When you are creating an estate plan, it is important to understand some of the terms and concepts that are commonly used. Your estate plan can be tailored specifically to meet your needs and plans for the future. The following are some basic questions often asked in estate planning.
What is Probate?
Probate is the process of proving the validity of a will, accounting for a deceased person's assets, and distributing the assets to heirs named in the will. Probate courts also handle guardianships of minors and incapacitated adults as well as the estates of decedents who pass away without a will.
The probate court's role in these cases is to oversee them and ensure that all applicable state laws are followed and that assets are distributed properly.
In the case of a will, this means that the court's role is to ensure that the estate is distributed according to the decedent's wishes.
In a guardianship, the court approves a suitable guardian and oversees the case to ensure that the guardian is performing his or her duties in accordance with the best interests of the ward.
What is Joint Tenancy with Rights of Survivorship?
A joint tenancy is a form of ownership of property in which the co-owners hold the property in equal shares and with equal rights to it. The right of survivorship means that the surviving joint tenant(s) will automatically inherit the deceased's share of the property when he or she dies. This happens automatically and does not require court intervention.
What is Community Property with Rights of Survivorship?
Community property with right of survivorship is a form of ownership of property available only to married couples in which the spouses hold the property in equal shares and with equal rights to it. The right of survivorship means that the surviving spouse will automatically inherit the deceased's spouse's share of the property when he or she dies. This happens automatically and does not require court intervention. An advantage of joint tenancy with right of survivorship is the double step up in basis at the first death.
What is Tenancy by the Entirety?
Tenancy by the entirety is a form of ownership of property available only to married couples in which the spouses hold the property in equal shares and with equal rights to it. This form of ownership includes right of survivorship, which means that the surviving spouse will automatically inherit the deceased's spouse's share of the property when he or she dies. This happens automatically and does not require court intervention. A disadvantage when compared to community property with right of survivorship is loss of the double step up in basis at the first death. An advantage of tenancy by the entirety when compared to community property with right of survivorship is the creditors of one spouse cannot attach the property or force its sale to recover debts unless both spouses consent. Creditors may place a lien on property held in tenancy by the entirety, but if the debtor dies before the other spouse, the other spouse takes ownership of the property free and clear of the debt.
What is a Will?
A will, also known as a last will and testament, is a document that:
- names assets in a person's estate,
- names heirs who are to inherit the property, and
- appoints an administrator to ensure that the provisions in the will are carried out upon the will creator's death.
Statutory requirements must be met for a will to be valid—the signing must be witnessed, and the will creator must be of sound mind and free of duress, coercion, or undue influence to make decisions regarding their estate.
What is a Personal Property Memorandum?
A personal property memorandum is a document that is separate from your will or trust and that covers additional specific bequests or gifts of items of personal property. It allows individuals to make these gifts without having to modify their wills or trusts. To employ this technique, the will or trust must already authorize it. The beauty of this technique is the personal property memorandum can be modified without having to go back to the drafting attorney to amend the will or trust. However, a personal property memorandum can only dispose of tangible personal property, such as furniture, artwork, jewelry, and sporting equipment. It cannot be used to dispose of real property or financial assets such as bank and brokerage accounts; those must be covered in the body of your will or trust.
What is a Living Will?
A living will is a document that expresses a person's wishes in advance in case they become unable to communicate their wishes in the future due to permanent unconsciousness or terminal illness. A common misconception is that a spouse or other family members will have the right to decide what happens in this situation regarding their loved one's medical care. This is not the case—without a living will, family members have no choice about what happens, and a court may be asked to decide.
A living will can specify things like whether or not:
- you wish to remain on life support,
- you wish to be resuscitated, and
- you wish to receive artificial hydration and nutrition if you are unable to eat or drink on your own.
Anyone can benefit from having a living will. A living will allows you to declare your wishes in advance so that medical providers will be legally required to stop or continue administering treatment as you have specified in your living will.
What Is the Difference Between a Living Will and a Do-Not-Resuscitate Order?
It is a very good idea to create advance directives in order to plan for the possibility that you may one day be unable to make your own medical decisions. In doing so, there can be confusion about the difference between a living will and a "do-not-resuscitate" order (DNR). While both these documents are advance medical directives, they serve different purposes.
A living will is a document that you can use to give instructions regarding treatment if you become terminally ill or are in a persistent vegetative state and unable to communicate your instructions. The living will states under what conditions life-sustaining treatment should be terminated. If you would like to avoid life-sustaining treatment when it would be hopeless, you need a living will. A living will takes effect only when you are incapacitated and is not set in stone -- you can always revoke it at a later date if you wish to do so.
When drawing up a living will, you need to consider the various care options and what you would like done. You need to think about whether you want care to extend your life no matter what or only in certain circumstances. A living will can dictate when you want a ventilator, dialysis, tube feeding, blood transfusions, and other life- saving or life-prolonging options.
A DNR is a different document. A DNR says that if your heart stops or you stop breathing, medical professionals should not attempt to revive you. This is very different from a living will, which only goes into effect if you are in a vegetative state or terminally ill. Everyone can benefit from a living will, while DNRs are only for very elderly and/or frail patients for whom it wouldn't make sense to administer CPR.
In addition to a living will, you will also need a medical power of attorney or broader medical directive. For more information about end-of-life care decisions, click here.
What does intestacy mean?
Intestacy means the condition of having passed away without a will. If you die without a will, your property will be distributed according to what is known as “intestate succession.” State law lists your next-of-kin in order of their right to receive property.
First rights to receive your property upon your death goes to:
If you die without a spouse or a child, the next relative listed in the statute regarding intestacy will inherit the assets in your estate. Depending on who your surviving relatives are at the time of your death, assets may be inherited by close family members, like:
- siblings,
- parents,
- grandparents,
- aunts,
- uncles, or
- cousins.
This process is overseen by a probate court, just like distribution of property with a will.
What are beneficiary designations?
Beneficiary designations are the directions you give to the custodians of certain types of assets, such as life insurance policies, annuities, bank accounts, and retirement plans as to who will automatically receive the assets in these accounts upon your death.
There will usually be a requirement that the beneficiaries present a death certificate to the institution that owns the account prior to funds being distributed. Distribution of benefits from these types of accounts ordinarily do not need to be overseen by a probate court.
Many policies or accounts allow designation of primary beneficiaries and secondary beneficiaries. The primary beneficiaries have the right to inherit the assets in the account first. If the primary beneficiaries have passed away at the time of the account holder's death, the assets in the account are distributed to secondary beneficiaries.
What is a durable power of attorney and when do you need one?
A durable power of attorney is a document that allows another person (the “agent” or "attorney in fact") to make decisions on behalf of another person (the “principal"). A durable power of attorney may authorize the agent to manage your financial transactions, make healthcare decisions for you, or both.
A power of attorney may be revoked at any time by the principal by:
- destroying all copies; or
- providing notice to the agent of revocation in accordance with state law.
It is a good idea to have a durable power of attorney in case you become incapacitated by an illness or accident and are unable to make decisions on your own.
There are certain situations making the need for a durable power of attorney more urgent. Examples include situations where you may face:
- a terminal illness,
- incarceration, or
- deployment.
Any other condition that could render you temporarily or permanently unable to manage your affairs or make healthcare decisions on your own behalf warrant a need for a durable power of attorney.
What is a revocable living trust?
A revocable living trust is an estate planning instrument governed by a trust document that allows the trust grantor to place property in the trust and specify who will receive the property upon his or her death.
The trust must also name a trustee to manage the property in the trust for the benefit of any beneficiaries named in the trust instrument—usually the trust grantor during their lifetime. Upon the trust grantor's death, the trust may be converted into an irrevocable trust for the benefit of heirs.
A living revocable trust is revocable because property can be added or removed from it, and it can be amended as needed during the trust grantor's lifetime. This is what distinguishes a revocable trust from an irrevocable one—once property is placed in an irrevocable trust, it cannot be removed. A revocable living trust is called a “living” trust because it is created during the trust grantor's lifetime.
Who needs a revocable living trust?
Using a revocable living trust to distribute the assets in an estate can be useful for almost anyone.
One of the reasons that revocable living trusts are a very common estate planning tool is that using a trust can help your heirs avoid probate. The process of probating a will can be lengthy and expensive. If there are any challenges to the will's validity, the process can take even longer. A revocable living trust allows beneficiaries to receive their inheritances more quickly.
Another reason many people choose a revocable living trust to distribute the assets in their estate is that it can be amended at any time. Property can be added or removed at the trust grantor's discretion. A revocable living trust is easier to amend than a will.
Is a probate ever necessary if the decedent had a revocable living trust?
If trust-based estate planning is done correctly, no, probate is completely avoided. However, it is not uncommon for an individual with a revocable living trust to die owning property that is not in the trust. This sometimes occurs due to inadvertence (e.g. the individual forgot he had a trust and took title to something in his or her individual name). It sometimes also occurs due to unforeseen circumstances (e.g. the individual died holding an uncashed check or in the middle of a lawsuit in which he or she stood to obtain a judgement against someone else). The will in that case usually provides for everything to pass to the trust. A full probate might or might not be required, depending on the extent of the probate estate. If the probate estate is of very low value or consists solely of real property, it is sometimes possible for the successor trustee to collect those assets using an abbreviated procedure.
What is Medicaid Pre-Planning?
Medicaid Pre-Planning is a process of using legal techniques to transfer assets to your spouse or children or other beneficiaries, or to otherwise cause the assets to be exempt from consideration in qualifying for Medicaid. These techniques (1) preserve these assets for your heirs, (2) while allowing you to maintain a certain degree of control while you are still living, and (3) allow you to qualify for Medicaid coverage much sooner than if your assets were just spent down. For more information, click here.
Contact an Experienced Estate Planning Attorney
If you have questions about estate planning and are seeking legal advice, contact Nina Whitehurst at Cumberland Legacy Law by calling (931) 250-8585 or by filling out our online form.
