Just the FAQs--Part 1 of 3

I get a lot of questions about basic estate planning concepts when people are first looking into their own planning, so I decided to answer many of them in this FAQ series. If you have additional questions or want to look at things more comprehensively, you can check out the free information at http://www.FreeTrustCourse.com, or if you are a North Carolina resident, then please call me at the office at 919-844-7993.

What is an "estate"?

The term estate is a legal term that refers to anything a particular individual or other legal entity owns. Your estate is the total of all of your possessions.

What is an "estate plan"?

Estate planning permits, through legal recognition, the management of your assets by people or institutions of your choice when you become unable to do so for yourself, regardless of the reason. It allows for the change of ownership of your assets to those people or institutions that you want to own your assets upon your death. In some cases, this can even be done without court intervention.

In addition, estate planning allows you to take a set of legal measures to plan many aspects of your future and the future of your family. These measures include determining guardianship for minor children in the event that you die young, assigning power of attorney so people can make financial and medical decisions for you in the event that you are no longer able to do so, expressing your right to die, and many others.

What will happen if I die without an estate plan?

If you die without an estate plan, questions regarding your estate will be decided by intestate succession statutes. These are a set of state laws, specific to our state, that govern how estates that have no estate plan are settled. While these laws attempt to be fair, it is likely that your wishes will not be carried out to the degree that they would be if you had an estate plan in place.

What are the main options for estate planning?

Essentially, you have three options when it comes to estate planning. You can do nothing, write a will, or create a living trust. Each option has advantages and disadvantages of its own.

What are the major documents that are involved in an estate plan?

Generally, an estate plan revolves around six major elements:

1. Paperwork that describes how assets will be distributed (your will or trust)
2. Paperwork that determines the guardianship of minor children
3. Durable power of attorney for finances
4. Durable power of attorney for health care
5. Living will
6. Nomination of Conservator for your guardianship if you are incapacitated for a sustained period of time

These six documents are usually included in most high-quality estate plans, and some of the better plans have even more, such as preferences for organ donation and naming guardian for YOU should you become incapacitated.

What is the difference between a will and a living trust?

A living trust is a flexible, "living" legal entity that owns your assets for you. A will is not a legal entity and cannot own assets for you; therefore wills are settled in probate court, whereas living trusts (assuming that they are written and funded correctly) are not.

Should I have a will or living trust?

That depends on your personal situation. There are many advantages and disadvantages to both wills and living trusts. Some factors to take into consideration are whether or not you want your estate settled in a court, whether or not you want it made public, if you  have debt, how you want your assets distributed, and how much money you are willing to invest in creating your estate plan.

How does distribution differ between a will and living trust?

Generally speaking, you have much more control over distribution with a living trust than you do with a will (unless the will has a testamentary trust). Usually, wills offer outright distribution t heirs, where everyone gets one lump sum of money immediately after your death.

With a living trust, you can give outright distribution, you can defer distribution for younger beneficiaries, you can keep assets  in trust, and you can even have your successor trustee manage and grow assets kept in trust long after you have passed away.

Will I want to change my estate plan?

Statistics show that the average estate plan is changed at least three times during a person's life, so the odds are that you will want to change your estate plan. You can make a change to your living trust through an amendment and restatement, and we often find people will make changes to their plans every 5-7 years.

Who are my beneficiaries?

Beneficiaries are the people you distribute your assets to on your death. They are the ones who "benefit" from the estate.

What if I have children from a previous marriage; is there a way I can distribute my assets to them while letting my spouse distribute his/her assets differently?

There are ways to do this. The short answer is you have the right to distribute assets to whomever you choose upon your death. One option is an AB Trust or an ABC Trust. This living trust allows you to create a "double" or "triple" trust. The advantage is that your spouse gets to live off of the assets or income in your half of the trust after you pass away.  Then, your separate trusts distribute assets as you determined when you wrote the trust documents. There are other ways to achieve this goal as well. Talk with your attorney.

What is "succession of heirs" and how does it work?

Let me answer your question with a question:  What happens to your estate if your named beneficiaries die? The answer is that it passes to a "succession of heirs." If the named beneficiaries in your estate plan pass away before your estate is distributed, the state mandates that assets be passed along a bloodline or adoption line. The order depends on the state you live in.

However, you can largely control this by establishing a set of back-up beneficiaries in the event that your primary beneficiaries die before they receive your estate.

What happens to my estate if I give it to my children and they divorce or remarry?

You can choose to give your estate only to your children and not to their spouses. However, to do so, you must state this explicitly in your estate planning documents. If your assets are transferred into joint property ownership between your children and their spouses and the couple gets divorced, your child's ex-spouse may be able to acquire part of your estate. If you are interested in more extensive planning that can exclude a child’s spouse even after they inherit from you, then check out the free information at http://www.Inlawplanningwebinar.com.

What if I don't think the people I am leaving my estate to will be responsible with the money? Is there a way to save it from poor spending habits?

Yes, you can keep assets in trust for many years and have them managed by your successor trustee, or whomever else you choose. Many people who do this set up a deferred distribution plan where assets are "sprinkled" to beneficiaries over time.

Should I tell my children what's in my estate plan?

You don't have to tell your children what's in your estate plan. You may choose to, but that's up to you.

Can I leave gifts to charity and how will they affect my estate plan?

Charitable gift giving of any kind can have positive effects on an estate in that it reduces the size of the estate, hence reducing the amount of estate taxes that you pay.

How do I keep people I don't want to inherit my estate from making a claim on it?

Disinherit them. If there are people who may legally make a claim on your estate and you want to protect your estate from them, you should make it explicit in writing. Speak with your attorney about how to do this.

What are "will substitutes"?

Will substitutes refer to a number of legal mechanisms that people use as estate planning tools. Generally, they are used as a method of transferring ownership outside the probate system using neither a will nor a living trust.

Will substitutes include, but are not limited to joint tenancy, payable on death accounts, and beneficiary designations on checking accounts, IRAs, Keoghs, and other qualified plans. Some of these "will substitutes" sound great but fall far short in planning exactly the way you want. For example, naming a minor child as a beneficiary of a checking account will avoid probate (somewhat), but then this beneficiary would inherit the bank account at age 18 regardless of what age of inheritance you put into your Will or Revocable Living Trust.

Unfortunately, many banks have recently started skirting a line that could be construed as practicing law by telling their customers they "don't need a revocable living trust" because their accounts are "beneficiary drive." While beneficiary designations have a place in an overall estate plan, they are not the end-all and be-all of estate planning, and these banks and financial institutions are playing a dangerous game of giving legal advice without reviewing a client's complete set of goals and objectives. For more information, please check out the YouTube video at:

How to Avoid Probate: https://youtu.be/vVeBRDyGYi0?si=j2Nui05_lKxcFzGm

What is "joint tenancy"?

Joint tenancy is a term that means that you own some property (generally real estate) with another person. If you and your spouse both own your home, you are "joint tenants."

When it comes to estate planning, the term joint tenancy usually refers to cases where someone adds on a beneficiary as a joint tenant to their home so they can transfer the home to this person outside the probate court after their death. It is used as a form of will substitute. Many unforeseen problems can arise when people are in a joint tenancy situation.

How will my estate be settled and who will settle it?

Your estate will be settled by your executor, your successor trustee, or both.

If you have a Will, your executor will take the Will through the probate courts, who will oversee the entire process. If you have a Trust, your successor trustee will settle the estate.  If you have a Will and a Trust, both processes will take place.

Look for Part 2, and if you need more information, please check out the free resources at http://www.FreeTrustCourse.com.