Estate Planning

Estate planning is important because without a will your loved ones will face increased costs and frustration when wrapping up your affairs after you’re gone. In order to ensure the details of their assets are kept private, many people now create revocable living trusts.

Estate planning includes wills trusts probate

One of the most important decisions you will face when completing your estate planning is whether a will-based plan or a trust-based plan is best for you. Your estate planning attorney will help illustrate the pros and cons of each choice, but a general list is as follows:

Wills

  • Simplicity
  • Lower initial cost
  • Low level of capacity to execute
  • Name guardians of minor children
  • Effective only at death (requires probate)
  • Exposes details of estate to public scrutiny
  • Lack ability to assist in planning for disability
  • Control only “probate assets” (in client’s name only)

Trusts

  • More detailed planning required
  • Higher initial cost (but can lower probate expenses)
  • Higher level of capacity needed to create
  • Effective immediately
  • Avoids probate and allows for privacy
  • Powerful aid to disability planning
  • Irrevocable Trusts for Medicaid planning or VA Aid and Attendance planning can help protect assets if in-home, assisted living or nursing home care becomes necessary

Questions to Consider

If you are unsure if you need an estate planning attorney to help you accomplish your estate planning goals, consider whether the following scenarios are provided for in your current documents.

  1. Do you want to ensure no one can discover how much money you had, what debts were paid, and who got what and the value they received? If so, you will want to avoid probate.
  2. Is your heir too young to receive an inheritance? If so, you should create a trust to hold their assets.
  3. Is your heir likely to squander the money they receive? If so, you should create a trust that distributes the inheritance at certain ages.
  4. Does your heir have a disability or any special needs? If so, you should create a special needs trust to receive their share of the inheritance.
  5. Is your heir in a difficult marriage? If so, you should ensure their inheritance is safe from a later divorce settlement.
  6. Do you have children from a prior marriage? If so, you may wish to provide for them differently than your step-children.
  7. Does your heir have any potential creditors such as lawsuits, bankruptcy? If so, you may wish to leave them their inheritance in a protected trust.
  8. Do you face any potential estate taxes? If so, your plan can be created to minimize estate tax.

Trusts accomplish what wills cannot

In estate planning, a lawyer is often asked about trusts. Clients are often predisposed against them and instead ask only for a “simple will.” There is no such thing as a simple will!

The following list outlines some of the things a trust can do—things a so-called simple will ordinarily cannot do.

A trust may include many different provisions to accommodate one or more of the following objectives, among others:

  1. Provide a structured way to administer personal and financial affairs during your life should you become incapacitated.
  2. Carry out your choice of trustee to administer your trust.
  3. Provide a protected way to transfer your assets to a surviving spouse in a tax-advantaged manner.
  4. Ensure the orderly and private transfer of your property after your death, and after the death of your surviving spouse.
  5. Protect and manage assets for the benefit of, and provide support for, your children, grandchildren and other beneficiaries until they reach the ages or meet conditions that you determine for distribution.
  6. Create incentives for desirable behavior and accomplishments by your beneficiaries.
  7. Ensure that a property transfer takes advantage of the available federal and state tax exemptions.
  8. Provide for the support of an elderly surviving spouse, parent, disabled child or other person with protection from Medicaid disqualification or reimbursement.
  9. Pay for a loved one’s education.
  10. Pay for a loved one’s health and medical care.
  11. Avoid probate costs and inconvenience.
  12. Make tax-advantaged gifts to children or others.
  13. Make tax-advantaged generation-skipping gifts to grandchildren.
  14. Protect assets from a beneficiary’s creditor’s claims.
  15. Protect assets from claims of a beneficiary’s present, former or future spouse, including in a divorce.
  16. Minimize the risk of competition or disagreement among beneficiaries over financial matters.
  17. Arrange for the cooperative sharing of a family asset such as a residence or vacation home.
  18. Determine the method for decisions regarding stock options and other unusual assets.
  19. Make tax-advantaged charitable gifts.
  20. Arrange for the management and distribution of retirement plans and life insurance proceeds.
  21. Provide for the continuation of alimony, property division or child support payments, if necessary, but no more than is legally required.
  22. Arrange for the management or sale of a family business or save a family business from an untimely liquidation or disadvantageous sale.
  23. Reduce your estate tax, income tax and generation skipping tax.
  24. The terms of a revocable living trust can be modified as your goals change.
  25. You can elect to have the trust cease and pay out immediately following death or have it continue into the future for your beneficiaries.

The flexibility of a trust makes it ideal for a wide range of individuals and purposes when a will cannot accomplish all of your goals.

By Daniel J. Hoffheimer, an attorney with Taft, Stettinius & Hollister in Cincinnati.  This article appeared in the Winter 2006 issue of the OSBA Solo, Small Firm and General Practice News.