to be Trustee and handle my Trust Assets after I pass away? How do I want my Trust assets to pass after my death? You undergo the same estate planning process in planning your Last Will & Testament as you would in implementing a Revocable or Irrevocable Trust.
As you can see, Estate Planning can be a very complicated process with many options and steps. If you have additional Estate Planning questions or would like to discuss your Estate Planning options, please contact our Law Firm to schedule a consultation with one of our experienced Estate Planning Attorneys. Our lawyers are highly skilled in every facet of the estate planning process, including tax law, business law, corporate law, and probate law.
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