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About Estate Planning

It is a common misconception that estate planning is important for only those with money or who are advanced in age.

This myth is a cruel deception. Everyone can benefit by creating an effective estate plan.

Arranging for the distribution of one’s wealth is what estate planning is all about. A critical part of estate planning is creating legal documents that outline your wishes for distributing your wealth after you die.

Every individual has an estate plan provided by the courts. If you do not have a formal written will or trust, your estate plan is created out of default. Every state in America has laws governing the distribution of property when a person dies without a Last Will and Testament (i.e., dies intestate). The question is not whether you will have an estate plan, but whether you will have an estate plan of your own selection or one imposed upon you by the courts.

Traditional estate planning involves creating a will. By preparing a will, most people believe they have effectively safeguarded their family’s inheritance. However, this is often a false “peace of mind.” A Last Will and Testament outlines your wishes about the distribution of your property after death, but testamentary documents such as wills usually require PROBATE. In preparing only a will, you may be forcing your loved ones through months, maybe even years, of agony in the probate court.

Probate is the orderly administration of your affairs supervised by the court. Probate is a function of state law and varies from state to state. If you own real property in more than one state, it is probable your estate will be subject to probate in numerous jurisdictions, each imposing their own probate fees.

Probate comes from the Latin word “to prove”. A will must be presented to the probate court and proven to be a valid document. In addition to “proving the will”, the probate process also includes:

  • Officially confirming the personal representative named in the will or appointing a representative, if necessary.
  • Notifying the court of a deceased person’s death and informing all involved parties (all potential heirs whether named in the will or not) that probate has started.
  • Taking an inventory of all property and appraising its value.
  • Paying the deceased person’s debts and taxes.
  • Preparing a final accounting to the court.
  • Distributing the remainder of the deceased’s property to the heirs.
  • Closing the estate.

The Disadvantages of Probate

  • Time Consuming: The probate process can take a few months or as long a several years to complete. The average probate takes about 15 months. In complex situations, probate lasting 18 months to three years is not unusual.
  • Costly: Attorney’s fees to probate an estate can run into thousands of dollars. In addition, the executor, inheritance tax referee, and other officers of the court must be compensated. All related probate fees must be paid before any of the decedent’s assets are distributed to the family. The average cost of probate is 10% of the gross estate.
  • Loss of Control: The probate court controls the entire process. Someone “on the outside” will tell your beneficiaries who gets what and when.
  • Lack of Privacy: All probate transactions are a matter of public record. Anyone can find out the size, contents, and beneficiaries of your estate. This can be embarrassing and frustrating for your family, create disputes, and expose your family to unscrupulous solicitors.

About Revocable Living Trusts

One of the best estate planning alternatives is a Revocable Living Trust, also called the Intervivos (Latin for “while living”) trust. A Revocable Living Trust is a simple way to make certain your estate assets are distributed, as you desire.

  • It is “Revocable” because you can change the terms or cancel it at anytime during your life.
  • It is “Living” because the trust takes effect while you are still alive.
  • It is a “Trust” because it creates a place where assets are available for your normal use now and will be available for distribution at your death.

The individual who creates a trust is called the Grantor or Trustor. The individual who manages the assets placed in the trust is called the Trustee. The individual who receive benefit or enjoyment from the assets inside the trust is called the Beneficiary. The trust you create will name you (and your spouse, if applicable) as Trustor, Trustee and Beneficiary.

In other words, even though you transfer legal ownership of your assets to the trust, by naming yourself as trustee of the trust, you keep complete control over your property. You can manage, sell, borrow against, or give away the assets in your trust as you please.

Beneficiary: YOU

Trustor: YOU

Trustee: YOU

Apart from avoiding probate, there are other advantages to using a Revocable Living Trust:

  • If an illness or accident leaves you incapacitated, your successor trustee can handle your financial affairs without the need of court appointed guardian or conservator.
  • If the beneficiaries of your trust are minor children or others who might not use an inheritance as you intend, the trust can continue to hold the assets until they reach a more mature age.
  • If you own real property in more than one state, you avoid the expense, time and hassle of multiple probate proceedings.
  • By using the “A-B” provisions in your trust, a husband and wife can pass up to 2 million tax-free dollars to heirs.
  • Trusts are generally more difficult to contest than a traditional will. To invalidate a will you must prove either it was signed under duress or that the maker was incompetent on the day it was signed. To invalidate a living trust you would have to prove it was invalid on not only the day it was signed but also each and every day it was in existence thereafter.

When a will is contested, the assets are frozen and they cannot be distributed until the claim is resolved. Assets placed in a living trust are not frozen pending the outcome of a legal challenge. Anyone wishing to contest the trust must file suit against each of the beneficiaries; in the meantime, the assets in the trust can be distributed.

Limitations of Revocable Living Trusts

Limitations of Revocable Living Trusts are relatively few, but there are some:

  • For your living trust to work properly, you must transfer everything you own into the name of the trust.
  • Living Trusts provide no income tax benefits. Any income generated by the assets in the trust during your lifetime are taxed as if they were still held in your personal name and reported on your personal 1040 income tax form.
  • A living trust provides no protection from your creditors.
  • If a trust sells an asset to a beneficiary at a price less than the assets cost basis, the loss is not deductible. Whereas the same asset sold through probate can deduct the difference between the cost basis and price sold as a loss.
  • Upon death, trusts are required to make quarterly estimated income tax payments, whereas a probate estate need only pay annually.
  • Fees for creating a trust have traditionally been more than for preparing a simple will.

Joint Tenancy

Many times people try to avoid probate by holding their assets in Joint Tenancy. Joint Tenancy is the method of putting someone’s name (ex. a child) on property or accounts.

Any good estate planner should advise you of the possible risks.

Joint tenancy will avoid probate as long as one of the joint tenants survives. If you are married taking title to your assets as joint tenants with rights of survivorship, all assets are automatically transferred upon the death of one spouse to the surviving spouse and there is no probate.

For numerous reasons joint tenancy with rights of survivorship should only be used between married individuals. The pitfalls of ownership as joint tenants with someone other than your spouse include:

  • Your property is exposed to the creditors of your joint owner.
  • You may create gift tax consequences when the asset is transferred.
  • As a joint owner, you give up some control over your property. (Both joint owners must approve every transaction regarding the property).
  • If one joint tenant becomes incapacitated and unable to act, the other must go to court and become appointed as “conservator” before being able to do anything with the jointly owned assets.
  • From an income tax standpoint, the death of one joint tenant permits a stepped-up cost basis on only one-half of the jointly owned property.
  • Probate is required when the surviving joint tenant dies.

Your Personal Estate Plan

When you create a Living Trust, you transfer ownership of all your assets to the trust. It is a written document that allows you, as the trustee(s), unlimited access to and full control of your assets during your lifetime. It also enables you to pass property after your death to family, friends and others. It allows you to appoint someone to make certain your property goes to the loved ones you choose. The living trust that you create is actually a set of documents that includes: Revocable Living Trust (Single A, Married A-B, or A-B-C, whichever is appropriate)

  • Assignment of Personal Property
  • Community Property Agreement
  • Last Will and Testament
  • Durable Power of Attorney*
  • Health Care
  • Asset Management
  • Directives to Physicians*
  • Certification of Revocable Living Trust
  • Proper forms to transfer property title into trust.
  • Information for Survivors (Final instructions)

Most people do not execute their trust one day and die the next. It is usually many years in the future when the documents are actually used to carry out your wishes and/or distribute your property. From the day your documents are executed to the day you die, you will probably need to amend your estate planning documents several times — adding new beneficiaries, removing beneficiaries, changing the distribution of your assets, changing trustees…etc. As these changes occur, they must be reflected in your documents. We include two amendment forms for you to make these changes yourself, and then to have them notarized. If you make over three amendments, we recommend calling us to have the forms reprinted.

Estate planning is a process, not an event. The most important part of your planning is keeping your documents current so they will indeed do what you intend them to do at the appropriate time. We allow you to keep your document current and up-to-date by continuing contact over the years and having successor advisors available to counsel and guide you through the changes as they occur in our evolving legal system.

By creating your estate planning documents with our assistance, you can: Eliminate probate and the emotional trauma that accompanies this costly, time consuming and unnecessary procedure.

  • Minimize estate taxes to the fullest extent permitted by law.
  • Identify guardians for your minor children.
  • Establish a trust for the benefit of your family or others.
  • Reduce family conflicts and assure proper distribution of your assets according to your wishes.
  • Maintain your privacy.
  • Eliminate the need for family members to make difficult decisions relative to your health care in the event you are incapacitated.
  • Discourage legal challenges.

Financial SafeGuards Group documents are comprehensive and complete legal documents. Our professional legal advisors constantly monitor the marketplace and legal arena to ensure your documents include every advantage for you and your family.

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