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Frequently Asked Questions About Estate Planning

 

1.  When do I need a Will?

You need a Will (short for Last Will and Testament) when you have property that you would like to pass to specific people (referred to as beneficiaries or heirs) at your death.  The Will expresses your wishes about how your property will pass.
 

2.  What happens when I die and I have a Will?

The Will is used to re-title property after the owner dies.  When people die, they may leave several types of property. 

A first type of property is property that has either a co-owner or a beneficiary.  This type of property does not pass under the terms of a Will, but, instead, passes to the co-owner or the beneficiary.  If Mr. & Mrs. Smith own a home as joint tenants, Mrs. Smith will inherit the home when Mr. Smith dies, because joint tenancy allows inheritance by survivorship.  If Mr. Smith has a life insurance policy naming Mrs. Smith as the beneficiary, Mrs. Smith will receive the life insurance proceeds because she is named as the beneficiary.

A second type of property is property with a title or deed, which does not have a co-owner or a beneficiary.  When Mrs. Smith dies, her home, which was owned in her name only after Mr. Smith’s death, will pass under the terms of her Will.  The same is true for any bank accounts, stock accounts, or other assets, which were titled solely to Mrs. Smith.  These assets will pass under the terms of Mrs. Smith’s Will.  This category of property is called probate property, because it must be probated before it can be retitled into the name of the beneficiary.  A Will specifies the disposition of probate property.

A third type of property is untitled personal property, which consists of items such as household goods, antiques, collections, clothing, etc.  These are items that do not have a deed, title or other owner’s certificate.  These items will also pass under the terms of Mrs. Smith’s Will.

 

3.  What is Probate?

Probate is court approval for the retitling of assets from the name of the person who died to the name of the beneficiary.  The executor named under the Will brings the Will, a death certificate and a list of assets to court after someone dies.  The court oversees the process of giving the assets passed under the terms of the Will to their new owners.

 

4.  What are the problems with Probate?

Probate is public, and can be slow and expensive. 

The inventory filed with the court is public record, so anyone can look at the assets you owned at your death.

An estate can take over a year to settle because of all the steps involved in the Probate process.

Probate tax (in Virginia this is $1 on every $1,000 of the value of the estate), transfer fees and inventory fees must be paid during the Probate process.  If the executor decides to hire an attorney to assist with Probate, the attorney’s fees can significantly increase the cost of probate. 

 

5.  Can Probate be avoided?

Probate can be avoided with certain types of ownership (joint tenancy, for example) and with the use of a Revocable Grantor Trust (commonly referred to as a Living Trust).  There can be gift tax and other problems associated with joint tenancy, so use of the Living Trust is generally preferable.  The Trust avoids probate because it does not die.  If you set up a Living Trust, you transfer your assets to your Trust and then you manage the Trust for as long as you are able.  When you are no longer able to manage your Trust, the successor trustee(s) (whom you have named in your Trust) take over the management for you.  At your death, the terms of the Trust govern the disposition of your assets.

 

6.  Is settling an estate with a Living Trust easier than going through Probate?

Yes, because there is no change in ownership.  The Trust owns the property before and after your death; only the identity of the trustee changes.  Settling an estate with a Living Trust is faster than with Probate, and since no inventory is filed with the court, there is always privacy.

 


7.  Is a Living Trust more expensive to set up than a Will?

Yes, please see our Services and Fees page for relevant pricing information.

 

8.  How do I know if I need a Living Trust?

By looking at the property you own.  If you own very little Probate Property (remember, this is property with a title or deed which you own individually), a Living Trust is not necessary for you because probating your estate will not be very difficult. 

However, if you own a lot of Probate Property, you may want to consider a Living Trust, because settling your estate will be faster and easier for your heirs.

If the total of your assets is over $5,000,000 (dropping to $1,000,000 in 2013 without further congressional action), your estate will be paying estate taxes if you do not take steps to minimize or avoid them.

 

9.  If I have a Will or a Living Trust, is this all I need for estate planning?

No.  A crucial part of estate planning is planning for incapacity or incompetency.  As we live longer lives, we need to be concerned about who will care for us if we cannot care for ourselves.

 

10.  How do I plan for incompetency?

Using a Living Trust is a wonderful way to provide for your financial care if you become incompetent.  Because you name your successor trustee when you establish your Trust, you can be certain that someone you trust will have charge of your financial affairs if you cannot manage them yourself.  If you have re-titled all of your assets to your Trust, your successor trustee will have a much easier time completing financial transactions on your behalf than just using a Durable General Power of Attorney.

 

You can also choose to plan for incompetency with the use of Powers of Attorney.  There are two broad categories of Powers of Attorney: those that are concerned with medical issues, and those that are concerned with financial issues.

            Advance Health Care Directive: An Advance Health Care Directive is a combination of a Living Will and a Medical Power of Attorney.  A Living Will allows you to make decisions about what type of medical care you want in certain situations.  For instance, a Living Will allows you to specify how your care will be handled if you are in a persistent vegetative state.  Do you want to be kept alive, or would you prefer to have the “plug pulled”?  A Medical Power of Attorney allows you to choose a trusted friend or relative to make medical decisions for you in the event you cannot.  An Advance Health Care Directive is in legal force only during the period of time that you are incapacitated, and requires medical certification before becoming effective.  If you become able to make your medical decisions again, say after recovering from an accident, the Advance Health Care Directive stops being legally effective and you resume making all decisions about your care.

            Financial Powers of Attorney: Although not as comprehensive an approach to financial management as a Living Trust, a Power of Attorney is a valuable document.  There are several ways to design a financial power of attorney, depending on what you wish to accomplish.  A general power of attorney comes into legal effect at the time that it is executed.  It gives a chosen individual, termed an “agent” or  “attorney-in-fact,” the right to make financial decisions for you, from selling your possessions to paying your bills.  This is useful in case you have surgery, a stroke or an accident and have to be hospitalized for an extended period of time.  This allows someone you choose to pay your bills and manage your finances during that time so your credit rating remains intact.

            If the power of attorney is durable, it continues in full force through illness or incapacity.  Another approach is the springing power of attorney, which is written and executed in advance, but only takes legal effect upon a pronouncement of incapacity by two licensed physicians.  This is helpful if you do not feel comfortable with another person having power over your financial affairs until it is absolutely necessary.

            A limited power of attorney is written for specific periods of time, such as while you are out of the country, or for a specific task, such as the selling of your vacation property in North Carolina.

            The reason that a power of attorney is only part of your estate planning package is because your power of attorney remains in effect only while you are alive.  Your attorney-in-fact can carry on your business during your lifetime (even while you are incompetent), but cannot use the document to wrap up your affairs after your death.  After your death, your attorney-in-fact has to use a Will or Living Trust to settle your estate.