Comprehensive Estate Planning Services Law Firm
What is Estate Planning?
General Counsel, P.C. provides "full service" estate planning for our clients. This includes all aspects of planning, from creating simple wills and medical directives to ensure that the personal wishes of an individual are followed to establishing complicated trusts to accomplish tax savings.
Our goal with every client is to create an individualized estate plan that allows the client to be assured that their wishes regarding their medical decisions, their property, and their heirs will be followed.
Estate Planning is one of the most important steps to ensure that your final property and health care wishes are honored, and that loved ones are provided for after your death. Working with General Counsel, P.C.'s estate planning group will allow you and your family to be confident that your wishes will be followed regarding your property disposition, medical care and guardianship matters.
Estate planning attorneys in Virginia, Maryland and Washington, D.C. General Counsel, P.C. provides careful and comprehensive estate planning, tax guidance and probate counsel. Please call 703-556-0411 or e-mail us.
Why Estate Planning?
● Provide for your family ● Pass your property to your beneficiaries ● Plan for potential incapacity ● Minimize property transfer expense ● Choose executors/trustees of your estate ● Ease future family strain ● Reduce estate taxes ● Have business succession plan in place.
Why a Will?
A will is simply a formal way of setting forth your wishes regarding how you would like your property distributed upon your death. You should consider a will whether you are single, married, have minor children, or own even a small amount of personal assets or property. A will controls the disposition of assets. If you have not formalized your intentions, your estate may incur unnecessary and costly litigation, adding to the grief of your survivors.
Dying Without a Will
When a person dies without having a valid will, his or her property passes by what is called "intestate succession" to heirs according to state law. If you do not have a will, the state makes one for you. This will likely not fulfill the wishes of the decedent — and is more costly and time consuming for the heirs because the decedent's estate must go through the probate process.
The purpose of intestate succession statutes is to distribute the decedent's wealth in a manner that closely represents how the average person would have designed his or her estate plan, had that person had a will. However, this can differ dramatically from what the person really would have wanted. Even where it is known what the person intended, no exceptions are made where no valid will exists. Nor are there any exceptions made based on need or special circumstances.
When to Update my Will?
Life changing events in your life are times to update your will and discuss your estate plan. Circumstances include: marriage, birth or adoption of a child, having new stepchildren, buying or selling a house, divorce, obtaining new or increased life insurance, new inheritance or other monies, a significant salary increase, a health, a change in who you want to leave your property to or any other significant life event.
What is a Will?
A will is the most common way for people to state their preferences about how their estates should be handled after their deaths. A well-written will eases the transition for survivors by transferring property quickly and avoiding tax burdens. Wills vary from extremely simple single-page documents to elaborate volumes, depending on the estate size and preferences of the person making the will (the "testator"). Wills describe the estate, the people who will receive specific property (the "devisees"), and even special instructions about care of minor children, gifts to charity, and formation of posthumous trusts. Many people choose to disinherit people who might usually be expected to receive property. For all these examples, the testator must follow the legal rules for wills in order to make the document effective.
Formal requirements for wills vary from state to state. Generally, the testator must be an adult of "sound mind," meaning that the testator must be able to understand the full meaning of the document. Wills must be written. Some states allow a will to be in the testator's own handwriting, but a better and more enforceable option is to use a typed or pre-printed document. A testator must sign his or her own will, unless he or she is unable to do so, in which case the testator must direct another person to sign the will in the presence of witnesses, and the signature must be witnessed and/or notarized. A valid will remains in force until revoked or superseded by a subsequent valid will. Some changes may be made by amendment (called a "codicil") without requiring a complete rewrite.
A will usually appoints a personal representative (or "executor") to perform the specific wishes of the testator after he or she passes on. The personal representative need not be a relative, although testators typically choose a family member or close friend, as well as an alternate choice. The chosen representative should be advised of his or her responsibilities before the testator dies, in order to ensure that he or she is willing to undertake these duties. The personal representative consolidates and manages the testator's assets, collects any debts owed to the testator at death, sells property necessary to pay estate taxes or expenses, and files all necessary court and tax documents for the estate.
Testators who have minor or dependent children may use a will to name a guardian to care for their children if there is no surviving parent to do so. If a will does not name a guardian, a court may appoint someone who is not necessarily the person whom the testator would have chosen. Again, a testator usually chooses a family member or friend to perform this function, and often names an alternate. Potential guardians should know they have been chosen, and should fully understand what may be required of them. The choice of guardian often affects other will provisions, because the testator may want to provide financial support to the guardian in raising surviving children.
What is a Trust?
Trusts are estate-planning tools that can replace or supplement wills, as well as help manage property during life. A trust manages the distribution of a person's property by transferring its benefits and obligations to different people. There are many reasons to create a trust, making this property distribution technique a popular choice for many people when creating an estate plan.
The basics of trust creation are fairly simple. To create a trust, the property owner (called the "trustor," "grantor" or "settlor") transfers legal ownership to a person or institution (called the "trustee") to manage that property for the benefit of another person (called the "beneficiary"). The trustee often receives compensation for his or her management role. Trusts create a "fiduciary" relationship running from the trustee to the beneficiary, meaning that the trustee must act solely in the best interests of the beneficiary when dealing with the trust property. If a trustee does not live up to this duty, then the trustee is legally accountable to the beneficiary for any damage to his or her interests. The grantor may act as the trustee himself or herself, and retain ownership instead of transferring the property, but he or she still must act in a fiduciary capacity. A grantor may also name himself or herself as one of the beneficiaries of the trust. In any trust arrangement, however, the trust cannot become effective until the grantor transfers the property to the trustee.
Types of Trusts
Trusts fall into two broad categories, "testamentary trusts" and "living trusts." A testamentary trust transfers property into the trust only after the death of the grantor. Because a trust allows the grantor to specify conditions for receipt of benefits, as well as to spread payment of benefits over a period of time instead of making a single gift, many people prefer to include a trust in their wills to reinforce their preferences and goals after death. The testamentary trust is not automatically created at death but is commonly specified in a will and so as a will provision, the trust property must go through probate prior to commencement of the trust.
A living trust, also sometimes called an "inter vivos" trust, starts during the life of the grantor, but may be designed to continue after his or her death. This type of trust may help avoid probate if all assets subject to probate are transferred into the trust prior to death. A living trust may be "revocable" or "irrevocable." The grantor of a revocable living trust can change or revoke the terms of the trust any time after the trust commences. The grantor of an irrevocable trust, on the other hand, permanently relinquishes the right to make changes after the trust is created. A revocable trust typically acts as a supplement to a will, or as a way to name a person to manage the grantor's affairs should he or she become incapacitated. Even a revocable living trust usually specifies that it is irrevocable at the death of the grantor.
Irrevocable trusts transfer assets before death and thus avoid probate. However, revocable trusts are more popular as a means of avoiding the probate process. If a person transfers all of his assets to a revocable trust, he owns no assets at his death. Therefore, his assets do not have to be transferred through the probate process. Even though the grantor of the trust died, the trust did not die, so the trust assets do not have to be probated. However, trusts avoid probate only if all or most of the deceased person's assets had been transferred to the trust while the person was alive. To allow for the possibility that some assets were not transferred, most revocable living trusts are accompanied by a "pour-over" will, which specifies that at death, all assets not owned by the trustee should be transferred to the trustee of the trust.
Who Should Consider Trusts?
- Parents with young children may consider a trust. If you have young children, want to assure a good education for them, and will have enough assets to do so after death (including life insurance proceeds), you should consider setting up a trust. The trustee manages the property in the trust for the benefit of your children during their lifetime or until they reach the ages that you designate. Then any remaining property in the trust may be divided among the children. This type of arrangement has an obvious advantage over an inflexible division of property among children of different ages without regard to their respective ages or needs. Trusts are more flexible than giving outright gifts to minors in your will (which requires a guardian) or a gift under the Uniform Transfer to Minors Act, which requires appointment of a custodian and transfers of property to the child at age 18.
- People with beneficiaries who need help should consider a trust. Trusts are especially popular among people with beneficiaries who are not able to manage property well. This includes elderly beneficiaries with special needs or a relative who may be untrustworthy with money. For example, if you have a granddaughter who has been in a juvenile detention center, it may be a good idea to require her to obtain the money at intervals from a trustee instead of giving her a gift outright in your will. A discretionary trust gives the trustee leeway to give the beneficiary as much or as little he or she thinks appropriate.
- Another type of trust for improvident beneficiaries is a spendthrift trust. It is simply a trust in which your instructions to the trustee carefully control how much money is released from the trust and at what intervals, so you can keep an irresponsible beneficiary from the temptation of getting thousands of dollars in one stroke. You can stipulate that the trustee will pay only certain expenses for the beneficiary--those you (or the trustee) consider legitimate, such as rent and utility bills. In a spendthrift trust the beneficiary cannot assign his or her interest in the trust, and creditors of the beneficiary can't get at the principal in a trust, but can make a claim (if it's otherwise legal) on whatever income the beneficiary receives. Spendthrift provisions raise a number of tricky questions and should be used cautiously--your lawyer can tell you whether such a trust is right for your situation.
- People that own property that is hard to divide should consider a trust. Trusts help you transfer property that's not easy to divide evenly among several beneficiaries.
- People that want to control their property because of family dynamics should consider a trust. Through a trust, you can maintain more control over a gift than you can through a will. Some people use trusts to pass money to a relative when they have doubts about that person's spouse. For example, you love your son, but don't trust his wife, Livia. You're afraid she'll spend the money you give him on astrologers and shoes. Leave the money in trust for your son instead of making a direct gift to him, and you can direct that he get only the income, so neither he nor his wife can squander the principal. In many states, if you leave money in trust to your son, Livia can't get at the assets if they divorce. Moreover, he can choose how much, if any, of the trust income or principal to leave Livia; if she hasn't been a good and faithful companion, he can leave the whole thing to whomever he desires.
- People concerned about estate taxes should consider a trust. Trusts are very useful to people with substantial assets, because they can help avoid or reduce estate taxes. For example, by establishing a trust for their benefit, you can make tax-free gifts (up to the limit allowed by law) each year to your children or grandchildren during your lifetime, even if they're minors. This will reduce your taxable estate and save taxes upon your death. A properly drawn trust may also reduce estate taxes by utilizing the marital deduction or avoiding the generation skipping tax.
- An AB trust, also known as a credit shelter trust, lets a married couple pass the maximum amount of property to their children or other beneficiaries after both spouses die, while at the same time ensuring that the surviving spouse is financially comfortable during his or her lifetime. Here is how it works: Instead of leaving property outright to the surviving spouse, each spouse leaves most or all of his or her property to an AB trust. When one spouse dies, the surviving spouse can use that property, with certain restrictions, but does not own it outright. That is the reason behind the big tax savings: The property is not subject to estate tax when the second spouse dies, because the second spouse never legally owned it. Please note the AB Trust does have certain drawbacks that should be discussed with your attorney before implementing.
- Another trust vehicle that provides estate planning benefits is a charitable trust, which lets you donate generously to charity and it gives you and your heirs a big tax break. The most common type of charitable trust is called a charitable remainder trust. Here's how it usually works. First, you set up a trust and transfer to it the property you want to donate to a charity. The charity must be approved by the IRS, which usually means it has tax-exempt status under the Internal Revenue Code. The charity serves as trustee of the trust, and manages or invests the property so it will produce income for you. The charity pays you (or someone you name) a portion of the income generated by the trust property for a certain number of years, or for your whole life -- you specify the payment period in the trust document. Then, at your death or the end of the period you set, the property goes to the charity. In addition to helping out your favorite charity, you get several big tax advantages from this arrangement. You can take an income tax deduction, spread over five years, for the value of your gift to the charity.
More Information about Living Trusts.
A living trust-- technically called an inter vivos trust --allows you to put your assets in a trust while you are still alive. If your living trust is revocable, as almost all are, it gives you great flexibility. You or someone in whom you have confidence manages the property, usually for the benefit of you or your family. Most people name themselves as trustees, and find there is no difference between managing the trust and managing their own property--they have the right to buy, sell, or give property as before, though the property is in the trust's name rather than their own.
A living trust is one of the two main ways to avoid probate. (The other is joint tenancy or survivorship.) One of the purposes of probate is to determine the disposition of the property you leave at death. Since the trustee of your living trust owns that property, there is no need for probate. Living trusts have become extremely popular in recent years. Even though they're a useful, simple, and relatively inexpensive way to plan your estate, they do not magically solve all your problems. Deciding whether a living trust is right for you depend on the size of your estate, what kinds of assets it contains, and what plans you have for yourself and your family.
Should I have a Living Trust?
The living trust, while offering advantages over probate, is not guaranteed to save you money. If your records are well-organized, your assets are simple (not necessarily small, just easily identified), your beneficiaries aren't contentious, your state has inexpensive probate procedures for estates of your size, and your probate court and lawyer are efficient, legal costs of probate might be so low that it costs less to pass the property through a will than via a living trust. However, don't forget the many situations more important than any cost savings. For example, the advantage to an older or ill person is that a living trust avoids an expensive and undesirable court proceeding with a court appointed guardian or conservator.
How Living Trusts Work.
Requirements for setting up a living trust vary with each state. In general, you execute a document saying that you're creating a trust to hold property for the benefit of yourself and your family, or whomever you want it to benefit. When you put property into a living trust, the trust becomes its owner, which is why you must transfer title to the property from your own name to that of the trust. But you retain the right to use and enjoy the property, and because you do, the property in the trust belongs to you, the grantor, for tax purposes. The trust itself often files a separate income tax statement as well, though the IRS doesn't require one if the grantor and trustee are the same person. It is advisable to apply to the Internal Revenue Service for an employer's identification number for the trust.
In a revocable living trust, you keep the right to manage your property whether you're the trustee or not, since you have a right to change the terms of the trust, the trustee, and the property in the trust at any time. When you die, your alternative trustee distributes the property according to the terms of the trust. Usually, your alternative trustee is your surviving spouse or an adult child, but you can name a bank or trust company if you are willing to pay their fees.
Living trusts can extend long after you die. If you want the trust to benefit your infant grandchildren, for example, you might specify that the trustee make gifts to them as needed until they are fully grown. Living trusts, like wills, give you wide flexibility in distributing your property. If beneficiaries of your living trust die before you do, the property reverts to you, unless you've named other people (contingent beneficiaries) for those gifts.
Advantages of Living Trusts.
● Helps in managing your affairs. ● If you have a trustee, a living trust can manage your property. A living trust can also provide a way to care for you and your property in case you become disabled, which is why many people use them. ● Protects your privacy. Like all trusts, living trusts maintain the deceased's privacy more than wills, since there's typically no public record required. ● Easy to create and change. For most estates, it's not that hard for a lawyer to create a living trust tailored to your estate objectives, and you don't have to go through the formalities required to execute or change wills. ● Greater control of assets. In some states, a spouse cannot take an elective share in the trust assets, making living trusts a way of disinheriting a spouse in these jurisdictions.
Summary of Estate Planning
What is most important as you consider estate planning for you and your family is that there is no "one size fits all" solution. All estate planning should be individualized based on the specific needs of the client.
General Counsel, P.C. will take the time to carefully analyze your individual and family situation to assist you in finding the appropriate estate planning solution for you and your family. Please call us to arrange an appointment at:
703-556-0411 or e-mail us. Weekend and evening hours are available.
The following link will allow you to download our Estate Planning Questionnaire.
