What is estate planning?

For obvious reasons, most people do not exactly look forward to estate planning. However, it’s a vital part of any financial plan. Simply put, an estate plan determines what happens to property and assets upon a person’s death. A good plan makes sure that what you’ve spent your entire life creating and building goes and does where and what you want it to. It allows you to create a legacy while minimizing taxes and administrative costs. It projects your values into the future. And finally, it provides you with peace of mind, and future generations with guidance and support. Many of our clients find that the completion of their estate plan creates a profound sense of relief, and is far easier than they anticipated.

Estate planning is not just for high net-worth families, or business owners. It’s for everyone. If you die without a will or a trust (this is legally called being “intestate”) you lose control over what happens to your assets. Instead, state law takes over, with no consideration of your wishes. Also the process of settling your estate becomes more troublesome and costly, and is burdensome for your loved ones. A family in the midst of grieving finds dealing with these issues especially difficult.

An estate plan is also very personal. Preparing one requires thinking through what really matters most to you. Developing an estate plan requires a balance of legal expertise, careful planning and serious introspection. This is particularly true when a family-owned or closely-held business (or businesses) is involved, or there is substantial family wealth. For high net worth families, estate planning is often a process of education – we assist the parents in preparing the next generation for the responsibilities of managing assets, and continuing a charitable or financial legacy.

An estate attorney’s role is to assist you with thinking through what you want to do, and preparing documents to ensure that:

  • Your wishes are carried out
  • Different scenarios are anticipated and planned for
  • The people you care most about are taken care of

Given all this, a critical first step is to understand some of the basic mechanisms creating an estate plan involves. Because every plan is unique, a comprehensive explanation is impossible. However, here are some of the most common (and useful) questions people typically have when thinking about these things:

[toggles][toggle title=”Do I need an attorney?”] While it is theoretically possible to prepare a simple will without the assistance of an attorney, it’s not a good idea, for a number of reasons.

First, estate planning can be very technical. Trying to represent yourself is a bad idea. Constructing an estate plan involves several different areas of the law, including tax, probate, the law of wills and trusts itself, as well as nonlegal activities like valuation, investment and management, and so on. This is work for professionals – mistakes and omissions can be very costly, and in some cases, irreversible. Because a will is a document, you also cannot explain errors or clarify misunderstandings. Whatever the document is, it is, and the courts will have to act accordingly.

Second, an estate attorney can also tell you about possibilities or alternatives you might not have known existed. There are an infinite variety of trusts, for example. An experienced attorney can create trusts to do almost anything you want, and can suggest options you haven’t thought of.

Third, trusts and estates law deals with insuring that things take place when you are no longer personally able to oversee them. This calls for very specific, precise and detailed documents, which basically operate as instructions. Without the right professional expertise, it’s possible for unforeseen circumstances to derail your plans. The attorney’s job is to prevent that.

Finally, an estate plan is an ongoing process. It requires regular review, followup and attention in order to insure that what should happen, happens. This is what law firms and attorneys do every day. An estate plan that’s prepared but not fully and completely executed will can totally frustrate the purpose of planning in the first place. An estate attorney can prevent that, too.[/toggle][toggle title=”How do I work with an attorney? What’s the process like?”] There are really three phases to your work with an estate attorney. They’re very different, but also interdependent. The first is simply a conversation, albeit of a very special kind. This conversation is where we work with you to discern what you would like to do with your estate. To put it simply, we talk with you to help you decide what you want to do. Many of our clients have never seriously considered this question, but it’s very important.

We have been estate attorneys for a long time. Some of our lawyers have been doing this work for over forty years. And the experience we’ve gained is essential to successfully helping clients with this part of the process. These initial conversations are where our clients, with our help, think deeply about what really matters to them. The answer to this question differs for everyone. But our job is to listen with respect and an open mind, to encourage you, and to help you, perhaps for the first time, understand what really, deeply is important to you.

The second phase is actually preparing the documents and legal instruments that put your wishes into effect. This is the nuts and bolts of estate law. To perform this work, we need information about your assets and financial situation, and often find ourselves partnering with your existing financial advisers – accountants, investment advisers, and the other professionals you currently work with. We pride ourselves on the collaborative approach we take with this phase – your advisers become part of our team.

Finally, we work with you to put the plan into effect. An estate plan, especially if it’s multigenerational, can involve creating trusts or other legal instruments that will be in effect for decades. Our goal in this final stage is to render ourselves unnecessary. We are glad to handle the day-to-day details of the plan (tax filings, valuations, accounting processes) until you are capable of doing it yourself, or handing the work off to one of your advisors, but ultimately, it’s better if once the plan is in place, you oversee its long-term implementation, consulting with us when necessary. After all, in the end, it’s your plan, and your legacy.[/toggle][toggle title=”What is a will?”] A last will and testament (commonly simply called a “will”) is a public legal document that specifies what you want to happen to your estate and assets upon your death. If you choose solely a will, your estate will have to go through probate.
[/toggle][toggle title=”What is probate?”] In its simplest form, probate is a court-supervised process to ensure the orderly and timely transfer of assets, as specified in your estate planning documents. Put a little more simply, probate is the mechanism the court uses to make sure your wishes are carried out. It comes with costs – going through probate can cost 3 – 7% of the value of your estate.
[/toggle][toggle title=”What is a trust?”] A trust a more complex, but more specific, way to manage your assets after your death. A trust is a legal agreement through which a trustee – either a person or an institution such as a bank or law firm—legally owns and controls property for another person, called a beneficiary.

An example would be a bank investing money on behalf of a child until adulthood. The trustee manages the money according to the trust’s instructions. The best-known advantage of a trust is usually (but not always) avoiding probate—any property in the trust prior to the grantor’s death passes immediately to the beneficiaries. This can save time and money.

Trusts fall into two basic categories: testamentary and living. A testamentary trust is created by your will. It does not come into existence until you die. Although a testamentary trust will not avoid probate, it can help accomplish other estate planning goals. For example, a testamentary trust can reduce estate taxes on the death of a spouse or provide for the care of a disabled child after the assets are probated. It can also protect assets for someone who is receiving entitlement benefits.

In contrast, a living trust starts during your lifetime. Essentially, you create a legal entity that is in operation while you are alive, and keeps going after your death. These can be either revocable, or irrevocable. [/toggle][toggle title=”What is a revocable trust?”] Revocable trusts are often referred to as living trusts because they are in effect during the grantor’s lifetime. You maintain complete control over the trust and may amend, revoke, or end it at any time. They are generally used for asset management, probate avoidance, and tax planning.

These trusts can be useful when the beneficiaries are young or immature or when your estate is large. They can also provide the professional asset management capabilities a beneficiary may need. [/toggle][toggle title=”What is an irrevocable trust?”] An irrevocable trust cannot be changed or amended by the grantor. It’s permanent, and you can’t change your mind. Any property placed into this kind of trust may only be distributed as specified in the trust document itself. For instance, the grantor may set up a trust under which he or she will receive income earned on the irrevocable living trust property but that does not allow access to the principal. This type of irrevocable living trust is a popular tool for Medicaid planning.

Within these categories, there are many different kinds of trust. Some can provide tax advantages both for the grantor and the beneficiary. These are often referred to as “credit shelter” or “life insurance” trusts. Others may be used to protect property from creditors or to help the grantor qualify for Medicaid or other entitlements. Unlike wills, which are public and can be read by anyone, trusts are private documents. Only people with a direct interest in a trust are privy to the trust assets and distribution. [/toggle][toggle title=”What is a supplemental needs (or special needs) trust?”] A supplemental or special needs trust is a unique trust that provides for the continuing care of a disabled spouse, child, relative, or friend. Planning for the care of special needs beneficiaries is a specialty of our firm. One of our attorneys, Lisa Eastin, specializes in setting up and managing this kind of trust, and knows the challenges her clients face firsthand – her son is bipolar. We know how emotionally wrenching setting up a plan to care for a family member who’s unable to care for himself can be. When a member of the family will never be able to adequately manage their own affairs, a well-constructed special needs trust can provide a secure, cared-for life with a safety net A supplemental needs trust can be created during life or as part of a will, and can address a broad spectrum of issues from physical handicaps to mental disability to challenges like substance abuse or gambling addiction. [/toggle][toggle title=”How do I decide who inherits which assets?”] This is a complex question. Ultimately, of course, it’s up to you, but your decision should be based on an understanding of the legal ramifications, along with the capabilities of everyone involved. It can be very damaging, for instance, for someone to inherit money or property they’re not capable of managing.

First of all, if you are married, your spouse may have special rights. Different states have different laws that protect surviving spouses. These need to be planned for.

Once you’ve considered your spouse, you next need to think about other parties. Here are some frequently-asked questions:

  • Should your children share equally in your estate? If not, how should it be divided?
  • Do you want to include grandchildren or other beneficiaries?
  • Would you like to leave any assets to charity? Which ones?

To determine when and how your beneficiaries should inherit your assets, you need to begin by focusing on three factors:

  • The potential age and maturity of the beneficiaries
  • The financial needs of you and your spouse during your lifetimes
  • Taxes

When considering your beneficiaries, the questions can become more complex. Our role is to help you think through the “how” and “why” along with the “who” of your decisions.

  • Who are your beneficiaries? Who do you wish to receive assets, and in what amounts?
  • If you own a business, what form of entity is it structured in? If it’s a corporation, should the stock pass only to your children who are active in the business? Should you compensate the other children with assets of comparable value?
  • If you own rental properties, should all of your beneficiaries inherit them? Do they all have the ability to manage property?
  • If you own art or other items, do these have a special meaning for certain beneficiaries? What will the tax ramifications be of inheriting art if it is valuable?
  • When and how should they inherit the assets?

Once you’ve arrived at initial answers to these questions, we help you think through how to put them into effect. [/toggle][toggle title=”What does an executor, personal representative, or trustee do?”] Whether you choose a will or trust, someone needs to administer your estate—an executor or personal representative in the case of a will, and a trustee in the case of a trust. This person or institution serves your interests and disposes your assets after your death and is responsible for managing all the legal, financial and administrative issues involved. The role brings with it several major responsibilities, including:

  • Administering your estate and distributing the assets to your beneficiaries
  • Making certain tax decisions
  • Paying any estate debts or expenses
  • Ensuring all life insurance and retirement plan benefits are received
  • Filing the necessary tax returns and paying the appropriate federal and state taxes.

[/toggle][toggle title=”How do I select an executor, personal representative, or trustee?”] Someone you trust, such as a family member, friend, or professional adviser, or an institution, such as a bank or trust company, can serve in these capacities. Some people name both a person and an institution, in order to leverage their collective expertise.

When making this decision, be sure to select someone who is willing to serve, and consider paying a reasonable fee for their services. The job isn’t easy, and not everyone will want or accept the responsibility. It’s also important to provide for an alternate in case your first choice is unable or unwilling to perform. Naming a spouse, child, or other relative to act as executor is common, and he or she can hire professional assistance as needed.

Also make sure the executor, personal representative, or trustee doesn’t have a conflict of interest. For example, think twice about choosing someone who owns part of your business, a second spouse, or children from a prior marriage. A co-owner’s personal goals may differ from those of your family, and the desire of a stepparent and stepchildren may conflict.[/toggle][toggle title=”Do I need to select a guardian for my children?”] If you have minor children, you will need to select a guardian as part of your estate plan. The well-being of your children is your priority, and there are serious financial, emotional, and practical issues to consider:

  • Will the guardian be capable of managing your children’s assets?
  • Will the guardian be financially strong? If not, consider compensation.
  • Will the guardian’s home accommodate your children?
  • How will the guardian determine you children’s living costs?

You can name separate guardians for your child and trustees for his or her assets. Taking the time to name a guardian or guardians now ensures your children will be cared for as you wish if you die while they are still minors.[/toggle][toggle title=”Who should draw up my estate plan?”] Only an experienced attorney who specializes in trusts and estates should draft your documents. A seasoned attorney can ensure that you have considered every option and that your will or trusts are designed with the utmost care and attention, with your specific needs and goals in mind. In addition, your attorney represents an ongoing relationship and a point of contact during a delicate time period, and will be there for you should a crisis occur.

An attorney can not only prepare your plan, but also help insure that it’s completely carried out. For example, an estate plan may require designating beneficiaries, filing tax documents, assessing the value of assets, and completing a long, long list of bureaucratic tasks that often involve a LOT of paperwork. An estate attorney will have a team of paralegals and procedural experts who can assist with this, and help make sure that a missed deadline does not derail a plan. Simply sending a client a plan is one thing. Making sure it’s completely carried out is another, and in the end, far more important. We help clients stay on track with the steps needed to carry out their estate plans.

Finally, an experienced attorney is just that … experienced. An estate plan is one of the most important documents you’ll ever help create. It’s the combination of a lot of very personal, challenging, and occasionally painful decisions. It can have an immense impact on the future of the people you care most of, particularly in the event of something unexpected. An estate attorney who’s done it many times before can help you think these things through, and can also help you understand their real-world implications. And she or he can do it with compassion, understanding and insight. [/toggle][/toggles]