Estate Planning

Over 60% of Americans don’t have a will or a living trust that records their final wishes for themselves, their property, and their beneficiaries. Without a will or estate plan, surviving family members are sometimes pitted against each other in court battles.

Estate planning removes uncertainty and the potential for legal disputes by answering all the important questions which can come up when a person dies or becomes incapacitated well ahead of time. It is the process of deciding who will pay the bills if a person becomes disabled and what kind of medical treatment they want to receive, who will care for the surviving children if a parent passes away, who will receive property from the deceased’s estate and how rights in any businesses they have an interest in should be transferred — and many other important final considerations.

Testators and the Intestate

Individuals who die without first doing any estate planning or signing a will are called ‘intestate,’ which means their assets will be distributed at the discretion of the state, not according to their explicit wishes. With guidance from an experienced trusts and estates lawyer, testators (individuals who have made a will) anticipate all possibilities and develop a plan that is in accordance with their desires.

The goal of estate planning is larger than simply deciding who gets what. It also includes choosing who will administer the estate, how certain property is to be used, and final medical wishes.

There is a common misconception that estate planning is just for extremely wealthy individuals. The word ‘estate’ itself conjures up images of expensive gated manors, but in the context of estate planning, an estate simply refers to all the property owned by a person. Estate planning is a common and important legal tool for anyone who wants to protect their family’s interests.

Common Estate Law Issues

  • AB trusts
  • Beneficiaries
  • Estate taxes
  • Executors
  • Joint tenancy with right of survivorship
  • Living trusts
  • Living wills
  • Marital deductions
  • Power of attorney
  • Probate
  • QTIP trust
  • State death or inheritance taxes
  • Trusts
  • Wills

Key Terms to Understand in Trust and Estate Planning

A will is a legal document that uses specific language to record a testator’s wishes. It includes a list of beneficiaries of the testator’s property, sets out who should have guardianship over children and pets, and whether any trusts should be created.

A trust is a fiduciary relationship in which one party (the trustee) holds property for another (the settlor) for the benefit of one or more other people (the beneficiaries). Trusts are useful in estate planning for several reasons. First, they provide protection for individuals who may not be prepared to accept an inheritance, such as minor children. A trust can be created to protect their inheritance until they are old enough to manage it. Second, trusts are useful for avoiding the probate process, which is a potentially prolonged judicial proceeding that oversees the transfer of the deceased’s estate.

AB Trust
Also known as a bypass trust, an AB trust is a legal instrument most often used by married couples to limit the estate taxes the surviving spouse will have to pay. It involves the creation of two trusts (A and B). Trust B contains the deceased spouse’s share of the couple’s property. This trust will pass to beneficiaries other than the surviving spouse (such as the couple’s children). Trust A contains the remainder of the couple’s property. When the surviving spouse passes, both trusts pass to their beneficiaries.

AB trusts are complex legal arrangements with many taxation implications. The IRS sets limits on the size and nature of these instruments (which can change when the tax code is amended), so consulting with an experienced trusts and estates lawyer is essential when considering a bypass trust.

Marital Deduction
Estate taxes are federal taxes that the IRS collects when a person dies and transfers their assets. Some states also have their own estate taxes. However, there are limited deductions to estate taxes, the most notable of which is the marital deduction. Typically, surviving spouses do not have to pay estate taxes on property they inherit from their deceased spouse. There is no limit on the amount of property that can be transferred this way.

QTIP Trust
A Qualified Terminable Interest Property (QTIP) trust is an irrevocable trust (a trust agreement which cannot be revoked or amended) that gives the surviving spouse a life estate, a right to the property until their own death, after which it passes to another beneficiary. This arrangement avoids federal gift taxes.

Before a will can be executed and the testator’s wishes can be carried out, their will must be verified. That judicial process is called probate. If a person dies intestate, a probate court will attempt to determine their final wishes, but naturally, that is difficult without a written record. Without a will (or if the will is not prepared with specific and clear legal instructions), the probate process can be quite lengthy, delaying the administration of the deceased person’s estate and the distribution of their property.

An executor is one or more individuals appointed to administer the deceased’s estate. They are tasked with distributing the estate property and carrying out the deceased’s final wishes. If a person does not specify an executor in their will or dies intestate, the probate court will assign one. Executors have a big responsibility, a fair amount of discretion, and are entitled to compensation for their role, so choosing one is an important part of estate planning.

Living Will
Also known as an Advance Directive, a living will is a legal document that records an individual’s wishes for their healthcare should they become incapacitated.

Living wills cover issues such as:

  • Who will make medical decisions
  • What kind of treatment should (or shouldn’t) be rendered
  • Where treatment or palliative care should take place (e.g., at home or in a hospital)
  • To what extent loved ones should be informed

Power of Attorney
Estate planning can prepare for the event that a person becomes incapacitated by choosing someone to hold their power of attorney — the power to act in their stead and make legal, financial, and healthcare decisions for them.

Joint Tenancy with Rights of Survivorship
To avoid probate court, an estate planning lawyer can create a joint tenancy agreement, a legal contract which permits married couples and business partners to share ownership of property with rights of survivorship — which means that when one of the owners passes away, the other automatically gains full ownership. Because a joint tenancy with rights of survivorship agreement transfers assets automatically, and because there is no confusion as to the parties’ wishes (assuming the contract is properly drafted), the time and effort of probate can be avoided.

Estate Planning Should Be an Ongoing Process

As a person’s life events change, and as state and federal estate taxes change, it’s important to consult with an estate planning expert and to review and potentially adjust their wills, trusts, advance directives, and other legal documents recording their final wishes. An individualized approach which considers the most efficient means of minimizing tax liabilities and avoiding legal disputes ensures the deceased’s loved ones are protected.

If you are interested in starting your estate planning or reviewing your current plan and need to speak with an experienced trusts and estates lawyer, Pond Lehocky Giordano offers a completely free and confidential consultation. For more information, call 1-800-568-7500 or fill out the form on this page.