Estate planning, including the drafting of wills and trusts, is the process whereby YOU develop and implement your own estate plan to reflect how YOU want your personal and financial affairs handled so that the courts do not decide these issues for you.
Common estate planning documents include:
- and powers of attorney
A will is a document, executed with certain formalities required by State law, by which a person makes a disposition of his or her real and personal property, to take affect after death. A will is modifiable and revocable during the person’s lifetime.
A trust is a legal entity created under state law for the benefit of designated beneficiaries. The person who creates the trust is known as the grantor. The trustee holds a fiduciary responsibility to manage the trust’s assets for the benefit of the beneficiaries. There are a variety of different types of trusts, which can be tailored to address the particular circumstances of the grantor and beneficiaries. A trust can be either revocable or irrevocable during the lifetime of the grantor.
Powers of attorney are documents, whereby one person, the “principal,” appoints another as his or her agent and confers authority to perform certain specified acts. When a principal delegates authority to the agent, the agent may enter binding transactions on behalf of the principal as long as the agent acts within the scope of his or her authority. In estate planning, durable powers of attorney are used. A durable power of attorney is one where the agent’s authority either continues when the principal becomes disabled or becomes effective on the principal’s disability. The purpose of the durable power of attorney is to provide a mechanism for managing the affairs of a living person who becomes incompetent. Upon the death of the principal, the power of attorney typically terminates and the terms of the will or trust agreement control the disposition of the person’s estate. The two common types of durable powers of attorney used in estate planning are: (1) the durable power of attorney for health care decisions and to terminate life support (often called a “Living Will”), and (2) the durable power of attorney for financial matters.
If your estate is modest, the estate plan can typically be addressed by using a simple will and durable powers of attorney for health care and financial matters. However, if you wish to avoid administration of an estate, a special type of will called a pour-over will, used in conjunction with a revocable grantor trust, may be used instead of a simple will.
If your estate is large enough that estate taxes are a consideration, the typical strategy for a married couple is to develop an estate plan that attempts to reduce or eliminate the estate tax. For persons who die in 2008 or 2009, the estate tax is 45%. Consequently, the estate tax can have a significant impact on a couples’ assets. The most common strategy to address the estate tax issue is to create one or more trusts to take advantage of both spouses’ statutory exclusions of estate tax. In 2008, an individual can exclude up to $2,000,000 from estate tax. In 2009, the exclusion jumps to $3,500,000. Accordingly, for estates that have substantial assets, a proper estate plan can reduce or, in some cases, eliminate the amount of estate taxes imposed.