Kelly A. Burgy
Estate Planning FAQ's
At Council Baradel, we understand that just the thought of creating an estate plan can be overwhelming. Having a plan in place can alleviate a lot of the stress and confusion your loved ones may face when you die. In an effort to break down the estate planning process, we have created some frequently asked questions and answers. We hope this can be a helpful place to get you started on your own estate planning journey.
What does Estate Planning mean? Estate planning consists of so much more than drafting a simple will. With proper estate planning, you can protect your assets, plan for retirement, provide for disability or incapacitation, minimize family conflict, and remain in control of important decisions about your health care and finances during and after your lifetime. Estate planning is a general term that refers to advance planning for the management and distribution of your affairs after your death, and often during any period of disability or incapacity. Different people have different goals for their lifetime, so estate planning is not a one size fits all approach. Your estate plan should be tailored to what is important to you.
Do I really need an estate plan? Yes. Estate planning is important for everyone. Most of us spend a considerable amount of time and energy in our lives accumulating wealth. A well-thought-out estate plan ensure that your hard-earned wealth will remain intact, for your enjoyment and for future generations. If you do not have an estate plan, you are subject to the intestate laws of your state. The state decides who will inherit your property and in what amounts. One aspect of estate planning that isn’t as well known is that estate planning is critically important in the event that you become incapacitated. If you become incapacitated without the proper documents, a judge will decide who gets to make personal, medical and financial decisions for you. With the proper planning, you can make decisions in advance about your health care, and appoint someone who you trust to make those decisions for you if you cannot do so for yourself. You can also appoint someone to make financial decisions for you if you are incapacitated.
What estate planning documents should I have? • Last Will and Testament to distribute assets after death. • Durable General Power of Attorney to appoint an agent to make financial decisions for you, if you cannot do so yourself. • Advance Directive (also called a “Living Will” or “Durable Healthcare Power of Attorney”) to name an agent to make healthcare decisions for you, and communicate your wishes for future health care decisions in the event you cannot communicate those wishes for yourself. • HIPAA Releases to allow people close to you to obtain medical information they may need if you are incapacitated. • For those with minor children, Appointment of Guardian and a Trust. This can be accomplished as a testamentary trust within your will. • For some, a Revocable Living Trust or another type of Trust may make sense.
What is the difference between a Will and a Living Trust? A will’s sole purpose is to finalize your affairs after your death, whereas trusts can achieve a number of goals during your lifetime as well as after your death. A will does not plan for your disability or incapacity, but a trust can. A will identifies your heirs, appoints a Personal Representative to administer your estate, and directs how your assets are to be distributed. Upon your death, all assets titled in your name alone become property of your estate. The Personal Representative secures your property, pays debts, and distributes property according to the terms of the will. Wills and your estate are a matter of public record and subject to court supervision. A trust is a contract where you place assets in a trust, to be held by the trustee on behalf of the trust’s beneficiaries. The Trustmaker/Grantor creates the Trust and dictates the terms of the trust. The trustee administers the trust, according to the terms of the trust agreement. A trust may be in effect during your lifetime or after your death. You may serve as the trustee to maintain control of the assets during your lifetime, or you can name another individual to serve as trustee. You can also name successor trustee(s), who would step into the shoes upon a trustee’s death or incapacity. The successor trustee can take over without court involvement, whereas with a will, the Personal Representative must be approved by the court. There are many types of trusts that can be created for specific reasons. For example, you can create a trust for pet planning, special needs planning, Medicaid planning, and asset protection, to name a few. Trust agreements are contracts so they do not need to be proved in probate court like wills. This means that trusts are not a matter of public record and remain private. Avoiding probate can also significantly reduce the time (and money) it takes to distribute your assets. Wills are more prone to contests due to public and legal notice requirements. And, if you own property in multiple states, then a will may mean that you have to open multiple probate proceedings in those different states. With a trust, probate is not necessary if the trust has been properly funded. Your unique needs, goals and financial situation dictate whether a trust agreement will benefit you.
What about taxes? The federal estate tax is a tax by the federal government upon the estate of a deceased person. The federal government gives certain exclusions and deductions, and taxes everything above a set level. Currently, the federal estate tax only applies to assets over $12.06 million. A state estate tax is a tax by the state government upon the estate of a deceased person. It works much the same way as the federal estate tax. In Maryland, the state estate tax applies to assets over $5 million. The D.C. estate tax applies to assets over $4 million. An inheritance tax is a tax by the state government that varies depending upon the relationship of the inheritor to the deceased person. A gift tax is a tax by the federal government upon transfers of money or property to other people, while getting less than its fair value in return. The federal government has certain exclusions (like for medical and education expenses), and in 2022 will only tax gifts over $16,000 per year. A knowledgeable estate planning attorney can help you to plan your assets in ways to minimize or avoid these taxes.
When should I begin estate planning? Ideally, it is best to start estate planning after your 18th birthday. Having an Advance Directive, HIPAA Authorization, and Durable Power of Attorney will be very beneficial if the young adult becomes incapacitated. These documents appoint an agent to make financial and medical decisions if the person is unable to do so themselves. A young person should also have a Will and make sure that any financial accounts have designated beneficiaries. Your estate plan protects the assets you do have and helps to protect you and your loved ones. Everyone, regardless of age, net worth, marital or parental status should have a basic estate plan. As your family and net worth grow, you can expand your basic estate plan. If you don’t have an estate plan, the time to start is now. Making these decisions now allows you to be prepared for unexpected events.
How often do I need to review my estate plan? A lot can change in a short period of time. It is best to review your estate plan at least every five years. Some important life events should prompt you to contact your estate planning attorney, such as: • Marriage • Separation and divorce • Death of a spouse • Birth or death of a child • Death of an heir • Purchase of a business • Retirement • Acquisition, sale or transfer of a substantial asset • Receiving a large inheritance • Moving to a new state
What is probate? Probate is the legal process in which a deceased person’s will is validated. Most people use this term to mean the entire administration of a deceased person’s estate. Estate administration is when a court supervises the payment of final debts, taxes, and property is distributed to the beneficiaries entitled to the assets. Unless there is a successful challenge to a person’s will, the decedent’s property is distributed according to the terms of the will. Every state, including the District of Columbia, has its own intestacy laws which determine who inherits property when someone dies with no will or trust in place. Administration of an estate through probate can take months, or even years. There are costs associated with probate, including attorney fees and administration fees (like requesting certified copies of documents, certified mail fees, court filing fees, etc.). A knowledgeable estate planning attorney will be able to talk you through how you can avoid having your assets pass through the probate process after your death.
Where do I start? The first step is to contact an estate planning attorney for a consultation. There are several decisions that you should consider prior to meeting with an attorney. • Decide who you want to inherit your assets. • It can be very helpful to create a list of your assets and debts, so that you and your attorney can have an informed discussion about how each asset would be distributed upon your death or incapacity. • Decide who you want to name as guardian for your children if they are minors at the time of your death. • If you have a child or someone close to you with special needs, consider if and how you would like to provide support for this person after your death or upon your incapacity. • Consider if protecting your assets from creditors is important. You may also want to consider certain protections for your loved ones, upon your death. This includes divorce protection. • If you have a business, there are additional considerations for how your business interests will pass. You should locate the Operating Agreements/Articles of Incorporation/etc. • Decide who you want to handle your health care and financial decisions upon incapacity. These do not need to be the same people – you can designate certain agents for healthcare decisions, and other agents for financial decisions.
What should I bring to my first meeting? First and foremost, bring a list of questions that you want to ask the attorney. You should choose an attorney who you are comfortable discussing any questions you may have, and who you have full confidence in. You should certainly bring copies of any estate planning documents you currently have (wills, trust agreements, powers of attorney, advance directives, etc.) The purpose of the initial meeting is educational. The attorney will want to learn about you, your family, background, aspirations and estate planning goals. The attorney will be most curious to learn about what is most important to you. You should use the meeting to learn about and understand your needs and solutions. To facilitate these discussions, consider bringing:
• Information about your net worth and assets (real estate, retirement accounts, life insurance, business interests, stocks, investment accounts, etc.). A knowledgeable estate planning attorney will be able to tailor your estate plan depending on any tax planning or other strategies that should be taken advantage of.
• List of heirs and family members, including relationship and age.
• List of loved ones that you wish to include in your estate plan.
• Information related to anticipated inheritances.
• Names and contact information for guardians, trustees, Personal Representatives.