WHAT IS PROBATE?
“Probate” is the court process that transfers ownership of your property after your death to your family according to your wishes. The court ensures that all your debts are paid prior to your family receiving your assets. The probate process takes a minimum of six months and usually takes over a year. Probate can be expensive if the family will not follow your instructions on how you want to distribute your assets.
WHAT IF YOU HAVE NO WILL?
Having no will is the worst plan of all. If you were to die without a will, transferring assets to your family would be difficult, expensive, and inflexible. The state of Alabama, for example, gives one half of your property to your children and one-half to your spouse. The person who goes to court must post a bond, which can be several thousand dollars, depending on the size of the estate. Without a will, you cannot distribute your property as you decide.
DOES A SIMPLE WILL HELP?
A simple will is much better than having no will at all, but if you have at least one minor child (under the age of 19) or someone who is disabled whom you want to leave property to, then the process is more difficult and expensive because the probate court must approve someone to manage the assets of a minor until he or she turns 19. (This person is called the “guardian” and/or “conservator.”) Also, when a child turns 19, he or she can spend all their inheritance at will without any accountability.
WHAT IF I BECOME DISABLED?
One drawback to using a will, even one with a trust inside, is that a will does not protect you and your family in the event you become disabled or incapacitated (unable to make financial decisions). If you have assets in your name alone and your family needs to use them to take care of you, court approval may be required and a “conservatorship” set up. The conservatorship court process can be embarrassing and cause major disagreements within a family. It is also expensive, usually about $3,500 to set up and several thousand dollars a year to keep in place.
CAN I GIVE SOMEONE A POWER OF ATTORNEY TO MAKE MY FINANCIAL DECISIONS IF I AM DISABLED?
Yes, but a power of attorney may be rejected by a bank or financial institution when a family member or friend presents it. A power of attorney is a legal document, but not legally enforceable in most states. Banks and investment companies are afraid of fraud, and often will not accept a power of attorney presented to them. This rejection will force them to set up a “conservatorship” (explained above). Also, your family member or friend does not have any duty to use the money he or she obtains using your power of attorney for your benefit. I.e., they do not have any “fiduciary duty” to you.
WHAT IS A “LIVING TRUST”?
A Living Trust may be a better estate planning tool because it avoids the expense of a conservatorship in the event of your disability. Also, a living trust requires the person you select to be in charge of your finances to be responsible to you for its use. I.e., that person cannot use the money on himself or herself unless you have given him or her permission in the trust document. This requirement is called a “fiduciary duty.” A living trust can also control how the property left to your beneficiaries is to be used after your death, protecting a spouse or child’s inheritance from lawsuits, a divorcing spouse, or being spent recklessly. It can also avoid the expense of probate if the trust is properly “funded” (if all your property is transferred to it). Vogel Law Firm, LLC has a paralegal on staff that concentrates on assisting you fund your trust.
WHAT IF I HAVE A SPECIAL NEEDS CHILD?
A Living Trust can also provide for a special needs child while you are in good health and in the event of your incapacity and be converted to a special needs trust after your death. You can also set up a special needs trust during your lifetime for the child which will allow him or her to qualify for Medicaid and other governmental benefits and keep the money you set aside for needs not covered by these programs (as special medical exams or treatment, electronic equipment as a TV or DVD, and even an automobile).
CAN A TRUST PROTECT MY ASSETS FROM LAWSUITS?
One of the benefits of certain types of trusts is “asset protection,” which simply means giving effective legal protection to your property and other valuables so that they do not fall into the hands of creditors or lawsuits. However, the trust you set up must be irrevocable to accomplish this for yourself and your family. Professionals, contractors, and others who fear lawsuits can transfer bank accounts, houses, property, and investments to a “separate living trust” in the name of a spouse. As a “co-trustee” with your spouse, you remain in control of these assets, but without risk of lawsuits. A “limited liability company” or LLC can also be an effective way to protect what you have from lawsuits. Consult with your attorney about how to so protect your assets.
HOW DO I AVOID DEATH TAXES?
To avoid death taxes (estate taxes), your estate must be less than $11.7 million in 2021. If you use a will with a special kind of trust (“credit shelter trust” or “family trust”) or if you use a special kind of living trust, then after your death and the death of your spouse, you and your spouse can avoid taxes on up to $23.4 million in 2021. A life insurance trust and charitable trusts can also be used to avoid death taxes.
WILL A LIFE INSURANCE TRUST HELP ME AVOID DEATH TAXES?
If your assets exceed $11.7 million in 2021, you can avoid death taxes on all your life insurance by putting it into a “life insurance trust.” The trust owns your policies. If you live for three years after putting your insurance into it, you will pay no death tax on your life insurance. Furthermore, your life insurance trust can apply for new policies of life insurance without the three-year wait.
IF I AM DISABLED, HOW CAN I BE SURE THAT THE PERSON(S) THAT I WANT WILL MAKE MY MEDICAL DECISIONS?
An Advance Directive or Healthcare Power of Attorney allows you to choose who you want to make your medical decisions if you cannot make them. A Living Will (which is part of an Advance Directive) allows you to make certain decision for your care ahead of time, which your healthcare power of attorney must follow.
WHO CAN HELP ME?
Attorneys Doug Vogel and Jerry Daniel have extensive experience in drafting these kinds of documents. They will work with you and your financial planner and CPA to ensure that your family and loved ones are provided for and protected after your disability or death. Vogel Law Firm, LLC can assist you with all areas of estate planning, including the following:
- Living Trusts
- Special Needs Trusts
- Charitable Trusts
- Living Wills
- Probate of Estates
- Powers of Attorney
- Asset Protection
- LLC Formation and Small Business
- Homeowners Associations concerns
- Medicaid Planning
- VA Aid & Attendance