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Overview
Estate planning ensures that your property is properly managed,
accumulated, and distributed upon your death with maximum ease
and minimal costs, delays, and problems. Additionally, estate
planning allows you to provide for and designate guardians for
minor children, plan for incapacity, medical care decisions,
maintain privacy protection, and minimize or eliminate creditor
claims. With proper planning you can minimize or totally eliminate
estate taxes, probate fees, and court costs. Poor planning results
in unnecessary taxes, fees, costs, and judicial involvement
which can increase anxiety and stress to you and your family.
If you have a Will, probate will be required. This is a time
consuming process, and requires approximately one to three years
or more (depending on the complications in the estate) before
your property is distributed. Moreover, probate results in substantial
attorney’s fees, executor fees, and administrative costs.
Probate fees are calculated as a percentage of the “gross
value” of your estate whether your assets are worth $100,000
or $5,000,000. A Living Trust avoids all probate fees.
If you have a Will there is little that can be done to minimize
or eliminate estate taxes. A Living Trust can be set-up to substantially
minimize or avoid all estate taxes.
A Living Trust (sometimes referred to as an inter vivos trust)
is a legal document that allows you to give your property to
your beneficiaries just like a Will. However, a Living Trust,
unlike a Will, avoids probate, the delays in transferring property,
involvement with the legal system, attorney’s fees, executor
fees, probate fees, and other costs. By use of a Living Trust,
the disposition and transfer of property may be arranged within
hours rather than years.
A Living Trust is also harder to challenge than a Will. Therefore,
it provides a level of security against potential challenges
by disinherited relatives. Since a Living Trust usually will
have been in place for a considerable period of time before
the death of the Trustor, and since there is no court proceeding
initiated to determine the validity of the trust document, it
becomes much more difficult for disinherited relatives to successfully
challenge the estate plan.
A Living Trust is also private, and therefore protects the private
details of your life and financial affairs from public disclosure.
A Will on the other hand, must be probated with the court which
provides a transparent public proceeding where the private details
of your life and affairs are disclosed to the public.
A Living Trust is particularly advantageous where the Trustor
owns real estate in more than one state, since separate ancillary
probate proceedings may be required in each state where real
property is located. As a result, probate fees soar even higher.
A Living Trust can also be drafted to provide for management
of assets during any period of illness or incapacity of the
Trustor. This flexibility will normally avoid the necessity
of expensive conservatorship proceedings in the future, and
will provide the smooth transition of control from the Trustor
to a trusted, selected individual or entity.
In a Living Trust, it is possible for the Trustee to hold assets
which will be used for support, maintenance and education of
young children or others who need to be protected. If properly
set-up, it avoids the necessity of expensive and protracted
judicial intervention.
A Living Trust can be set-up to distribute assets to your children
directly so that should a spouse remarry, there is no danger
that the decedent’s assets will go to the new spouse and
the spouse’s family instead of the Trustor’s children.
As a part of estate planning in larger estates, one should consider
devising a gift program. It is possible to make annual gifts
to reduce a person’s taxable estate. There is an annual
gift tax exemption of $12,000 per person per year. For example,
in the estate plan for a married couple, it is possible to gift
$24,000 per child per year without any gift or estate taxes.
If the gift program utilizes a “Crummey” Trust the
money will be held in a trust and cannot be touched by your
children until death. Further, placing funds in a “Crummey”
Trust protects that property against creditor claims, and avoids
probate like other trusts.
Another popular subcategory of a Living Trust is the Charitable
Remainder Trust (“CRT”). The CRT may permit the
Trustor to covert highly appreciated assets into higher-yield
holdings, thereby improving the Trustor’s income flow,
while avoiding tax on capital gains generated by the sale. The
ultimate beneficiary of such a trust must be a charitable organization,
but the Trustor who intends to leave some portion of his or
here estate to charities may want to carefully consider this
variation or its close relative, the Charitable Lead Trust.
Even the Trustor who had not intended to make charitable bequests
may find that the present benefit of such an arrange makes the
charitable trust attractive. Further, the Trustor who utilizes
charitable trusts receives a substantial deduction of current
income taxes.
Joint tenancy is a form of holding title to real property and
provides for the right of survivorship; however, a Living Trust
provides for survivorship and is superior in providing for control
and tax planning.
This material is designed to provide you with a brief outline
and general information. This guide is not intended to be an
estate plan. Estate planning is complicated, subject to exceptions
and alternatives; it is necessary for each individual to have
his or her estate plan individually and personally tailored
to individual needs. |
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