GENERAL ESTATE PLANNING
Nothing in this blog post constitutes legal advice. It is posted merely for informational purposes only. For specific questions about your estate, the reader is encouraged to seek private legal counsel to whom all of the facts may be divulged. Nothing here gives rise to an attorney-client relationship or privilege.
The old saying is that nothing is certain but death and taxes. Taxes will be the subject of a future blog post. In this post I want to speak about what, for some, is a difficult topic, planning for your ultimate demise.
Because we will all one day die, this post is for everyone. However, in this post I will not be able to go into the specifics of all manner of vehicles by which one can convey property to their loved ones when considering end of life gifts, but will instead speak to the main and most commonly used methods of transferring property posthumously. In later posts we will speak to more complex and/or uncommon methods for people with specific needs and/or unusually large estates.
So, let’s begin with the most well-known item in an estate plan.
The Last Will and Testament (Simple Will). It is always recommended that one prepares a will, it may become obsolete at the time of your death depending what happens during your life, but it is the cornerstone of every estate plan. The purpose of a Will is to state, in no uncertain terms, what you would like to happen with your personal property and real estate after your death. To administer your wishes set forth in your Will, State probate courts are employed to ensure that the person designated to be in control (commonly referred to as the “executor,” but in modern times more often referred to as the “personal representative.”) acts in a reasonable manner to accomplish those wishes, rather than just running off with all of the property to enrich himself.
Items included in a Will are devised to ones’ devisee/s either specifically or generally. An example of a specific devise would be: “I bequest to my eldest niece, Jane Doe, my collection of fine china and silverware I stored in the china cabinet in the dining room.” A general devise would read something like this: “the remainder of my estate will be divided among my children, should any of my children predecease me, then their heirs shall receive that child’s share per stirpes by representation.”
All items in the Will are part of what is called the Probate Estate. The probate estate includes those items one owns at death that are tangible, liquid, or not made part of one’s non-probate estate by statute. At typical probate estate includes such things as a house, boat, planes, trains, and automobiles, tangible personal property within the home or other facility, bank accounts, brokerage accounts, and other property. Items that pass outside of a probate estate are life insurance benefits, property used to fund a trust where the beneficiary, or the residual beneficiary, is someone other than the deceased, jointly held property, or property held by the entirety (between spouses).
In your Will you should name what is commonly referred to as an Executor or “Personal Representative” (PR). That person will be responsible for opening the estate and overseeing the administration of the estate. The PR or an heir at law can petition to have the Will probated. If the Will provides, or if the beneficiaries of a Will consent, the estate may be probated without court supervision, meaning less time to administer and close, and less cost to the estate. Otherwise, the court will supervise the administration of the estate requiring inventories, accountings, and other filings to be presented to the court on a regular basis. In this process, it is the PR’s responsibility to ensure that creditors are given notice of your death so any debts owed can be paid by the estate and to distribute remaining assets to heirs or devisees. In the absence of a properly executed Will, that decedent is determined to have died intestate, and heirs will need to be made known to the court so they may be issued letters of administration. The court will then take charge of the estate.
In a Will, as a testator you have great discretion to distribute your property in any way you see appropriate with only a few exceptions. You may not restrict a devisee’s right marry, or restrict any other rights of the devisees’ that is considered a fundamental right of that individual. You may not cause the administration of your Will to lead to the commission of a crime. You may not use your Will to perpetuate a recognized form of discrimination. You may not control how future generations inherit the property (called the Rule Against Perpetuities). You may, however, disinherit anyone you choose; give all, or any portion, of your estate to any individual or organization you deem fit; or make any other disposition of your estate assets you could have done while you were alive. However, it is important to consider that if you intend to include any provision or distribution that others may consider a rash or questionable decision, during the execution of the Will, you should take steps to protect the Will against challenges by your future heirs for undue influence by a third party, or lack of capacity at the time the Will was executed. You will also want to take extra precautions if the PR or other party charged with administering the Will also inherits under it.
Once the Will is executed properly and stored in a manner that it will be found and administered to your satisfaction, there is no more work that need be done. That will remain true until such time as you wish to amend your Will with a Codicil or repudiate that Will with another Will or it is revoked by qualifying intended physical acts. Several originals should be made of your Last Will and Testament. One should be kept in your possession, kept in the care of your attorney, and kept by the PR. Extra copies should be kept in a safe place just in case any or all of the originals are lost or destroyed over the years.
Because you do not know if it will be necessary at the time of your death it is certainly recommended that you have a Will in place to make sure that your wishes are abide by.
As intimated above, there are way to take certain property out of the probate estate which can either lessen the amount of the estate probated, or avoid probate altogether. The benefits of avoiding probate is that the administration of the estate can be done much efficiently and timely which will likely result in lower costs to the estate and leave more for the designated heirs or devisees. Below are just a few ways to remove property from a probate estate:
1. Transfer-on-Death. Property designated as transfer on death (TOD) will automatically pass to the person or fund named in the TOD deed. The most common example of this are TOD deeds for a home. Removing a home from the estate may bring the total amount of the value of the estate below your particular State’s minimum for requiring probate procedures. In Indiana that small estate threshold is $50,000.00. If removing the home from the estate will bring the value of all other would-be probate assets of the estate below $50,000.00, then the estate will not need to be probated, and may pass by way of affidavit.
2. Trust. Property held by a trust legally does not belong to the individual who funded the trust, and thus may pass outside of probate. It is not possible to sufficiently describe all types of trusts available in a blog post, but I will touch on some of the highlights.
A. Totten Trust. A Totten Trust is simply a bank account owned by the Settlor during her life and transferred to the named beneficiary after the Settlor’s death.
B. Revocable Trust. A trust granted to the benefit of an individual/s and possibly also the Settlor herself which is funded by money or property the Settlor contributed and may be revoked by the Settlor during her lifetime.
C. Irrevocable Trust. Much like a revocable trust but may not be revoked, and thus is no longer considered the property of the Settlor after its execution.
D. Special Needs, Educational or other such Trusts. Specific types of trusts that are intended to benefit a particular aspect of the beneficiaries’ life. In the case of an educational trust, the trustee is tasked with using the body of the trust only for the educational needs of the beneficiary, but the trustee will most likely have a large degree of discretion when it comes to how to determine if it is used for that purpose.
Trusts are an enormous part of estate planning, and far too varied to do an exhaustive and descriptive list here. At later dates each type of trust will be discussed at greater length.
3. Jointly held property. Property held by joint tenants with rights of survivorship will automatically pass to the other joint tenant upon the death of the other owner. There are four requirement necessary in order to legally be considered joint tenants. They are: unity of time (interest must be acquired by both tenants at the same time), unity of title (the interests held by the co-owners must arise out of the same document), unity of interest (both tenants must have the same interest in the property), and unity of possession (both tenants must have the right to possess the whole property.) For example, in their parents’ will Jane and John were devised a home as joint tenants with rights of survivorship. When John dies, Jane’s rights of survivorship kick in automatically and vest ownership of the whole property in her name.
4. Tenants by the Entirety. This type of ownership is the ownership of title by a husband and wife in which both have the right to the entire property, and, upon the death of one, the other automatically is designated full title ownership (right of survivorship). Unlike a joint tenancy with rights of survivorship, there is not the strict requirement of the four unities. However, the husband and wife relationship is required here. For example: this time John and Jane are married. They own their home together by their entirety (their marriage). Just like with joint tenants, once John dies, Jane takes ownership of the whole property immediately upon John’s death.
· Slight caveat. During life, joint tenants as well as tenants by the entirety have a duty to the other tenants not to encumber the property with a mortgage or attempt to sell the property without the other’s knowledge and consent. It will either prove fatal to the sale, or more likely it will destroy the tenancy relationship and create a tenancy in common.
5. Tenants in Common. This is not a method to avoid probate, but it is closely related in with the previous ownership types that I want to address it to. Tenants in common hold an undivided percentage interest in a property. Back to John and Jane. John and Jane are devised a piece of property as tenants in common. They now each hold an undivided one-half interest in that property, meaning that either of them can secure a mortgage, sell, or otherwise encumber one-half of the value of the property. If John were to sell his interest, the buyer would hold an undivided one-half interest in the property along with Jane. If John were to die, his heirs or devisees would own his one-half interest,.
Advanced Healthcare Directive. This is an important part of estate planning which is unrelated to financial matters and deals with medical decisions. Also known as a living will, or medical proxy, or medical directive, an Advanced Healthcare Directive (AHCD) is a legal document which provides written instructions to communicate the care and treatment you want should you no longer be able to make health care decisions. This notarized document should name a person, or series of persons who will make healthcare decisions on your behalf if you are no longer able to communicate your wishes or give consent to medical procedures. In this document you will not only name who you would like to make such decisions on your behalf, but you will also give that person a directive as to what you want your overall care to be and specific procedures which should be implemented or bypassed. For example, John names Jane as his healthcare officer who will act on his behalf. After suffering from a serious stroke, John is no longer communicative. In the Advanced Healthcare Directive John specified that he wishes not to receive any life-saving care, receive care enough to maintain life unless there are no chances of recovery, life sustaining care until brain death, or anything else that he may direct. Jane may then give consent to medical procedures she thinks are consistent with what John may have wanted. In the event that decisions and care regarding your personal and medical matters need to be addressed are beyond the power you designated to your agent in this document, the courts will choose a guardian of the person (discussed below).
Durable Power of Attorney. A power of attorney (POA) for finances is a document which allows you to designate a person or series of persons the power to act on your behalf regarding financial decisions and to take any action you permit in that document care for and to manage your financial affairs. Generally, an executed durable power of attorney is in effect both when you are cognizant incapacitated. For example, you may execute a power of attorney in which your child can have power over certain assets of yours because they are better at finances. However, a specific type of durable power of attorney called a springing power of attorney may be executed instead if you desire the POA to cover more narrow circumstances. A springing power of attorney only comes into effect when certain conditions are met. Often, the event is incapacity. However, the ‘springing’ event can be narrowly tailored to meet your individual expectations. For example, a person in the military may create a springing power of attorney to handle their financial matters while deployed oversees. Like the Advance Healthcare Directive the document is notarized and should be granted the same weight as if the Principal himself were making the decisions. In the event that decisions and care regarding your financial matters need to be addressed are beyond the power your designated to your agent in this document, the courts will choose a guardian of the estate (discussed below).
Guardian of the Estate. There are numerous types of guardianships. For the purposes of this post, I will only speak of guardianships that can be planned for in advance as part of an estate plan. Upon incapacity, in the absence of both a thorough and well executed Advance Healthcare Directive and Durable Power of Attorney, a guardian will be appointed by the courts to make medical decisions and to take care of the incapacitated persons’ property. These duties can be separated in which case there will be a designated guardian of the person, and a designated guardian of the estate. These duties may also be combined in which one person covers both the person and estate. All decisions of the guardian/s will be overseen by the courts. In Indiana guardianships are overseen by the probate court, and the guardian(s) are responsible for reporting to the court on a regular basis, be that monthly, quarterly, semi-annually, etc, or however the court instructs. Having a court designate these responsibilities is typically time-consuming and expensive and often does not result in decisions you would have made had you the opportunity to decide yourself.
This is just a general overview of what you should expect to discuss when you speak with an attorney about your estate planning. It is never an easy topic to consider, but the alternative is to possibly cause unwanted conflict between family members or decisions to be made contrary to what you ultimately intended. Thorough discussions with your attorney so that she is aware of the specifics about your personal and financial wishes during your life and after your death, together you will be able to execute an estate plan which is narrowly tailored to accomplish your individual desires. Having a well thought out, well planned, and well executed estate plan will ensure that to the greatest extent, you are able to control how you, and your effects, are treated after your incapacity.
Nothing in this blog post constitutes legal advice. It is posted merely for informational purposes only. For specific questions regarding your estate, the reader is encouraged to seek private legal counsel to whom all of the facts may be divulged. Nothing here gives rise to an attorney-client relationship or privilege. The author is licensed to practice in the state of Indiana. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, client or otherwise, should act or refrain from acting on the basis of any content included herein.