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Over Seventy (70%) percent of all Americans don't even have the most basic element of estate planning: a will.

While this discussion may not discuss the simple will, a stand-alone will, a pour-over will or a complex will with tax planning, these instruments may be the best solution for your estate planning needs. There are a number of other essential estate planning documents that you may want or need to implement in order to minimize your probate costs and your federal and state estate taxes. For example, it may be best not only to have a will and a revocable trust but to have a house trust, a life insurance trust or a number of charitable trusts. 

In addition, immigrants need special attention in their estate planning since they do not qualify for the same state and federal estate tax treatment and US citizens.

It is best to sit down and discuss your individual situation with an estate tax lawyer before concluding what is best for you. These additional estate planning instruments and issues are not discussed herein but our attorneys are available for a initial consultation at your convenience to discuss them.


Those who do not have a will, unwittingly, are leaving their assets both during their lifetime and at death to the whim of others. In the process, they and their families pay a large monetary and emotional cost that could have been avoided with simple planning. The following documents are recommended for most people:

WILL:

Regardless of your assets or how they are owned, everyone should have some type of will. Why?

1. Without a will state law determines who gets your assets. Assets may not go to the person(s) or entities (e.g., the deceased's revocable trust or otherwise), you want. Under most state laws, for instance, a married couple with children, if one spouse dies the surviving spouse usually gets a small percentage with the bulk of the estate going directly to the children (with direct pay out to children eighteen (18) and over). Most couples would prefer that all the assets go to the surviving spouse, who can use the money to provide for the children. Most children are not wise enough to handle assets at an early age and may deplete the assets shortly after receipt. Distribution planning can avoid this pitfall.

2. It is more costly (especially legal fees) and time consuming to settle an estate when there is no will.

3. If you have children under eighteen (18), you need to appoint a guardian. Without a will, the courts appoint who they want as guardian and the set up is a costly and complicated process and all monies are given outright to the children at age eighteen (18).


4. Through your will you can dictate who will safeguard and distribute your assets after your death and when these assets will be distributed.

REVOCABLE LIVING TRUST:

The word trust is related to the meaning of the word in the ordinary sense of relying on another. Legally, a trust is a formal agreement or arrangement for property management by another, according to the original owner's directions.

The original owner is known as the grantor, settlor, or trustor. The grantor, settlor or trustor has a right to everything in his or her Trust. The manager is known as the trustee. The person or original owner putting property in the Trust is considered in two different capacities, as the original owner and as the original Trustee.

A trust is a legal relationship between the original owner of the property, the manager, and the person or persons who benefit from the Trust. The person who benefits is known as a beneficiary. Persons who benefit are known as beneficiaries.

There are several types of Trusts.  It is best to consult with your advisor to determine what Trust, if any, is best to suit your needs.

The revocable living trust ("RLT") is widely used as the corner stone of estate planning for people with significant wealth and those with marginal wealth for the following reasons:

1. Control – The Owner or Grantor of the RLT retains absolute control of all the assets placed in Trust. He or she can sell or retain all or none of the assets placed in trust.

2. No transfer tax - When property is transferred into or out of the Trust, there is no transfer tax.

3. Disability Insurance - The RLT provides management for one's assets in the event of temporary or permanent disability. It provides guidelines for your loved ones on how assets should be handled during lifetime, incompetency and upon your death.

4. Probate Avoidance - The RLT avoids the cost and delay (several months to many years) of the probate process. Assets must be titled in the name of the trust in order to avoid probate. A pour-over will that directs that all residuary assets be distributed to your RLT, will go through probate before they are transferred into your RLT unless they are transferred prior to your death.

5. Ease and Flexibility - Once all assets are transferred to the RLT it is easy to maintain and may be terminated or amended at any time. Yearly tax returns or employer identification numbers may be required once the Grantor dies but all tax attributes remain with the grantor of the RLT prior to death..

6. Privacy - Unlike probate, the RLT is not a public record. It is not as easily contested because it is a legally binding agreement whereas a will can be contested during the probate process.

DURABLE GENERAL (FINANCIAL) POWER OF ATTORNEY:

Every person should have a durable power of attorney to enable a trusted family member or friend to hand your financial and legal affairs during a period of incompetency or incapacity.

In other words, who would handle your affairs if you were not dead but you were unable to handle them yourself. What happens if you have a serious accident or illness? Who signs your tax returns? Handles litigation arising from the accident? Pays your bills? Even if you are married and own all your property jointly with your spouse you need this document. Why? Without it, your spouse could not sell your jointly titled home or deal with many assets unless there is an expensive, time-consuming, and complicated court-supervised guardianship proceeding (i.e., adult guardianship) established.

These powers become "old and cold" so keep it updated because financial institutions will not recognize them after a couple of years. This Power of Attorney is no longer effective once the "principal" or person extending the Power dies. Once created, please be very careful distributing this document because the person who has this power could use it to your against your wishes for their own benefit.

DURABLE POWER OF ATTORNEY FOR HEALTH CARE or ADVANCE MEDICAL DIRECTIVE:

A Durable Medical Power of Attorney for Health Care ("AMD") allows a person to make advance decisions about medical care so that if you become incompetent, a plan is already in place. Equally important, it allows a person ("the principal") to designate a "medical agent" to make medical decisions should the principal be unable to do so, rather than leaving it up to medical personnel or whatever family members state law appoints. If not appointed in advance, the appointee has to go to Court and get appointed costing the members family money and valuable time while someone is seriously ill/injured. The AMD can indicate whether you want life-sustaining measures or not. The ADM also incorporates a required Health Insurance Portability and Administration Act ("HIPAA") Medical Information "Privacy" Release so that your loved ones can make critical decisions based upon your private medical information. If the release is missing it can limit its effectiveness.

Copyright 2008 The Arnett Law. All rights reserved.

DISCLAIMERS AND US TREASURY CIRCULAR 230 NOTICE

Any information contained in this article cannot be used to avoid tax-related penalties under the IRS code to any party not explicitly addressed. Our full policy regarding this US Treasury Circular 230 Notice is available upon request.


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