Frequently Asked Questions

Frequently Asked QuestionsWhere should I store my documents?

Estate planning documents should be stored where it is least likely that they will be inadvertently destroyed, or otherwise damaged or misplaced. If there is some reason to believe that someone would have an interest to cause the document(s) to “disappear”, then it is increasingly important that the document(s) be stored in a location that is secure.

The most obvious location to protect against these factors is a safety deposit box at a bank. Such a box is a logical place where people are likely to look for important documents. And it is unlikely that documents located in the box will be lost or damaged.

However, some thought needs to be given to who will have access to open the safety deposit box after death. If no one has been authorized to open the box, then after the death of all of the parties with access to the box it will be necessary to petition the Superior Court for an order authorizing the bank to open the box for inspection. If an original Will is located in the box, then the original Will must be delivered back to the Superior Court for filing.

If no one has a key for the box, then the bank will charge to bring in a locksmith to “drill” open the lock on the box.

We recommend that:

  1. Estate planning documents should be kept in a safety deposit box;
  2. Someone else (such as an adult child) should be authorized to sign to open the box; and
  3. Everyone that is authorized to sign to open the box should know the location of at least one of the keys to open the box.

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When should I check my estate planning documents?

Estate planning documents, such as Wills, trusts, powers of attorney and Health Care Directives, are dynamic documents that need to be changed when the circumstances of your life change. There is a great temptation to feel that you can put the documents into a file or safety deposit box and say: “Thank goodness I won’t have to think about those documents again.” But in fact, as changes in circumstance occur, estate planning documents need to be reviewed to be certain that they are still appropriate for the new circumstances.

Here are several changes that ought to trigger a review of existing estate planning documents:

  1. The birth of children. In almost every case, it is most appropriate to create a support trust to provide for the care of any minor children, and to provide for the investment of assets that are to be held until the children attain a suitable age. Such a trust also can provide for the education of the children.
  2. Changes in marital status or other personal circumstances. It should be obvious that a change in marital status would be a good reason to review existing estate planning documents. Provision in a Will or trust for a new or a former spouse will likely need to be changed. In most cases, it will be inappropriate to continue to name the former spouse as the agent under a power of attorney to make financial or health care decisions.
  3. The value of assets may increase or decrease. The decision to create existing estate planning documents was probably based upon certain assumptions about the value of the assets in the estate, and whether it was likely that the assets would increase or decrease in value over time. Significant changes in the value of assets may cause estate planning documents to be too complex, or perhaps, too simple to continue to meet the objectives originally identified.
  4. The law regarding estate taxation may change. The law regarding state and federal estate taxation has changed numerous times and in many different ways over the past several years. Other changes are likely to occur in future years. All of these changes may have a significant impact on the propriety of existing estate planning arrangements. This factor alone is a very substantial reason why existing estate planning documents should be reviewed periodically.
  5. Changes in health status. As the condition of health changes, there should be a corresponding evaluation of existing estate planning documents to be certain that the changes in the needs of the individual will be met by the estate planning documents.

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Revocable Living Trusts

Revocable Living Trusts (“RLTs”) are marketed across the country. In some cases, RLTs are touted by non-lawyers who are practicing law without the benefit of licensing, education and practical experience that provides protection for clients. We need a clear, unbiased assessment of RLTs.

What is a Revocable Living Trust (“RLT”)?

An RLT is a trust that is created by an individual during lifetime to control and distribute assets owned by the individual both during lifetime, and more importantly, following the death of the individual. The main objective of an RLT is to hopefully avoid the necessity of probate following the death of the individual. The avoidance of probate is accomplished because at the death of the individual, all assets that are titled in the name of the RLT will be distributed by the Successor Trustee in accordance with the provisions of the RLT. There is no need for a probate proceeding as there may be for any assets that are owned by the deceased individual.

Who should have a Revocable Living Trust?

In some states (notably California), probate proceedings are unduly complex and expensive. In other states, probate procedures are more sensible. In some cases, the necessity of probate can be avoided by other means such as joint tenancy or beneficiary designations, or other procedures such as a Community Property Agreement (in states that recognize community property). If probate avoidance is important, then the use of an RLT may be indicated. This is particularly important if assets are located in multiple states, thus risking multiple probate proceedings. Other benefits would include the use of the RLT to provide for independent management of the assets of an individual. In some cases, the expectation of privacy is a benefit that makes the RLT strategy desirable. The decision whether an RLT is an appropriate choice should be discussed with an estate planning attorney who can provide an assessment of the benefits, as well as the disadvantages, of the RLT strategy.

What are the disadvantages of a Revocable Living Trust?

The principal disadvantages of an RLT are the expense of setting up the trust and the inconvenience of dealing with the RLT during the remainder of your lifetime. The initial expense of setting up an RLT, including the transfer of assets into the ownership of the RLT, will likely vary greatly between locations. However, it is a significant expense that is made with current funds that might be better used for another purpose during the remainder of your lifetime. The expense will probably be a very significant share of the expense of the probate proceeding that it was intended to avoid. The inconvenience associated with the initial transfer of ownership of all assets to the RLT, as well as the continued inconvenience that will be incurred in the administration of the RLT during lifetime, ought to be given more consideration. In some cases, it is necessary to later revoke the RLT because of changes in your circumstances, such as the potential need to qualify for Medicaid.

What assets should be transferred into the ownership of the Revocable Living Trust?

The RLT will hopefully avoid the necessity of probate following the death of the individual because at death, the individual owns nothing. All assets are titled in the ownership of the RLT which continues to exist, and then continues to hold the assets for the benefit of others, or provides for the distribution of the assets, all in accordance with the provisions set forth in the RLT agreement. This requires that all “probate assets” owned by the individual be transferred into the ownership of the RLT in order to achieve the avoidance of the necessity of probate. “Probate assets” are assets that cannot ordinarily be transferred after death without probate. Such assets typically consist of parcels of real estate, bank accounts and securities accounts, motor vehicles, and other assets held in the name of the owner, personally, and not in joint tenancy or with another beneficiary arrangement. These assets must be owned by the RLT if probate is to be avoided.

What assets should not be owned by the RLT?

Some assets should not typically be transferred into the ownership of the RLT, such as 401(k), IRA and other qualified plan assets because they are controlled by their own beneficiary designation provisions, and because the transfer would constitute a “distribution” which would trigger the recognition of the deferred income tax liability. Also, there is usually no need to transfer the ownership of assets like annuities and life insurance policies because they also have beneficiary designation provisions. If other assets are held in joint tenancy, or with some form of suitable beneficiary designation, then it is likely that probate can be avoided as to those assets, and the necessity of an RLT for that purpose is lessened.

If a Revocable Living Trust will (hopefully) avoid probate, why do I need a “Pour-over Will”?

Good question! Trust mill representatives will insist that the use of a RLT will avoid the necessity of probate. Yet, any competent person will recommend that you sign a special form of a Last Will and Testament known as a “Pour-over Will.” If you are assured that you will not need to go through probate, why do you need a Will? The reason that you need a “Pour-over Will” is because of the possibility that you will need to go through probate because all “probate assets” are not titled in the ownership of the RLT at your death. Despite best efforts, this is too often necessary. This risk is an additional disadvantage to a RLT because you incur the expense to (hopefully) avoid probate, and then end up incurring the expense of the probate anyway. The “Pour-over Will” provides for the distribution of any assets that you, personally, own at your death back into the ownership of the RLT to be distributed in accordance with its provisions. But this requires that the Will be probated!

Can a Revocable Living Trust be amended or revoked?

Typically, yes. However, the specific terms of the trust agreement must be reviewed to determine if any limitations have been placed upon amendment or revocation. In most RLTs that are created to minimize estate tax liability, the portion of the trust estate that is owned by the decedent cannot be amended or revoked following the death of the individual. In many cases, serious restrictions are imposed upon a surviving spouse’s ability to amend or revoke the RLT if changes in circumstances should arise.

Can a Revocable Living Trust be used to minimize estate taxes?

The estate tax laws apply with equal force to estates which are governed by RLTs, and those which are administered through probate or other means. Therefore, in general, the same strategies that can be used to minimize estate taxes with an RLT can also be used in a Will. There is no significant tax advantage that can be gained by having an RLT.

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Joint Tenancy

Joint tenancy is the most common form of ownership of property in which two or more persons own an asset jointly. The principal aspect of joint tenancy is that upon the death of one owner, the “right of survivorship” inherent in joint tenancy transfers the asset to the other joint tenant who survives.

How is joint tenancy different from other forms of concurrent ownership?

Joint tenancy is the most common form of concurrent ownership of assets. However, there are other forms of concurrent ownership. Tenancy in common does not include the “right to survivorship” that is inherent in joint tenancy. Tenancy by the entireties is a form of concurrent ownership that is common in some states, mostly as a means to duplicate the benefits of community property.

Is the “right of survivorship” inherent in joint tenancy?

The principal distinction of joint tenancy is the “right of survivorship.” That means that upon the death of one owner, the other owners are deemed to be the owners of the property that was held in joint tenancy. In some cases, this result is the result of a presumption which can be rebutted by contrary evidence. This distribution “by right of survivorship” is without regard to the provisions of the Last Will and Testament of the decedent. Property held by the decedent that is held in joint tenancy will (in some cases presumably) pass to the surviving joint tenants.

Can joint tenancy be used to avoid the necessity of Probate?

Probate is the process by which the title to assets owned by a deceased person can be transferred into the ownership of the heirs of the deceased person, or if there is a Will, to the beneficiaries named in the Last Will and Testament of the deceased person. As noted above, assets held by an individual in joint tenancy pass (in some cases this is presumed) to the surviving joint tenant(s). Therefore, joint tenancy can potentially avoid the necessity of probate if there are no other assets that are titled in the name of the deceased person that cannot be transferred by some means after death. In some cases, the use of joint tenancy to avoid probate can be useful. However, in some cases, joint tenancy may create uncertainty or conflict because it is unclear what the deceased person intended. Therefore, the use of joint tenancy must be carefully planned so that the deceased person’s intentions are clear.

Can joint tenancy disrupt a plan to minimize estate taxes?

In certain cases, the use of joint tenancy is detrimental to a strategy to minimize estate taxes. For example, if a married couple holds assets in joint tenancy, upon the death of the first spouse the assets are deemed to be owned by the surviving spouse, and thus are subject to estate tax liability upon the death of the surviving spouse. This would be contrary to a strategy to create a Credit Shelter Trust at the death of the first spouse by which substantially all of the assets of the first decedent could be protected from estate tax upon the death of the surviving spouse. In such a case, it might be preferable to use tenancy in common (or joint tenancy without right of survivorship) as the means by which the concurrently owned assets would be held.

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Probate

Probate is the legal process that wraps up the financial affairs of a deceased person, and determines how the assets of the deceased person will be distributed in accordance with the provisions of the Last Will and Testament of the deceased person, or according to the provisions of state law.

Why is the probate process a good thing?

Because it provides a sensible means to protect all parties with an interest in the affairs of a deceased person. It protects the rights of creditors, and provides for payment of any tax liabilities of the deceased person. It also provides protection for the parties who are entitled to inherit the deceased person’s assets. Everyone is entitled to notice of what is going on, and has an opportunity to get information so that they can determine if their interests are being treated fairly. Even the process of resolving an uncertainty over the Last Will and Testament of the deceased person can be very helpful. Third parties have no basis to ascertain whether a certain document is actually a valid “Will”. They need to have a determination by someone with the authority to determine that the Will is valid. The person with that authority is the probate judge. Until the probate judge accepts the “Will”, and any contest period has elapsed, there is no certainty about the validity of the Will.

If the estate is very simple, should probate be required?

If the estate is very simple, either because there are few assets, or because the family is all in accord, then the probate process may seem more complicated than necessary. However, the legal procedures required are a protection for those instances in which things do not go as well as they should. In some states there are probate avoidance strategies that can be used to avoid the necessity of probate if the assets of the deceased person are minimal.

Can probate be avoided?

Yes, but sometimes the “cure” is worse than the “disease”. Many people worry about trying to avoid probate without really understanding what probate is. The expense and complexity of probate procedures vary widely from state to state. And in many cases, the alternatives that are available have other risks or disadvantages that might be worse than going through probate.

Is probate expensive?

The main problem with probate is the expense for the attorneys’ fees. Probate procedures are too complex and fraught with financial risk to attempt to manage the process without an attorney’s advice. But the expense for the attorney’s fees will usually be a very small amount in comparison with the total value of the estate. And the benefit of the probate process in terms of the “step-up” in basis for Capital Gains Tax purposes may make the expenditure very worthwhile.

Who manages the probate process?

The probate court in the jurisdiction where the deceased person resided will appoint a Personal Representative (“PR”) to manage the probate process. Sometimes the PR is referred to as an “Executor” or “Executrix”, or as an “Administrator” or “Administratrix”. If there is a Will, the person nominated as PR in the Will will usually be confirmed by the court as PR. If there is no Will, the state statute will usually prescribe who has the right to be appointed as PR. Until the court designates someone to act as PR, no one has authority to act for the deceased person.

How long does the probate process take?

The length of time that the probate proceeding will take is going to vary widely depending upon the complexity of the state probate procedure, the complexity of the assets that belonged to the deceased person, and any conflict between the parties interested in the estate. Usually the process will take at least five to six months, even if the estate is very small and well-organized. If the estate is “taxable” for estate tax purposes, the process can take several years.

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Power of Attorney

A power of attorney is a written document that designates someone as an agent to make decisions for you.

What is a Power of Attorney?

A power of attorney is a written document that designates someone as an agent to make decisions for you. The technical name for such an agent is “attorney-in-fact”. The main benefit of designating such an agent is to have someone available and authorized to make important decisions for you at a time when you might be disabled, or otherwise unavailable to make such decisions for yourself. Without authorization under a written power of attorney, no one (not even a spouse) may make decisions for you. Therefore, if you were to be disabled, and had not designated an agent to make decisions under a power of attorney, it may be necessary to seek the appointment of a guardian or conservator under the authority of the courts in order to make decisions on your behalf.

Do you need a Power of Attorney?

A power of attorney is a document that names an agent to make decisions for you. This can be very useful if you are disabled, and unable to make decisions for yourself. However, a power of attorney can be misused. Therefore great care must be taken before you decide to sign a power of attorney.

What kind of decisions can be made with a Power of Attorney?

The authority to make decisions on your behalf under a power of attorney is controlled by the specific terms of the document. These specific terms may limit the authority to a few authorized actions. Such a power of attorney would be referred to as a Special or Limited Power of Attorney. The agent would have no authority other than the powers specified in the document. While such a limited power of attorney might be appropriate in some cases, it would not be generally very useful if you were disabled. A general power of attorney is one in which the powers granted to the agent are very broad and all-encompassing. Although the general power of attorney may include very extensive lists of powers that are included, it will generally include a very broad authority to make all decisions that you could make.

What about the power to make health care decisions?

Most powers of attorney are focused on powers related to business or financial decisions. However, many states have authorized the right to designate an agent to make health care decisions if the individual is deemed to be unable to make those decisions for himself or herself. Such a health care power of attorney can be included in the financial power of attorney, or it can be a separate document.

What is a “durable” Power of Attorney?

At common law, a power of attorney was deemed to be revoked in the event of the disability of the person who signed the power of attorney. However, many states have adopted the concept of “durability” by which a power of attorney is deemed to survive the disability of the person who signed the power of attorney. Therefore, such a “durable” power of attorney is a useful means to avoid the necessity of guardianship in most cases. Whether a power of attorney is “durable” requires compliance with the enabling statute in the state of residency of the person who is making the power of attorney.

When does a Power of Attorney go into effect?

When the power of attorney goes into effect depends upon the specific terms of the document. In same cases, it provides that the power of attorney will go into effect only upon the “disability” of the person who created the power of attorney. This is a so-called “springing” power of attorney because it “springs to life” upon the occurrence of the event: the disability of the person who created the power of attorney. However, this can result in disputes over whether the person is in fact “disabled”. The other great possibility is that the power of attorney will go into effect immediately when it is signed, and will continue in effect until it is revoked. This will hopefully avoid the difficulty of proof of “disability”. In any event, a power of attorney is terminated upon the death of the person who signed the power of attorney.

Revocation of a Power of Attorney?

It is important to remember that a power of attorney can be revoked by the person who created the power of attorney. Obviously, the person must have “competency” — meaning the ability to understand and form the intention to make a decision to revoke the power of attorney. Because of the possibility that a power of attorney can be misused, if there is any doubt about the trustworthiness of the agent, the power of attorney should be revoked. But until the power of attorney is revoked, it should be considered to be in full force and effect in accordance with its terms.

If you have any questions about these FAQ’s, call the Law Offices of Dan Kellogg today.