A Trust Based Plan that Covers Everything!
Estate planning is simply an activity whereby the property/asset owner decides upon one or more methods of transferring all of his assets, real and personal, to chosen recipients at his death. A proper estate plan takes into account personal, administrative, and transfer tax matters in order to create the most efficient, cost-effective means of transferring a particular estate upon the owner's death.
Actually, everyone who owns any asset(s) whatsoever already has an estate plan. If the asset owner does not establish his own plan during his lifetime, and he therefore dies "intestate", then the state's probate code will prescribe a statutory Last Will & Testament for him at his death.
A Last Will & Testament is simply a statement or "testimonial" of one's intent regarding the disposition of his assets after death. It is not a contract, and it therefore cannot be binding on anyone – only those parties “interested” in the estate of the decedent. A will can also create a "trust," and it can appoint a trustee to hold (probated) assets for the benefit of another. This type of trust is called a "testamentary trust" and it is always funded only with probate assets.
The probate court generally enforces the intent of the decedent unless evidence is submitted (through due diligence, law suits, or other litigation, obvious impropriety etc.) that causes a determination that the decedent's intent cannot be carried out as stated in his will. Because a will is not a contract (and is therefore not binding), a court of law has jurisdiction over its administration.
First of all, the court has to procedurally determine that the decedent's will is valid and that it is, in fact, his/her will. This is called proving the will. Moreover, when an asset-owner dies, he becomes a deceased asset-owner. A deceased person is unable to transfer ownership of his assets to anyone. The result is that only a court of law has the legal authority and ability to appoint (and transfer) ownership of the decedent’s assets, even if it is only to the decedent’s own family members. The role of the decedent's personal representative (as executor, administrator, trustee, or other fiduciary) is to first have title to all of the decedent's assets vested to him/her by the probate court. Then, after gathering all of the decedent's assets and accounting to the court the personal representative eventually transfers title of the decedent's property to the decedent's intended heirs (or those heirs that the state's legislature, through the state's probate code, have decided should be the natural recipients of the decedent's bounty). All of this can happen only through either "formal" or "informal" statutory probate court procedures.
Probate tends to (i) be relatively costly to the estate, (ii) take several months or even years to complete, (iii) be a source of frustration to the heirs, (iv) effect a disclosure all pertinent family and financial matters – by a public file – for even unscrupulous people to discover, and (v) be more prone to disputes (and even court litigation) among family members, including attracting the unwanted services of corporate entities who do not have altruistic motives.
There are several ways. Outright gifting during life is one such method that, if used correctly, can be very effective. The most common method of probate avoidance, however, is to hold real property as joint-tenants-with-rights-of-survivorship (JTWROS). Another method is by deeding realty property to someone with a life estate retention clause in the deed. A third well known strategy of avoiding probate of bank accounts, life insurance, IRA's and other assets normally held in accounts is to make those accounts payable-on-death (POD) directly to a named beneficiary. All of these methods, however, can create potentially undesirable outcomes ranging from loss of control and unnecessary lawsuit exposure during lifetime to the forfeiture of a thoughtfully structured disposition of one's estate at death..
Yes. A properly drafted, properly funded, properly implemented Revocable Living Trust is a proven foundational plan for almost any estate, and has the structure to remedy almost all of the problems that can be associated with transferring an estate, regardless of the size. Wealthy estates may require more sophisticated planning in order to minimize the estate tax consequences of transferring great wealth. There are, thankfully, a whole range of options available for this purpose, including, but not limited to, irrevocable trusts, limited family partnerships, charitable trusts etc. Even for large estates, however, a living trust will still comprise the centerpiece of the estate plan because of its flexibility, portability, and ease of administration.
When the creator of a living trust transfers assets to the trust, actually to himself as the trustee, he has already conveyed legal title to his assets to a "party" that does not cease to exist when he dies. That party is the office of the trustee – which he may occupy during his lifetime. He is also the beneficiary of his own trust during his lifetime. Probate is no longer necessary because the (successor) trustee already holds legal title to the decedent's assets by operation of law. A trust is a contractual agreement between the creator and trustee of the trust.
Funding a trust simply means to transfer one's assets to the trust – actually to the trustee of the trust. This is generally accomplished by such means as (a) assignment deeds for realty interests, (b) specific assignment/conveyance documents for contractual interests or other non-account assets, (c) request-for-retitlement letters (and beneficiary-change letters), (d) assignment of stock & bond powers, or even by (e) an entry in a corporate ledger.
A living trust must be funded during the lifetime of the creator in order to take advantage of the full benefit of the trust. That is why it is referred to as a "living" trust: it is designed to be funded and functional during the creator's life, in addition to facilitating the transfer of his assets to his beneficiaries upon death. Any (non-funded) assets still owned by the decedent outside of the trust at his death will have to be probated in order to be transferred to the trust through a "pour-over will" – a will that "pours" the assets into the trust – after they have been probated.
Conventional wisdom says that the family lawyer, because of familiarity and the fact that he or she is a lawyer, is best qualified to help a family set up an estate plan (usually a will). Unfortunately, this is a misconception. Law schools require only one course in the mechanics of wills, trusts, and estates, and only a fraction of practicing lawyers have the knowledge and skill to claim to be legitimate estate planners. This is because the law is vast; probate and trust law can be a complicated subject. In addition to the legal aspects of estate planning, a lawyer must be able to implement the plan once it is set up. This often requires the skills of a financial management professional, so the lawyer must either acquire those skills him/herself or find financial experts to do the work for him/her – all for just one small area of his/her law practice a function that he/she performs only occasionally for a valued client or friend. Unless a lawyer is actively involved with proper estate planning as a fulltime practice or devotes a large percentage of his time to it (as do our network attorneys), it becomes a comparative loss for him or her to get involved in any form of estate planning beyond will preparation. Without question, on a client-per-client basis, it is much more profitable for a lawyer to probate the estate of a deceased client after death than it is to spend the time and effort it takes to help an occasional estate-planning client meet their real planning goals and objectives while they are still alive. So, in defense of the family attorney (like everything else), it all boils down to the undisputable laws of “Economics – 101.”
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The following information is intended for educational use only and not to replace or supplement any tax or legal advice. Personal tax and/or legal counsel should accompany the implementation of any planning methods described on this website.