Provide overall planning for client either fee-based on product-based. Below are some basic concepts that clients can have some self-education about.

 

1. Estate Planning in a Glance

 An estate plan protects your family and finances after you die. Your first step in estate planning is to write a comprehensive will that moves smoothly through the probate process. Make sure you’re aware of current estate taxes that may influence your planning and how insurance factors into your estate plan. Various types of trusts are available; do some research to find out if setting up a trust is the way to go, and consider some special circumstances that may arise and how they can affect your estate planning.

Things to Remember When You’re Writing Your Will

Basically, probate is the method by which your estate is legally transferred after you die. When planning your estate and writing your will, keep these tips in mind to help the probate process run smoothly:

• You can be both specific and general in your will — it’s up to you. You can parcel out individual items to people by name and also let your beneficiaries decide how to divide up your worldly goods.
• State law does have something to say about the language of your will, however. Your state has a number of will statutes that may override a provision of your will if you say something that’s against the law.
• Certain parts of your will “self-adjust” to changes in your estate and your family. For example, even if you don’t update your will after a child is born or if youadopt a child, your will covers the child just the same so that the child isn’t accidentally cut out of an inheritance.
• You can get around much of the time-consuming, inconvenient, and costly process called probate by creating trusts and using will substitutes, such as joint tenancy with right of survivorship and payable on death accounts.
• If you own real estate property in another state, like a time share by the shore, you may need to worry about going through probate in that state, too.

Estate-Related Taxes You Need to Know About

Depending on the value of your estate, you may not have to deal with at least some of the federal taxes, but you or your surviving beneficiaries may have a substantial amount of tax-related paperwork to file. When estate planning, use these tips to understand what you’re dealing with from a tax standpoint:

• Most people don’t have to pay the federal estate tax — the so-called “death tax” —because their estates fall below the federal threshold. But your estate may still be subject to state inheritance or estate taxes.
• The federal gift tax and the federal estate tax are part of a unified tax system, so you need to pay attention to both of these taxes as you plan your overall estatetax strategy.
• The little-known Estate Recovery Act can devastate your estate if you need to tap into certain types of government-paid health care. But you can protect your estate if you understand the rules.

Factoring Insurance into Your Estate Plan

Insurance is vital for estate planning: It helps protect your current property, things you hope to attain in the future, and the gifts you hope to leave behind. Take a look at how insurance affects your estate and what types of insurance to consider for your estate planning:

• Life insurance is a critical part of your estate planning, so make sure that when you purchase a new policy or change an existing one, you look at the rest of your estate planning to get the most benefit from your life insurance.
• Many estate-planning advisers concentrate on life insurance. But you need to factor in many other types of insurance, such as the liability portion of your automobile and homeowner’s insurance.
• Your life insurance policy may be an estate tax trap if you don’t take appropriate measures, such as setting up an irrevocable life insurance trust.

Setting Up a Trust in Your Estate Plan

Trusts can be a great help in your estate planning — they can protect your property, save on estate taxes, and help you avoid probate. Sounds great, right? Well, before seriously considering a trust, you need to understand the basics of trusts and make a well-informed decision about setting up trusts right for you.

• Some trusts are general-purpose; others focus on specific objectives, such as supporting your favorite charity or helping to pay for your children’s or grandchildren’s education.
• A revocable living trust may be an ideal tool to protect your estate. But beware — everyone, it seems, is trying to sell you a revocable living trust. Watch out for the hype!
• A bypass trust or a QTIP trust can help you and your spouse avoid unnecessary federal estate taxes. But you need to decide which type of trust works best in your situation.
• Some trusts are revocable, meaning that you can change your mind. Other trusts are irrevocable — they can’t be changed once you set them up. Make sure you understand the tradeoffs for your estate planning.

Estate Planning for Special Situations

Even the most orderly estate plans can fall victim to some unforeseen event. To put together a thorough estate plan, take a look at situations that may occur and find out the necessary information for dealing with them.

• If you’re in the process of getting a divorce, you have a lot on your mind. But you also need to look at how your divorce will affect your estate planning. Chances are the answer is “a lot!”
• Part of your estate planning must deal with the possibility of becoming incompetent — unable to take care of yourself. Prepare now, just in case.
• If you have pets, you need to specify how you want your pets taken care of after you die.
• Unmarried couples, either opposite-sex or same-sex, need to pay special attention to each person’s estate planning. Otherwise, problems almost always occur when one partner dies before the other.

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2. Estate Planning First Steps: How Much Is Your Estate Worth?

Estate planning is all about what you want to have happen to you, your dependents, and your stuff when you’re gone. Estate planning also covers what happens if you’re alive but can’t make decisions for yourself. You may think that you don’t care what happens after you’re gone, but what about the family, friends, and stuff you leave behind? Do you care if the most important person in your life receives anything you may have of value, or are you okay with having the state decide how to divvy up your stuff? Who’s going to go through your underwear drawer? Who will care for your beloved cat or, more importantly, your dependent children?

The first thing you need to do when planning your estate is to calculate your gross estate. Then you can employ different estate planning strategies based on the size and composition of your estate. Begin by entering your Net Worth total in Step 1 of the Calculating Your Gross Estate worksheet, which you can download and print here:

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3. The probate process

Even though you won’t be around when your estate goes through probate (after all, you’ll be dead), you need to understand how the probate process works. At the most basic levels, the probate process involves two steps:

• Pays debts you owe
• Transfers assets to your beneficiaries

A state court called the probate court oversees the probate process.Because probate courts are state courts and not federal courts, the processes they follow may vary from one state to another. Yet despite their differences, these courts all pretty much follow the same basic processes and steps, which typically include:

• Swearing in your personal representative
• Notifying heirs, creditors, and the public that you are, indeed, dead
• Inventorying your property
• Distributing your estate (including paying bills and any taxes)

Swearing in your personal representative

In your will, you name who you want to be your personal representative — that is, the person in charge of your estate after you die. However, the court determines the personal representative for your estate under the following circumstances:

• You die without a will.
• You have a will but for some reason didn’t specify who you want to be your personal representative.
• The person you selected has died or for some reason can’t serve — and you didn’t “bring in someone from the bullpen” to replace your original choice.

A family member, such as your spouse or an adult child, can request that the court appoint him or her as the personal representative for your estate. Regardless of who is finally selected, the court gives your personal representative official rights to handle your estate’s affairs. As evidence that this person has the authority to act on behalf of your estate, the court gives your personal representative a certified document called the Letters of Administration or Letters Testamentary.

In either case, the personal representative named in your will or determined by the court has to first be formally appointed by the court before officially entering into office (the term that’s used). Usually this involves that the personal representative take an oath of office, after which he or she will then receive the official documentation showing his or her status (the Letters of Administration or Letters Testamentary we mention above).

Your personal representative files a document called a Petition for Probate of Will and Appointment of Personal Representative with the probate court. This petition begins the probate process. If you have a will, the probate court issues an order admitting your will to probate. Basically, the court acknowledges your will’s validity.

Notifying creditors and the public

Some state laws require your personal representative to publish a death notice in your local paper. The death notice serves as a public notice of your estate’s probate and enables people who think they have an interest in your estate (such as creditors) to file a claim against your estate within a specified time period.

The notice is part of the process to make the matters of your estate part of the public record. Some people view the general public’s ability to review your private estate matters as one of probate’s disadvantages.

Inventorying your property

The personal representative must inventory the different types of property — real and personal — that make up your estate so that your estate value can be determined. This inventory is important for a couple of reasons:

• To make sure you left enough to cover your debts and distributions to beneficiaries: If your estate doesn’t meet the monetary obligations of both your estate creditors and your property transfers to your beneficiaries, it’s subject to abatement statutes, meaning that one or more beneficiaries may receive less than you had wanted or even nothing at all.
• To ensure that all property is accounted for. Your personal representative is in charge of collecting and inventorying your estate’s assets to make sure that all property is available for distributing at the end of the probate process. (Your beneficiaries, of course, will want to know what assets are in your estate.) If property is missing or not in your ownership at the time of your death, ademption statutes become relevant. These statutes determine if a replacement asset or cash equivalent should replace the missing property intended for your beneficiary.

You should already have a pretty good idea of what your estate is worth so that you can make intelligent choices for your estate plan. Obviously, your personal representative needs to know this information, too. So make sure that your personal representative has easy access to the list that shows what your estate includes and what your assets are worth. Even a slightly out-of-date list can serve as a starting point so that your personal representative doesn’t have to create an inventory from scratch.

Distributing the estate

The final step in the probate process is the distribution of your estate property. In other words, everyone (ideally) — both your creditors and your heirs — gets what’s coming to them.

Creditors that have a valid claim are likely to be paid in the following order (though the order varies from state to state):

1. Estate administration costs (legal advertising, appraisal fees, and so on)

2. Family allowances

3. Funeral expenses

4. Taxes and debt

5. All remaining claims

Whatever’s left after your creditors get their money is distributed to your heirs or to the beneficiaries you named in your will. If you died without a will, the laws in your state determine how your property is distributed.

If probate proceeds according to plan and all notices and communications are properly handled, your personal representative is usually protected against any subsequent, late-arriving claims. Your personal representative will be protected after some specified time period expires.

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4. What Is a Trust?

A trust agreement is a document that spells out the rules that you want followed for property held in trust for your beneficiaries. Common objectives for trusts are to reduce the estate tax liability, to protect property in your estate, and to avoid probate.

Think of a trust as a special place in which ordinary property from your estate goes in and, as the result of some type of transformation that occurs, takes on a sort of new identity and often is bestowed with super powers: immunity from estate taxes, resistance to probate, and so on.

Suppose that you want to set up a trust. Just like with a cooking recipe or building something in your garage workshop, you need to make sure you have everything you need before you start. To cook up a trust, you need these seven basic ingredients:

• Person setting up the trust. The person is commonly known as the trustor, though you may sometimes see the terms settlor or grantor.
• Objective of the trust. You use different types of trusts to achieve a variety of specific estate-planning objectives. You can use some trusts for a single estate-planning objective, while others help you achieve more than one goal.
• Specific kind of trust. Trusts come in many different varieties. Regardless, when you’re setting up a trust, you need to decide what type of trust you want and make sure that you follow all the rules for that particular type of trust to make sure that it’s proper and legal, and carries out your intentions.
• Property. After you place property into a trust, that property is formally known as trust property.
• Beneficiary. Just like with other aspects of your estate plan (your will, for example), a trust’sbeneficiary (or, if more than one, beneficiaries) benefits from the trust in some way, usually because the person or institution will eventually receive some or all of the property that was placed into trust.
• Trustee. The person in charge of the trust is known as the trustee. The trustee needs to understand the rules for the type of trust he or she is managing to make sure everything in the trust stays in working order.
• Rules. Finally, some of the rules that must be followed are inherently part of the type of trust used, while other rules depend on what is specified in the trust agreement. You will find still more rules in state and federal law.

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5. Using Will Substitutes to Reduce Estate Taxes

Why would you want to use a will substitute (a legal agreement that transfers ownership upon your death) rather than your will for certain property? Property covered by a will substitute is transferred outside of probate, which may provide you with some significant advantages in the following:

• Time. With will substitutes, property is typically transferred immediately upon your death, even if other parts of your estate are just beginning what may be a lengthy probate process.
• Money. Will substitutes may save you and your estate some money, depending on whether or not your state’s version of the Estate Recovery Act — used to recover certain government-provided health care expenses you may receive — applies to your estate after you die. If the government is trying to grab part of your estate after you die under provisions of its Estate Recovery Act, you may be able to protect property from the government’s grasp by using will substitutes rather than your will.

If the resulting transfer of nonprobate property results in a death tax — whether state, federal, or any other tax — the taxes must still be paid. Will substitutes only help you do an end run around probate; applicable death taxes must still be paid. However, in many cases, will substitutes may reduce your taxes, so work with your accountant and attorney to coordinate your tax strategy with what you plan to do for will substitutes.

You can hold property in a variety of will substitute types, including:

• Joint tenancy: This means that you and others have an equal and undivided ownership of some property.
• Living trusts: These are a convenient for avoiding additional probates if you have real property like a house, vacation home, or income-producing investment property located in more than one state.

Additional will substitutes include:

• Tenancy by the entirety: Similar to joint tenancy, the property’s co-owners have a right of survivorship feature that enables property to automatically transfer at the death of a co-owner to the surviving co-owner.
• Payable on death accounts (PODs): This simple will substitute form keeps personal property out of probate. You fill out a form at your financial institutions and designate your account beneficiary. After your death, your beneficiary provides the financial institution with a copy of the death certificate and proof of identity, and then collects what is in the account.
• IRAs, life insurance annuities, and other assets paid to named beneficiaries

Will substitutes predetermine who gets your property upon your death in one of two ways:

• Right of survivorship: Whether you have a will or not is immaterial to the property transfer. If you have a will, the property transfers outside of your will. If you don’t have a will, the property transfers outside of intestate succession laws. The surviving joint tenant(s) receive(s) the property.
• Beneficiary designation

Joint tenancy, tenancy by the entirety, and payable on death accounts use right of survivorship, while the other will substitute types use beneficiary designations.

 

6. Ownership of US Real Estate by Foreign Persons

(by Stuart Freeland, March 20, 2013)