Estate Planning

Estate Planning

Most people believe that estate planning is only for wealthy people who want to make sure their assets are passed onto the surviving family members. This notion is, quite simply, not true. The process of estate planning encompasses a wide range of important legal and financial matters. No one likes to think about death or dying, yet it is important to be prepared in case of an emergency. Parents who have minor children will want to ensure their kids are looked after in case something happens to them. While most Americans are living much longer, it is an unfortunate fact that people die unexpectedly every day in America. The key elements of an estate plan include a will, durable power of attorney, and healthcare proxy or living will. More complex estate planning employs the use of trusts to protect, preserve and ensure that assets are efficiently passed to future generations.

The Last Will and Testament
A will is a legal document that states what you would like to happen to your property and assets after your death. You should also include who you would like to appoint as your children’s legal guardian. The top ten things you to put in your will should include the following:

What to Include in Your Will
1. Name an executor
2. Nominate someone to be the guardian of your minor children.
3. Name the beneficiaries and which specific property or assets they should receive
4. Specify alternate beneficiaries in case one of the primary beneficiaries is no longer living
5. Name a person or organization to take whatever is leftover in the estate
6. Specify how personal assets should be divided and whether they should go directly to the beneficiary or be sold for cash value
7. Allocate how business assets are to be divided and if they are to be kept separate from personal assets
8. Outline how your debts, expenses and tax liabilities should be paid
9. Name a caretaker for your pets because the law considers them to be property

In order to have a self-proving will, it must be signed by at least two individuals who are not listed as beneficiaries.

The Durable Power of Attorney
A power of attorney is a written document authorizing another person to act on your behalf. It allows you to appoint another person to be in charge of your financial affairs but will not be effective if you become disabled or incapacitated. The person you appoint to act on your behalf will only have authority as long as you remain competent. If you later become incapacitate or disabled, the power of attorney would automatically be revoked because you were not “durable”. A durable power of attorney, on the other hand, continues to be effective, despite disability or mental infirmity.

The Healthcare Proxy or Living Will
A healthcare proxy or living will is a statement that outlines your wishes regarding the type of healthcare treatment you should receive in case you become mentally or physically incapable of expressing those wishes. The person you designate as your proxy is responsible for making medical decisions on your behalf.

What is a Trust?
A trust is a legal entity that is used to hold assets that for the benefit another entity or individual. You can put many different types of assets into a trust, including cash, insurance policies, stocks, bonds, real estate, jewelry and artwork. Assets that you choose to put into the will trust depend upon your goals. If you want the trust to generate income, you may want to put income-producing securities into the trust. The person who creates and funds the trust is referred to as the grantor. They name the beneficiaries; generally individuals who will benefit from the trust. The beneficiaries can receive income from the trust or they can be allowed to access the principal. The trustee administers the trust and is responsible for managing all the assets and distributing the income. The grantor, a financial institution or another individual can be named as the trustee.

The Pros & Cons of a Setting Up a Trust
Many people choose to use a trust as an estate-planning because of the many benefits it provides, some of which include:

• Minimize the amount of estate taxes
• Assets are shielded from potential creditors
• Avoid the lengthy and expensive process of probate
• Ability to preserve assets for children until they reach 18 or other appropriate age
• Creates a group of investments which can be managed by professionals
• Funds will be available in the event you become disabled or incapacitated
• Shifts part of the income tax burden to your beneficiaries who may be in a lower tax bracket
• Can benefit charitable organizations

You might need to set up more than one type of trust in order to accomplish your goals. It is important to discuss those goals as well as the pros and cons of setting up a trust with an experienced estate planning attorney at the Law Office of Michael H. Fienman.

Some of the disadvantages might include the following:

• A trust can be expensive to set up and maintain
• You may have to give up control over certain assets
• It may take up considerable time to maintain the trust and comply with the legal requirements
• Income not distributed to the beneficiaries of the trust might be taxed at a higher rate than your individual tax rate

What Are the Duties of the Trustee?
The trustee is a fiduciary who owes a special duty of loyalty to the beneficiaries. The trustee should act in the best interests of the beneficiaries. It is the duty of the trustee to protect, preserve and invest the assets in a way that will benefit the trust beneficiaries. The trustee is also tasked with the following:

• Keep complete and accurate records
• The trust must be managed with reasonable care and skill
• Invest the trust assets in a prudent manner
• To not mix trust assets with any other type of assets

A trustee who lacks specialized knowledge can hire professionals, such as attorneys or accountants to act as a guide when necessary.

What is a Living Trust?
A living trust is a legal document meant to benefit the grantor and its beneficiaries. Like other trusts, it can hold the ownership rights to real and personal property. When you transfer the assets into a trust it is called funding the trust. Some of the major benefits include:

• Your assets do not go through probate
• Prevents the courts from controlling your assets if you become incapacitated
• You maintain control over the assets

A living trust can be used to manage your property while you are alive. It can also be used to distribute assets after your death. A husband and wife can choose to set up a joint living trust for their children or grandchildren.

What is an Irrevocable Trust?
Once an irrevocable trust has been created, you cannot change it or dissolve it. This means that you cannot change the beneficiaries, rewrite the terms of the trust or remove assets. However, it is still a valuable estate-planning tool. You start by transferring assets into the trust that you don’t mind losing control over. At the time you transfer the assets, you may have to pay gift taxes depending upon the value of the property. All the property in the trust comes out of your taxable estate. This means your ultimate estate tax liability may be less, resulting in more assets passing to your beneficiaries. Property transferred through an irrevocable trust generally avoids the probate process.

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