Estate Planning

Estate planning covers the transfer of property at death as well as a variety of other personal matters and may or may not involve tax planning. It can involve the services of a variety of professionals, including your financial planner, financial advisor, attorney, and accountant. The court document most often associated with this process is your will.

What's in a will?

Within a will you describe several things:

1. Who you are, and what right you have to give away property;
2. A description of the property itself; and
3. Exactly who you want it to be distributed to.

Each family's situation is different. For some, a will is sufficient. However, it is the most basic of estate planning documents. If you wish to preserve your wealth for generations to come, then you may want to combine a will with other advanced estate planning techniques.

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Publicity vs. Privacy

While its simplicity is a definite benefit, a will has serious disadvantages. For instance, a will is only an instruction to a court of law; it can be contested. Once entered into court your will is public record eliminating any privacy. Family Court can be a difficult experience for many; not only do your loved ones have to cope with your death, but they may have to battle other acquaintances and family members for the right to your estate.

Wills and Probate

The process of having an attorney present your will before a court is called probate. Unlike living trusts, each and every will must go through the probate process. Probate usually ties up the estate anywhere from 6 months to 2 years, and can cost approximately 2% - 4% of your entire estate value.

Death and Taxes

Wills do nothing for estate taxes. Individuals that have assets, including real estate, over $1.2 million are subjected to extreme estate taxes as high as 50%. Plus, if you're married a will may not maximize the unified credit exemption for both individuals; in some cases the $1.2 million exemption meant per individual is reduced to $1.2 million per couple.

While a will can be drafted with simple estate planning software, it's usually wise to have a professional estate attorney do it for you. Legal counsel may help you avoid many of the pitfalls associated with wills, and ensure that the chances it could be contested are reduced.

Living Trusts

This legal arrangement creates a separate entity called a living trust. The living trust document itself names three different parties. The individual (or couple) that establishes the trust is named the grantor also referred to as the trustor.

The trustee is the person named by the trust as the controller of the trust's assets, and in most cases the trustees are the same people as the grantors. On the receiving end, the beneficiaries are the heirs that will benefit from the trust once the grantor's have passed away.

Living trusts avoid probate. Since they are completely private a trust is recognized as a separate legal entity, distributions can be made by a trustee to named beneficiaries without any involvement from the courts. The courts maintain no control over the trust's assets.

Once established a living trust must be funded. Almost anything can be placed in a trust: bank accounts, stocks, bonds, real estate, life insurance, and personal property. In funding the trust, you simply change the name or title on your assets to the name of your trust. Many people worry about losing control of assets; however, that is not the case within a carefully constructed living trust.

If you're institutionalized or unable to care for yourself the trust can still function and make distributions as needed. The trustee has a fiduciary responsibility to see that your requests are fulfilled exactly.

The living trust also minimizes estate taxes by fully utilizing every individual's unified credit. The unified credit, as mandated by Congress, shelters up to $1.2 million from estate taxes. With only a will in place, a married couple will receive a single $1.2 million exemption. However, if a living trust with "A - B provisions" is in place and one spouse dies, the living trust separates into two separate trusts (commonly referred to as an A-B trust)

In an A-B trust, each of the two separate trusts receives its own $1.2 million exemption, meaning a total of 2.4 million is sheltered from estate taxes (for 2006).

Power of Attorney

A power of attorney is used for situations where an individual cannot be present, but that individual has entrusted someone to do the job in their place. When someone holds a power of attorney they are able to enter into contracts, negotiate, and settle matters as if they were that other person. An ordinary power of Attorney expires when the grantor becomes incompetent or passes away.

Durable Power of Attorney

A durable power of attorney can act on a person's behalf even while they may be suffering from dementia or senility, and are no longer competent to make their own decisions.

Medical Power of Attorney

A medical power of attorney (also known as a durable power of attorney for health care) allows a trusted agent to make health care decisions on your behalf. A medical power of attorney only has this responsibility to you for health care decisions, and cannot make financial or other decisions on your behalf.

***** The information included herein is strictly meant to be an informal overview of common estate planning tools, and should be used only for broad informational purposes. Leahy Wealth Management does not offer legal services please consult your personal attorney prior to changing your legal situation.

Click Here to Print the Estate Planning Worksheet