FREQUENTLY ASKED QUESTIONS-ESTATE PLANNING
What is Estate Planning? Frankly, we have never liked that term, it sounds like you must have a big house in the Hamptons, matching pair of Rolls Royce in the driveway, and a private driver, butler and maid at your beck and call. Don't we all wish!! In fact, one of the most persistent myths with estate planning is that you need to be wealthy or own lots of property for estate planning to be of any value. (We actually prefer the name 'Future Planning', that's something that we can all relate to. Alas, that name hasn't taken off so we are stuck with Estate Planning.) So what exactly is it?
In simple terms and its most basic form, a comprehensive estate plan has specific legal documents that detail your wishes regarding: how and to whom your assets will be distributed; who will be guardian of any minor children or special needs child or adult; if you prefer burial or cremation; who will be in charge of making sure your wishes are honored; what your end of life medical decisions are; and who will make financial and/or medical decisions for you if you are temporarily or permanently incapacitated, as a few examples. We will expand on the specific and different documents further down (Insurance and Financial Planning also fall under the larger Estate Planning umbrella and we may touch on eventually.)
Many factors are taken into consideration when determining the best estate plan for your specific personal and family circumstance. Some people need simple plans, others need quite complex ones. One size definitely does not fit all! An experienced estate planning attorney (pssst....we have the most experienced estate planning attorney in the area!) will know the questions to ask to understand your goals and unique circumstances and to devise a plan that honors your wishes and protects your assets and loved ones. Careful estate planning can give you peace of mind. No one wants their family members to have to deal with a costly and time-consuming process while they're grieving. Planning in advance means you'll be making it as easy on your loved ones as possible.
What is a Living Will?
What is the difference between a Will and a Living Will and do you need either?
The legal profession seems to relish in using and creating confusing terms! (NOTE: We operate in the State of Washington and only speak to that. Different states may use different terminology -see how confusing it all can be?! And of course, different states have different laws and statutes.)
Let's start with a Will (often times called a Last Will and Testament). The primary reasons to have a Will are: you have assets (vehicles, house or other real estate/property, a business, jewelry, guns, any other s t u f f); and/or you have descendants -by birth or adoption). If you don't have any of those (assets or descendants) you probably don't need a Will. However, you probably still need other estate planning documents! (Each document is its own rabbit hole lol).
If you do have assets and/or descendants, then it is in your and your heirs best interest for you to have a Will. With a Will: YOU get to select a person of your choosing to administer your estate (basically means to make sure that the wishes in your Will are followed); YOU get to decide which assets to leave to whom (some limitations may apply) and when they can have them; YOU get to select the person of your choice to be appointed as a guardian or conservator (more on that in a later post) of any minor or special needs children/adults; YOU get to make your wishes for a funeral or cremation known... Please notice what is capitalized up above....the word, "YOU". With a Will, YOU get to make the choices on the items mentioned and it is all about your wishes. Without a Will, your wishes don't matter. State statutes, laws and courts get to make the decisions for you. Frankly, we believe you should have the power to make those decisions- so grab onto that power!!! Please note that your Will is only effective once you have passed. And, until you pass, you can change it, as long as you are competent to do so. A Will is not a one and done! It should be reviewed regularly and, for a variety of reasons (including changes in marital status, asset and family situation, or someone that is named in the Will passing), may need to be changed. We are going to go down the Will rabbit hole in future posts as this document creates a lot of confusion for people, but for this post, we are differentiating between a Will and a Living Will so we are keeping it brief!
Onward we go!
A Living Will on the other hand, isn't really a Will at all in the sense that most of us know or understand. (Stupid legal jargon!) A Living Will (also known as an Advanced Directive, Medical Directive, Personal Directive and who knows how many other things....is it any wonder there is so much confusion??! ...here at Dano Law Firm, we call ours a Directive to Family and Health Care Providers (Directive for short) because that seems to accurately describes what it is) anyhoo.... a Living Will only deals with medical decisions and usually very specific medical decisions and situations. This document lays out your wishes regarding end of life treatment. Warning: this is not a pleasant topic! A Directive only becomes effective if you are terminal, only being kept alive by artificial means and have no ability to communicate (such as in a coma and/or have no brain activity). This is not pleasant to think about AND it happens everyday to someone, somewhere. Most hospitals will provide and have you sign a Directive when being admitted into the hospital for treatment or surgery. However, what if you can't sign one? If you are being admitted into the hospital already in an unconscious state, then who decides your fate? Not YOU and this is why it is important to have this document BEFORE you need one. Often times the situation in which you would need a Directive is a traumatic and highly emotional scenario and different family members may not agree on what to do or what they think you would want. As you can imagine, this can cause much added stress, strain, disagreement and tension to an already terrible situation. By having a Directive in place, this removes any confusion as to your wishes to your family and the medical providers and does not put your loved ones in an unnecessary and horrible position of having to decide. It's a tough topic, but a necessary one to think about.
So the last part of the question...do you need either? Hopefully, you have the answer! Having estate planning documents in place gives YOU the power to decide what happens, gives you peace of mind to know that your wishes will be honored and can be one of the most loving things you can do for your family or loved ones.
Terms, Questions and Definitions:
Let's touch on some terms that are in used in Wills that may need translation. Of note is we are licensed in the State of Washington. If you visiting this site from outside of Washington, please check your state or country requirements.
Ok, let's dive in!
A Testator/Testatrix is the term for the person whose Will it is. For example, you are the Testator/Testatrix if it is your Will. Your signature is necessary for the Will to be valid and you must be 18 and capable of making reasonable decisions. To be valid, your Will also must be signed by you in the presence of two witnesses who must also be 18 and competent. The two witnesses must sign the Will in your presence and they cannot be a spouse, domestic partner or beneficiary.
Executor, Personal Representative (the term we use in Washington), or Administrator all mean the same thing. (It sure would be handy if everyone used the same language wouldn't it?) This is the person who will take care of things for you after you pass. If you are married or have a significant other, most people will designate that person. It is recommended that there be an alternate if, for some reason, the initial person cannot or does not want to do it. Being a Personal Representative is a big responsibility and can be quite time intensive. Paperwork (including the Will) needs to be filed or recorded; companies, private and governmental agencies and organizations need to be notified; accounts may need to be opened, closed or transferred; and the Will needs to be honored.
What can you give away in a Will? Planes, trains and automobiles! Actually almost anything! If you own it, you can give it away...Cash, contents of bank accounts and savings deposit, house, land, your share of a business, intellectual property, guns, collectibles, jewelry etc. What you can't give away in a Will-things you don't own obviously (might be more than you think and we will touch on this when we talk about community property). Also, life insurance proceeds, 401Ks, IRAs, and retirement plans are not includable in the Will. Those are separate non-probate assets - more on that later.
Can you disinherit anyone you want? Generally speaking, yes! One caveat is that you cannot disinherit a spouse from their share of any community property. More on that later when we talk about Community Property Agreements (another of the Estate Planning documents). If you are disinheriting someone (definitely talk to an attorney about this decision) it may be advisable to have a no-contest or 'In Terrorem' clause in your Will which basically says that if someone contests the Will, they do not receive anything.
Ok onto more definitions...these may or may not apply to your situation.
Most people understand the term 'Guardian'. It is the person designated to take care of another person who is not able to take care of themselves (either a minor child(ren), a special needs child/adult or could be an aging adult.
A relatively new term in Washington Wills is 'Conservator'. As noted above, a Guardian helps manage a person in certain situations. A Conservator manages that persons financial affairs. Oftentimes the Guardian and Conservator are the same person, but can be separate if you wish.
Trust. Many Wills have Trust provisions within the Will. This can be a Trust for the benefit of minor children or a spouse, to help avoid estate taxes or to benefit chartable organizations or other reasons. A Trustee is the person (or professional service) who administers the Trust. We will deep dive into the topic of Trusts next as this is a land of mystery for most people.
One more thing that we get asked about..."Are handwritten Wills legal?" In Washington, they are as long as the witness requirements (see your state requirements) are followed. We don't recommend them without getting advice from an estate planning attorney first.
What is a Trust?
Trusts can be an important part of your estate planning and like a lot of other legal jargon and documents, this one creates a lot of confusion for many people...and for good reason. So let's jump in! First off, what exactly is a Trust? A Trust can be: a freestanding document or specific provisions in a Will. It is created for a variety of reasons and situations. We will cover some of the more common situations. There are 3 main types of Trusts: Testamentary, Revocable and Irrevocable. One thing all Trusts have in common is establishing and defining the relationship between a Trustor ( the person creating the Trust and transferring assets to it), a Trustee (the person carrying out the directions of the Trustor), the terms of the Trust, and the beneficiary or beneficiaries of the Trust.
First, let's look at Testamentary Trusts and the reasons why one may or may not be right for you. The most common testamentary trusts are created to: a) take care of minor or special needs beneficiaries or b) to avoid or reduce estate taxes. Let's look at the first one...Do you have minor children? A beneficiary that has special needs? A beneficiary with addiction problems? A beneficiary that has not reached a level of maturity or competency to take care of themselves and/or make good decisions? If so, then a Testamentary Trust within your Will will allow you to provide for them in a way you design. Without Testamentary Trust provisions in your Will, your beneficiaries would receive their shares of your estate outright and may not be of the age, maturity or competency to handle that. You can choose what age (or ages) the beneficiary needs to attain before receiving any, all or part of the share allocated for them.
The other common reason for creating a Testamentary Trust is to protect your assets from estate taxes, thus allowing your beneficiaries to receive more and the government less. Do you have assets (cash, investments, properties, business, personal property etc.) that total more than $2,193,000 (this is for Washington, check with an estate planning attorney if you are in a different state)? If so, Testamentary Trust provisions may be just what you need to eliminate or minimize estate taxes and preserve as much as possible for your beneficiaries.
A word about the Trustee. Careful consideration should be given to whom you choose to act as Trustee as it is a huge responsibility to manage the assets owned by the Trust and also the beneficiaries expectations and requests! As an alternative to selecting a person, there are professional Trustee services and while this does cost something, it may be the best choice for you (and your beneficiaries)!
So... a Trust is created to hold and provide legal protection for some of your assets for a specific purpose (some of those could include to take care of minor or special needs beneficiaries, to take care of a pet, to avoid or minimize estate taxes, to set up charitable contributions, for privacy, to provide income for yourself while you are living and many other reasons). The assets of the Trust are held, managed and distributed by a Trustee (often you) for the benefit of beneficiaries according to the terms you set out in the Trust. Trusts are also established to save time, reduce paperwork and, in some cases, avoid probate (more on probate in later posts). There are many types of Trusts (created for different purposes) but all Trusts are either revocable or irrevocable. Testamentary Trusts are in a Will and do not become irrevocable until you pass.
Next, let's look at Revocable Trusts. They are Trusts that you can change or terminate as long as you are alive. If the Trust is still in existence when you pass, it then may become irrevocable. We commonly create Revocable Trusts for clients to hold their out of state property. Many Washingtonians have Arizona property (hello, sun!) and having that property in Trust allows the beneficiaries to avoid an additional (or ancillary) probate in Arizona (or the state where the additional property is) in order to transfer it to the intended beneficiaries.
So the flip side of revocable is irrevocable, meaning once the Trust is created, not you nor anyone else can change or terminate it. That sounds rather dramatic and so FINAL... it is AND there are many instances where an Irrevocable Trust is the perfect tool. One common reason to create an Irrevocable Trust is for estate tax planning purposes. This can be quite complex, however if you are estate tax sensitive (assets over $2,193,000 in WA and currently $12,060,000 federally) an Irrevocable Trust could be very beneficial in preserving your assets for your beneficiaries- and not the government!
Each type of Trust has its pros and cons and an experienced estate planning attorney (psst...we have the best one of those around!) can help you determine which, if any, Trust is right for you.
Is an heir the same thing as a beneficiary?
Actually, no. As we have previously noted, estate planning has an abundance of terms and special language which almost certainly makes it confusing. This is no exception! Remember when we said that if you don't have a Will when you pass (which is called dying 'intestate'), it won't be up to you where your assets go? Right, the government decides where your assets go! (Each state's laws and statutes may vary, so check with your state). Typically, if you die intestate, your assets will go to a spouse and children and perhaps grandchildren or if you don't have any of those, then to other bloodline relatives. These are called "heirs" or “next of kin.” They legally have a claim to your assets if you don't specify otherwise. Maybe that doesn't sound so bad, except what if by receiving the assets they now don't qualify for assistance programs? What if you are separated from your spouse and contemplating or have started a dissolution? What if you aren't married to your significant other but still want them to inherit? What if your children are minors and have no ability or maturity to manage the assets? What if one of the heirs has special needs or drug or alcohol addiction issues? What if you are estranged from an heir? In such cases and many others that could be mentioned, receiving your assets outright could cause the recipients problems or is not the disposition you really want or GASP! waste your assets. (psst...get a Will!) In addition to different life situations, there could be financial reasons for you not to want all of your assets to go to them outright -remember our Trust conversation? (psst...get a Will!)
A beneficiary, on the other hand, is someone YOU name in a legal document (Will, Trust or other instrument) to receive your assets or a particular asset. It could be the same people as above or entirely different people. It is now up to you, and by having a Will or Trust (and appropriate beneficiary designations on retirement plans, IRAs, insurance policies and accounts, if appropriate) your wishes are known and legally binding. (psst..get a Will!)
What is a Durable Power of Attorney?
A Durable Power of Attorney is another important tool in your estate planning toolkit. It is legal document that allows someone you choose (called an Attorney-in-Fact) to make certain and specific decisions for you when you are unable. If you become disabled, temporarily or permanently incapacitated or become incompetent, a financial Durable Power of Attorney will allow your Attorney-in-Fact to make financial decisions for you, including dealing with banks and bank accounts, insurance companies, governmental agencies and programs, brokerage firms and accounts, etc.
A healthcare Durable Power of Attorney is a legal document allowing your Attorney-in-Fact (again, someone you choose) to make medical decisions for you if you are unable to make those decisions for yourself... for the same reasons as above or if you are going into the hospital and it becomes necessary for someone to make medical decisions while you are there. Sometimes, you know in advance if you are going into the hospital for a procedure, but there are emergency circumstances where you may be going in and/or could be unconscious and not able to give or make medical decisions for yourself.
Sometimes other Durable Powers of Attorney are created for specific circumstances or time periods. One of the more common circumstances allows your Attorney-in-Fact to purchase or sell real estate for you. Another circumstance might be to qualify you for Medicaid.
Durable Powers of Attorney are only valid while you are living, and you can change or terminate the powers or select a different Attorney-in-Fact while you are living as long as you are competent to do so. After you pass, the powers end and the provisions of your Will would take over.
We highly recommend that every adult have financial and healthcare Durable Powers of Attorney. There's never a better time to get one than before you need one!
How Can You Save Money on Your Bill?
There are a few things!
Return our calls or emails promptly.
Provide requested information promptly.
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We bill by time spent and the less time we spend on tracking down information or trying to reach you, the more you save-sometimes this amounts to hundreds of dollars!
Dano Law Firm, P.S. Providing Peace of Mind