Cooper Legal Services Dwayne E. Cooper, Atty at Law

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Common Questions

1. What is Estate Planning?

2. Estate-Planning Options

3. Estate Tax Considerations

4. Irrevocable Trusts

5. Will

6. When should a will be changed?

7. Living Trust

8. The need for a will or a Living Trust

9. What is an executor/personal representative?

10. Plan now and do it right...

11. How should you provide for the distribution of your personal items?

12. What about my safe deposit box?

13. What happens to your children or disabled family members when you die?

14. What happens if I become very sick or incapacitated?

15. What is a Durable Power of Attorney?

16. What is a Health Care Power of Attorney?

17. What is a Living Will?

18. What is a Life-Prolonging Procedures Declaration?

19. What is a Health Care Representative Appointment?

20. Get professional help

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"Estate Planning Law Guide"

Click here to check out my recommended books at the Estate Planning Bookstore!

1. What is Estate Planning?

The best and simplest definition I have found on the subject defines "Estate Planning" as the process where you list your assets that make up your estate and determine where and how you want them to go when you die.

Your "estate" is the sum total of what you own when you die, including all your real estate and personal property. Obviously, these are over-simplified definitions. However, you need to know that estate planning is usually more than just writing a will and providing for your survivors after you are gone.

A sound estate plan also involves taking steps to minimize high estate taxes and the costs of probate.

The purpose of estate planning is to help you build an estate as large as possible during your lifetime and upon your death....to pass as much of it as is possible....to your loved ones.

If you own a significant amount of property, you should probably have an estate plan. Even relatively small estates can benefit from wise planning. In my opinion, estate planning is an absolute must for those people who have estates in excess of $600,000. Without smart estate planning, a sizeable chunk of the estate could end up in the hands of the government or someplace else that you dont want it to. (Currently, the estate tax is 37% tax on the excess of 600K. The amount of the exclusion will ease up to 1 million by 2006.)

2. Estate Planning Options

Let’s get right to it and briefly talk about some of the common estate-planning options that you can use to reduce probate expenses and delays, as well as help preserve your property. In addition to making a will, here are some of the things you can do:

Cash Gifts

You can avoid estate taxes and probate by giving cash gifts during your lifetime. Each person is allowed to give up to 10,000 per year per person.

Married couples can make a combined gift of $20,000 per year to anyone they choose without having to pay any gift taxes. For example, say you have two children who are married. It is possible that you and your wife can gift up to $80,000 tax free to them per year...if you count gifts to their spouses!

Joint tenancy with right of survivorship

In Indiana, we have three types of joint ownership that may be listed on property:

1) Tenancy in Common - Upon the death of 1 co-owner, the other co-owner owns the percentage that he/she contributed to the account.

2) Tenancy by the Entireties - Upon the death of 1 co-owner, the surviving spouse is entitled to the house. This is a form of ownership that can only be between husband and wife.  Generally, written conveyances or devices to two people who are husband and wife will be a tenancy by entirety unless another form of ownership is otherwise expressed.

3) Joint tenancy with right of survivorship - Upon the death of 1 co-owner, the property will automatically pass to the other co-owner listed on the account no matter how much either party contributed to the account.  Generally, this form of ownership must be specifically spelled out.

For example, you and your another person can own your house as a "joint tenancy with right of survivorship" This means that when one of you dies, the house will automatically pass to the other person and will not be subject to probate. This form of ownership may be used for bank accounts, real estate, stocks and bonds!

Totten trust

You can open a bank account "payable on death" to another person.

For example, the signature card of John’s bank account might read "John Doe, payable on death to Jane Doe" When John dies, Jane will become the sole owner of the account, which will not be treated as part of her estate.

Savings bonds can also be purchased this way. Check with your banking or financial representative to make sure that these are set up properly!

Family limited partnerships

A family limited partnership consists of several components. Usually the parent transfers some ownership of the business or asset through the limited partnership to the children, thereby further reducing the value of the estate.

However, there are some disadvantages. Because of the limited partnership entity, the value is reduced because it is much more difficult to sell a partnership interest.

Overall, in many situations, a Family Limited Partnership is an excellent way to reduce the size of your estate - approximately 35% according to a recent IRS study. A good attorney shoulr be able to help your weigh whether the costs of setting a FLP justifies the savings in your Federal Estate Taxes.

Living Trusts

Because the property is held in a trust created during your lifetime, the property passes outside your estate to those you have named, and so is not subject to to probate and administration. We will talk about this later in detail below.

Life Insurance

Life insurance proceeds are paid directly to the beneficiary named in the policy. Because of this, life insurance proceeds will usually not go through probate if you have the policy titled correctly. Generally, life insurance proceeds will not pass according to your will if the beneficiary is "someone other than your estate."

So be sure to name your spouse or other family member as the beneficiary on your life insurance policy. Do not name yourself or your estate or leave it blank. This way, the policy is not considered part of your estate for probate purposes, although the benefit may still be subject to state or federal taxes.

Of course, life insurance may raise the value of your estate for federal estate tax purposes. However, it is possible for you to set up a life insurance trust, which would keep the value of your life insurance out of your estate. This is a very specific type of trust in which you give up all incidents of ownership.

And finally, let me remind you to review the beneficiaries listed on your accounts regularly and update them when necessary.

3. Estate Tax Considerations

Estates are subject to both federal and state taxes. Of the two, many more people are affected by the Indiana Inheritance tax because of the smaller amounts involved.

The important thing to remember here is that thousands of dollars in taxes can be avoided legally by proper tax planning, particularly when both the husband and wife are still living.

Generally, on the federal level, you do not have to pay estate taxes unless your estate exceeds $600,000. Currently, the estate tax is 37% tax on the excess of 600K. The good news is that the amount of the exclusion will ease up to 1 million by the year 2006.

A federal tax return must be filed for every estate that exceeds $600,000 in value. It usually must be filed within nine months of the date of death. The amount of the tax is based on the value of the deceased’s "gross estate", minus certain deductions and credits.

Now, $600,000 may sound like a lot...but if you have a home that is paid for or possibly pension benefits... cars, a boat or jewelry...you can see how quickly your assets can add up.

There are several ways to reduce estate taxes, but they usually require that you give up control of some of your property while you are still alive. One effective tool that I haven’t discussed yet is an Irrevocable trust that gives complete control of some or all of your property to another.

4. Irrevocable Trusts

An irrevocable trust is a trust that may not be revoked after it is created. Obviously, because it can’t be revoked later...great care should be given before you set up this type of trust.

And remember, all trusts are presumed to be irrevocable unless the document says otherwise.

The irrevocable trust offers a great tax advantage as the tax burden is shifted to the beneficiary because no incident of ownership is retained by you. So this may be perfect if you have substantial assets and need to care for your loved ones.

5. Wills

A will is a legal document and final testament (statement) that states how a person’s property is to be distributed after his/her death.

To make a valid will, there are several requirements that must be met.

Generally, one must be of the legal age of 18, of sound mind, and have a general understanding of the extent of one's property and of the natural objects of one's bounty such as who one's spouse, children or grandchildren are. Additionally, the will must be in writing and signed and witnessed correctly in accordance with the Indiana statutory guidelines.

A will can be revoked during the person’s lifetime. To be effective, all changes must be made in strict compliance with the law. I guess I should also note that it is possible to make a will that can’t be changed. But I won't go in to that now... Let's first talk about...

6. When should a will be changed?

As time goes on, a person’s needs and circumstances change. A will drafted a few years ago may no longer fulfill your current needs.

Generally, you should review your will every few years for possible changes. If you have any of the following changes, you should consider either updating or redoing your will.

1. Change in marital status - A divorce may not cut the ex-spouse out of the will. And the new spouse will be the one to lose out.

2. Children are born or adopted or a stepchild comes into the picture. - Stepchildren of a deceased person will have no rights to inherit under a stepparent’s estate unless that intent is specifically stated in a will.

3. Value of your property changes - Often earlier gifts were too much, too little, or there is enough now to give to others as well.

4. If the intended heirs, executors, guardians or trustees have died.

5. Change in the estate or inheritance tax laws - Folks, they change all the time...

6. If the need for a trust for someone no longer exists or now does exist.

 

7. What is a living trust?

A living trust is a legal document that is created and operates during your lifetime. It is commonly for the benefit or support of another person.

When you have a living trust, you also have a will, called a pour-over will, and it pours over any left-over assets that might end up in probate to the living trust.

A living trust is a powerful instrument. You can give yourself the power to:

Change the beneficiaries at any time

Reserve income for your lifetime

Revoke or amend the instrument at any time

A living trust that is set up correctly avoids probate. Probate is the court process that determines who will inherit your estate if you did not do any planning to avoid probate. Basically, it changes title from the decedent’s name to that of the heirs or beneficiaries.

As you probably know, probate includes costly fees. You can figure that it will often cost from approximately 2 to 9% of the gross value of the estate. Unfortunately, this total is not reduced by any mortgages or debts of the estate.

Additionally, the probate process is often lengthy and often takes from 7 months to several years to complete, depending on the complexity of resolving the estate.

Furthermore, another advantage of a living trust is that it is a private document which is not available to public inspection as is a will.

In Indiana, if you own a home, you may wish to seriously consider a living trust.

8. The need for a will or a living trust...

Countless words have been written about the importance of having a will. Yet, believe it or not...most Americans die without a will. (70 percent by one estimate)

Many people never draw up a will because they think it will be too expensive...or too complicated...or because they just never get around to it. The truth is...for most people...wills aren’t that complicated and can be affordable. So there really is no excuse for not having one.

A will also allows you to choose an executor/personal representative to oversee your estate and to name a guardian for your minor or handicapped children.

I am often asked: What happens if you do not have a will or a trust? Well, the State of Indiana writes your will, if you do not have a will or living trust. This means that your assets will pass according to State law and not necessarily according to your wishes.

Here are some general examples of what might happen if you don't have a will or trust:

Example A. If you have children, your spouse will normally only receive half of your estate...with your children receiving the other half.

Example B. If you don’t have any children, your wife will only receive 3/4 of your estate...and your parents will receive a 1/4 of your estate.

Example C. If you are unmarried and you have children...all your assets will automatically pass to your children at the age of 18...and their parent will most probably be the manager of these funds.

When you die in Indiana without a will or trust, your wife will generally only receive your entire estate if there are no children and no living parents! The lesson is...funny things can happen if you don’t have a will.

9. What is an executor/personal representative?

An executor/personal representative is the "person named in your will" to carry out the provisions of your will.

The executor/personal representative conducts the administration of your estate and settles your estate as to your gifts at death and debts you left behind when you die.

What are the duties of an executor/personal representative?

Generally, the executor/personal representative must identify, locate and assume control over all of your property during the probate process.

The executor/personal representative must also pay any of your debts, income taxes, death taxes and expenses of administering the estate.

There are many requirements that the executor/personal representative must meet in carrying out this process and this job almost always requires the help of an attorney.

Who you name as your executor/personal representative is an extremely important choice as the position requires a considerable amount of time and effort.

Therefore, before naming someone, you should get his/her permission. You should also name an alternate executor in case your first choice is unwilling or unable to serve when you die. You can also appoint a bank or trust company to serve as your executor/personal representative.

10. The importance of doing it right...

There are few quick things I want to touch upon here regarding why it is so important to do a will or trust right and the long-term consequences of your estate plan on your relationships with the people you care for the most...

First, death is a natural consequence of life. It is not a matter of "if" you die...but "when" you die...

It's tough to accept this fact and it's even tougher to say it or even think about it. However, you owe it to yourself, your family, and your friends to acknowledge this fact and to plan accordingly.

Secondly, relationships do not end at death! The way that you direct the distribution of your estate assets upon your death has a lot to do with...

How your family and friends regard you after your death and how the members of your family get along with one another in the years following your death.

This particularly applies to your children who may not get along very well with one another at the present time...with you alive. When you die, your children will not have their relationship with you to draw them together...

Although your will may not have the capacity to bring them together, if your children are already divided, it is certainly possible that your will might split them even further apart...unless you are very careful.

It is very important to remember that the words in or omitted from your will or trust represent your final statement of your feelings about your relatives and close friends.

11. How should you provide for the distribution of your personal items?

Maybe someone can help me with this one...what is it about teasets? It seems like there are always two kids in the family that want the tea set... And since there is usually just one teaset, it is quite possible that they will fight over it...

And fighting over personal belongings always causes hard feelings. Often, it isn’t one of the children...but a spouse of one of the children who will intervene and insist upon his or her spouse getting certain items. This is never good.

I usually advise that no matter whatever you do...do not give one child the power to divide your personal things among all of them. Either require all your children to divide the things together or give the job to someone impartial who all the children can trust.

Family members are often upset when one child gets all the pictures. I like to remind people that prints can be made of family pictures...so it is possible that everyone gets that special picture.

Should you make a list of all your precious personal things and designate who gets them? Or should you let your children or other friends or relatives decide among themselves? This is a tough question and one worth exploring.

First of all, it’s difficult to keep an up-to-date list of everything you’ve got. If you do attempt to do keep a list, make sure the list is up-to-date...so somebody doesn't point a finger later...accusing a family member of taking something beforehand. Secondly, you might be inviting extra estate taxes if you designate specific items in your will or living trust because of the likelihood of each item being appraised.

There are many ways of dividing your personal things.

Some people put labels on the back of each item indicating who is to get what. But labels can change and be moved around...or even fall off...so I don’t necessarily suggest that.

Some suggest that you just ask each beneficiary what they want. However, this may be dangerous as often two beneficiaries want the same item. This also rewards the bold beneficiary and penalizes the shy one.

Often I think the best way of doing it is just list each item and give the lists to the beneficiaries and then... just let them each choose...in order...until all of the items have been taken. They can even draw staws as to who goes first...

12. Should I keep my will/trust in my safe deposit box?

Any safe deposit box in your name at the time of your death, including any jointly held box, is frozen and cannot be opened until the county assessor opens the box and lists its contents.

For this reason, I don’t suggest keeping your will in your safe deposit box. Nor do I recommend that you allow your attorney to keep the original of your will/trust either. When you die, your attorney may not be around either...

Make it easy on your loved ones and keep the original will/trust where you keep all your other important papers.

I usually recommend for you to keep your original will in your safe at home (with instructions elsewhere on how to open it) and a copy at your attorney’s office.

Note:  Due to a recent change in the law regarding safe deposit boxes, I will be updating this section soon. Stay tuned!

13. What happens to your children or disabled family members when you die?

If you are the last surviving parent and you have children or disabled family members when you die, a guardian will be required to be appointed.

A guardian is someone who can offer your children the kind of care and upbringing you yourself would give them.

This requires a petition in probate court and a hearing to determine if the proposed guardian is qualified.

Unfortunately, this is an expensive and lengthy procedure.

14. What happens if I become very sick or incapacitated?

If you become incapacitated, your next of kin can step in and make decisions if their name or names are listed on the assets.

Otherwise, they may need to go through a court procedure called conservatorship to take care of you or your estate.

The need for a conservatorship can be eliminated with a Durable Power of Attorney and a Power of Attorney for Health Care. These documents avoid court procedures and the cost and time involved in a conservatorship.

Other documents called Advance Directives also may help solve anticipated problems in the future.

But before we talk about the 4 Advance Directives available...

15. What is a Durable Power of Attorney (DPOA)?

A Durable Power of Attorney is a powerful document where you can "give someone else the power and authority to make decisions for you or do certain acts on your behalf" by showing the paper.

The person that you name will be legally able to sell your assets while you are alive and well or incapacitated.

The durable power of attorney may also include powers to receive federal checks or even handle bank accts.

The power of attorney can be limited. Many people only want the power to start after an occurrence of a particular event, such as your incompetency or severe disability.

And because it is durable, the power will not terminate when you are incapacitated unless you state otherwise.

Obviously, choosing the right person is very important.

* 1st Advance Directive Option:

16. What is a Health Care Power of Attorney?

A Durable power of attorney for health care is a written document that names a certain person to make health care decisions for you.

It has very specific requirements and must include certain statutory language to be effective.

The person appointed may refuse to exercise the health care powers granted under the power of attorney and is only liable for failure to exercise such duties if he acted in bad faith...a pretty hard standard to prove.

* 2nd Advance Directive Option:

17. What is a Living Will?

A Living will is a written document from you that sets forth the kind and extent of life-prolonging procedures that you would or would not want to be used if you are terminal and unable to make your own medical decisions.

It only takes effect if you are terminal and are expected to die within a short period of time and once you have notified your doctor of the document.

This document may not be effective if you are in a persistent vegetative state.

In a living will, one cannot request that medication or a certain medical procedure should be used to alleviate any pain. A doctor must still specify these type of measures for a patient, despite the fact that the patient has a living will.

* 3rd Advance Directive Option:

18. What is a Life-Prolonging Procedures Declaration?

It's pretty much just the opposite of a living will... Life-Prolonging Procedures Declaration is a written document from you that allows you to request health care treatments that will help extend your life when you are faced with a terminal condition and unable to make your own medical decisions.

While a doctor may refuse to honor a living will under certain conditions, the doctor may not refuse to carry out your wishes in a Life-Prolonging Procedures Declaration.

* 4th Advance Directive Option:

19. What is a Health Care Representative Appointment?

Health Care Representative Appointment is a written document that authorizes another person to make health care decisions if the doctor determines that you are unable of making your own health care decisions.

It only takes effect if you are terminal and are expected to die within a short period of time.

This means that this document may not be effective if you are in a persistent vegetative state.

20. Get professional help

Proper estate planning requires formal legal documents.

If the documents are not correctly completed, the consequences could be disastrous for the people who you want to receive your property.

Please send mail to dwayne@cooperlegalservices.com with any questions or comments that you might have about this web site.

Disclaimer to Reader:: The above is not legal advice and you should not rely on it. Everything on this web page is general information only. Nothing on this web page establishes an attorney-client relationship. If you have a legal question or problem, please consult an attorney.

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