CHAPTER THREE

Estate Planning is complicated and is governed by state laws. You have found a lawyer that is experienced in this area which is vital to estate planning. Here we will explain some of the basic terms and legal concepts of this area of law.

Wills and Frequently Asked Questions

What is a Last Will?
Are there advantages of having a Last Will?
What happens if I die without a Will?
What is a Living Will, is it the same as a Last Will?
Who are administrators and executors?

What is a Will?

The Last Will & Testament (or just the "Will") is a document which disposes of the assets in your estate at death. Your estate is made up of all of the property you own or in which you have an interest. With a very simple estate, a desire to leave your estate to a surviving spouse can be done with a Will. This can be a very basic document, consisting of only a few pages. In approximately half the states, it can even be handwritten. A handwritten Will is called a "holographic will". There are usually stringent statutory requirements for a holographic will. However, with an even slightly more valuable estate, and if there is a wish to provide for a surviving spouse as well as minor children of a present or prior marriage, or if the value of your estate has any possibility of exceeding the statutory amount, your Estate Plan would be better served by a Living Trust. Beware of companies that specialize in managing assets who also sell trusts. These companies or individuals are not estate planning specialists and are interested in getting your estate under the management of their company.

What are the advantages of having a Will?

There are certain advantages to having at least a Will, as a basic estate planning device. Remember that a Living Trust Plan includes Wills for each spouse, or a single individual, called a "Pour Over Will". This is to put any asset into the Trust at death that was inadvertently left out of the trust. However, a pour over Will, as any other Will may have to be probated.

If your have had a Will prepared:

1. You decide and name those who will inherit property upon your death. Without a Will your property will pass to those the state designates as your heirs, under the laws of Intestate Succession.

2. If minor children survive you, you are able to designate in a Will the person who you would like to serve as a guardian of your children.

3. You are also able to designate the person who will administer your estate, called the "executor" (or executrix) of your estate. The executor (or "personal representative", in some states) is the person legally responsible with carrying out the provisions of your will. The executor lists your property, makes sure everything is accounted for, and also notifies creditors of your death. The executor will pay any debts you may have owed at the time of death, and, then, distributes the remaining property according to your directives, as expressed in your will.

If a person dies without a Will, the person has died "intestate", and this will result in a court appointing an administrator to make sure that your property is distributed according to the laws of the state. (not according to your wishes, as you did not leave anything reflecting your wishes) The person appointed by a court as your administrator or executor may also be required to post a performance bond. This bond can be purchased from most insurance companies. If you have a Will, you can avoid the cost to the executor of the performance bond by specifying in the will that the executor is to serve without bond.

What happens to my property if I die without a Will?

Each state has Intestacy statutes. These are laws which specify who is to receive your property at death if you have passed away without a Will. Under Intestacy laws, which vary from one state to another, property generally passes to your surviving spouse and then other relatives. If you want to leave some of your property to a friend or to a charitable organization, you will have to execute a Will, as Intestacy laws do not consider these outcomes. Generally, intestacy statutes provide:

1. Spouse and children: As a general rule, when you have been survived by your spouse and children, your estate will be divided between or among them, with your spouse getting half your property if you have only one child and the child getting the other half. In some states, your entire estate goes to your surviving spouse. In certain cases, if a spouse and more than one child has survived you, your spouse may only receive one-third of your estate. The other two-thirds can be divided among your children.

Most husbands and wives who have small or modest estates prefer to leave all or substantially all of their estate to their surviving spouse. In such situations state Intestacy laws will not carry out the intent of the deceased. At a minimum, a Will is needed.

In many community property states, Intestacy law treats widows or widowers more generously, giving them all of the community property accumulated during the marriage and only dividing separate property between the surviving spouse and children. It is important to remember that a "surviving spouse" does not mean a former spouse or a current domestic partner. In order to inherit as a spouse under the Intestacy laws, your spouse must be married to you at the time of your death. If you want to leave some or all of your estate property to a domestic partner, you must create a Will or a Living Trust.

2. If you are survived by children only, and/or grandchildren (in other words, you leave no surviving spouse), under most Intestacy laws your estate will be divided equally among your children. If one or more of your children has died before you and they have surviving children (i.e. your grandchildren), those grandchildren take the share of your estate that would have passed to their deceased parent.

3. If you have not at least had a Will prepared, and you are not survived by a spouse or by children or grandchildren, your estate will generally go to your parents if they are alive. If your parents have not survived you, the property will pass to your brothers and/or sisters. If some or all of your brothers/sisters have died before you, their children (your nieces and nephews) will take the share of their deceased parent. If you have not let a Will, and you have no surviving spouse or children of your own, and no surviving parents, a nephew with a known drug habit might stand to inherit all of your estate property. This can be corrected with the preparation of a Will, but preferably with a Living Trust.

What is a living Will?

Living Wills are included in a Living Trust Estate Plan. These documents allow you to direct a physician to withhold or withdraw life-sustaining procedures in future circumstances. They are legally binding documents, in fact many medical facilities ask if a patient has a Living Will during the admission process. Most, if not all jurisdictions now recognize a patient's right to make these decisions in advance of a terminal condition, if death is imminent, and if life-sustaining measures serve only to postpone death. When acting pursuant to a properly prepared and executed Living Will, a physician who withholds or withdraws life sustaining measures is protected from civil and criminal liability. Living wills must be prepared and executed pursuant to stringent state statues to be valid and effective.

What are administrators and executors?

An "executor" or "administrator" is the person who you have named as responsible for handling the estate when you die. If you have left a Will, the person will be called an "executor". If you did not leave a Will, a court will be petitioned to appoint an individual, who is called an "administrator". If a circumstances arises where two people petition a court to be named as "administrator", the court is required to give priority to the closest relative of the deceased, but if the other shows "good cause" for the court not to appoint the closest relative, this showing could overcome any statutory priority. In that situation, someone other than a close relative might be named as "administrator" of the assets in your estate. In rare cases, two people can be appointed as co-administrators. The administrator or executor is entitled to receive a fee for probating the estate in a court proceeding. The fee is usually set by state statute and is a percentage of the value of the estate. Additional fees may be awarded by the court when the proceeding gets more complicated. An executor or administrator can also select an attorney to represent the estate and work with the attorney in the inventory of estate assets, or in satisfying or litigating debts. They will have to file individual and estate tax returns, manage and/or sell real property, and distribute the assets to heirs. As with any probate, the court must approve any action of the administrator or executor in probate or in a summary probate.

Frequently Asked Questions Regarding Trusts

What is a trust?

A Trust is an agreement, whereby assets of any type, including real property, bank and brokerage accounts, and other property is transferred to a trust with the intention that it be administered by a trustee for another's benefit. Trusts have been recognized in the law for hundreds of years.

The person or persons, for whose benefit a Trust is intended is/are called beneficiaries. A Trust can be created for any legal purpose which does not violate public policy. Trusts today are more common than you might think. The necessary or essential elements of a Trust are: (1) designation of a beneficiary and a trustee, (2) property transferred to the Trust which is called "funding" the trust; the transfer of property should be such that the trustee is able to take title, (3) and, there should be actual delivery of the trust property to the trustee with the intention of passing title.

Are there advantages to having a trust?

A Trust has too many benefits to list here. Among the primary benefits however, a trust can provide significant estate tax savings and, in some cases totally eliminate estate taxes. Trusts allow for professional management of your investments during your lifetime. A trust can protect your assets if you are unable to manage them yourself for some reason, and can also be used to collect assets for your beneficiaries upon your death. Trusts are established and drafted based on the needs and goals of the particular client. For example, a Revocable Living Trust is established and maintained during the creator's (Grantor's) lifetime and may be changed, modified, and even terminated during the life of its creator. An Irrevocable Trust can be changed once its established, but only by the person who created the trust. A trust created in a Will only takes effect on that person's death. Such a trust is known as a "testamentary" trust and can not be changed.

A Living Trust: Frequently Asked Questions ?

A Living Trust is a binding legal agreement in which a person called a trustee keeps, maintains, manages, controls and eventually gives to others (beneficiary) the property of the person who creates the trust, called a Grantor or Settlor of the trust. The same person is able to act as the grantor, trustee and a beneficiary of a trust he or she has created.

Like a Will, a Living Trust is created while you are still alive. However, in contrast to a Will, a Living Trust is effective as of the date it is executed (signed) and, therefore, operates during your life and after your death. A Will does not take effect until you pass away, it does nothing while you are alive. A Living Trust allows you manage and control your property while you are living. Therefore, you do not lose the ability to use, control, and benefit from your property after it has been put into the trust. A Living Trust further provides for the property placed in the trust to pass to the beneficiaries you have named after your death without any probate proceedings. No probate of a Living Trust is necessary, because it is the trust that owns the property, and the trust cannot die.

Thus, putting assets and real property into a Living Trust does not mean that you lose control of these assets. As the Grantor or Settlor of the trust, you can retain as much of the responsibility, management and control of the trust assets and real property as you desire. A Living Trust can provide that the trustee not distribute the assets in the trust upon your death, but rather that the trustee continue to manage the property in the trust for your beneficiaries in the event the beneficiaries are minors, or are disabled or in situations where the beneficiaries have almost any other special need. In fact, a special trust can be set up in such a situation called a "special needs" trust.

The actions of the trustee are governed by the specific instructions, directions and/or limitations imposed on the trustee by the Grantor/Settlor in managing and distributing estate assets. These directives can vary widely depending upon the specific concerns of the grantor who establishes the trust.

Frequently Asked Questions About Administrators and Executors?

The executor or administrator are those person(s) responsible for handling the assets in the estate of the deceased person. If a person had a Will prepared, the person responsible is called the Executor. If no Will was left, a court appoints an individual called an Administrator. If two people petition the court to be named administrator, the court is usually required to give priority to the closest relative of the deceased, but if "good cause" is provided for not appointing the closest relative, this priority may be overcome. In rare cases, two people can be appointed co-administrators. The administrator or executor is entitled to receive a fee for probating the estate. The fee is set by statute and is a percentage of the total value of the estate. Additional fees may be awarded by the court when the process involves complications such as having to sell real property. An executor or administrator can, and usually does choose an attorney to represent the estate. They will work together to inventory the assets of the estate, make sure debts are satisfied, or initiate litigation of the debts. The administrator or executor will also file individual and estate tax returns, be responsible for management and/or sale of real property, and distribute remaining assets to the heirs. The probate court must approve all actions of the administrator or executor, even in a summary probate action.

Frequently Asked Questions About Probate

What is the estate?
What does Estate Planning mean?
What is a guardianship or conservatorship?
What does probate mean and what is involved?

What is an estate?

The estate of a decedent is comprised of all real property and personal property, tangible or intangible, wherever located, which was owned by the deceased person. It includes, in community property states, all of the person's separate property, plus his or her one-half of the community property.

After a person dies, the assets or property in his or her name cannot be transferred in the normal manner, by the owner signing documents. Therefore, unless the person had a Trust drafted before death, assets in estate must be transferred by court order, or in some cases, such as in joint tenancy property, by an affidavit terminating the joint tenancy with a certified copy of the death certificate. If the total value of the estate is less than a prescribed statutory amount, and it does not include any real estate, then the assets in the estate can normally be transferred to the heirs by way of an affidavit. Transferring the property of an estate worth more than a statutorily prescribed amount, or transferring real estate usually requires some court intervention. If the deceased left a Will, the named executor, who is the person responsible for making sure that the assets of the estate are properly transferred, will transfer property to the named heirs. If the deceased did not leave a Will, and died Intestate, a court will be petitioned to appoint an administrator to perform these functions.

What Is Estate Planning ?

Estate Planning is that process in which conscious decisions are made by a person(s) regarding the accumulation, preservation, and disposition of all assets and property he/she owns. Certainly, one of the most thoughtful gifts you can leave survivors is a well organized Estate Plan. Do not undertake this on your own; Estate Planning requires the assistance of a qualified and knowledgeable attorney.

No matter what the complexity of your situation or the size of the estate, it is most desirable to consult with a legal advisor. Remember, also, it is always best to discuss the plans and decisions you have made with your loved ones. A checklist can be provided which is designed to assist you get the Estate Planning process started. Call THE LoBELLO LAW FIRM for a FREE consultation and a FREE checklist, at 702.870.8000.

What is a Guardianship or Conservatorship?

A guardian is a person appointed in a Will or by a court who is responsible for taking care of and protecting the affairs and legal rights of your minor children, or individuals who may be mentally or physically unable to take care of themselves. The courts are sometimes asked to appoint a guardian or conservator to handle the affairs of elderly and ill people when they cannot care for or protect themselves from others who may mismanage or convert the funds of elderly people for their own gain. Sometimes an elderly or ill person has already been taken by fraud or mismanagement and does not have much left by the time someone petitions the court to appoint a guardian or conservator. Guardians may also be necessary to obtain medical care for the ill or infirm.

Guardians and conservators have specified duties and cannot take advantage of the person he or she has been appointed to protect. If a court has made the appointment, the court will monitor the situation and will often require that the guardian post a monetary bond to protect the person being protected against the guardian or conservator taking unauthorized or improper actions. The appointment of a guardian or conservator by a court can be a very expensive process. And, courts have been known to appoint a person you would not want to handle your affairs had you been competent. If you have prepared a Durable Power of Attorney for Financial Decisions and a Durable Power of Attorney for Health Care Decisions, you have exercised your right to appoint someone you trust to manage your financial affairs and your health care decisions, long before the need for that appointment may have arisen. As long as the people you appoint are trusted, competent and reliable, it may not be necessary for a court to make the appointment. There are several different types of full and limited guardianships and conservatorships.

What is a Probate and What is Involved ?

When an individual dies, the assets and property he or she owned is generally distributed one of three ways: by Last Will & Testament; by a Revocable Living Trust, or under state law called Intestate Succession Statutes which govern distribution of property when the deceased left no other Estate Plan. If a person passed away without a Revocable Living Trust, the transfer of property will be done in a process administered by a probate court, and these proceedings are called "probate" or "probating the estate". These are often long, agonizing proceedings, that take 8 months to 2 years. These proceedings cost the estate in terms of attorneys fees and costs, and are entirely public affairs. Once documents of any type are filed with the courts, they are a matter of public record, and anyone can go to the court house, and pull the file on the deceased person to determine what they owned, where it is, and what it is worth.

It has long been recognized that the preparation of a simple Revocable Living Trust can avoid this process. Please be wary of advise that changing title to real property before death may eliminate a court probate action, or allow for summary probate proceedings. While this may be true, the changing of title to real property more often than not, creates a different set of problems and can be dangerous in terms of liability exposure. Further, and more importantly, changing title to real property will not be given the full advantage of the IRS' Code Estate Tax Exemption. These are important and sometimes complex decisions, and you should have the assistance of a professional in making these decisions which are critical for you and your loved ones.

In regular probate proceedings (as opposed to summary administration) the probate judge will appoint the named executor to determine where all of the assets of the estate are located. The appointed individual will also pay the debts and taxes of the estate, and then, what is left over is then distributed to the persons named as beneficiaries. After a Will has been filed with a court, and the executor qualified to act by order of the court, the next filing is generally the Inventory and Appraisement. Quite simply, this document is a list of each and every asset and piece of property owned by the deceased person, and its value. This is a public record that can been seen by anyone who requests a copy. In a probate proceeding the probate judge will review and approve or disapprove the actions of the administrator or executor. A probate generally takes from 8 months to 2 years, and if there are complications, probates have been known to go on longer. During that time, the assets of the estate are tied up in the probate, unless the judge approves their use. A semi-complicated estate may take three years or more to complete.

For information on probate, and more importantly, information on avoiding probate entirely by having a Revocable Living Trust, prepared for you and your loved ones, contact us for a FREE no obligation consultation.

e-mail: mlobello@lobellolaw.com

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