TRUSTS & ESTATE ADMINISTRATION

Q: What is an estate? A: Your estate is the total of all property you own or control. Even if you do not own the property in your name, you can possess an ownership interest through a trust, partnership, or joint ownership. Any property or money which becomes available upon death, such as a life insurance payment, is also part of your estate. Typical portions of an estate include: Real estate and buildings. Personal property including cash, furniture, vehicles, stocks, art, etc. Life insurance and other financial instruments. Business interests or partnerships. Debts. Claims, including personal injury claims. Q: What is a will? A: Your will is a legal document that details the organization of your estate upon your death. Wills are enforced in probate court. States have differing legal requirements for the language of wills. Q: How can I revise my will? A: Wills remain valid forever, unless a new will is written. You can add a “codicil” to an existing will, to change or add something to it. Codicils must meet the same legal requirements for language as the original will. Generally, a will cannot legally be revised without the use of a codicil. Q: What is a trust? A: This is a legal entity which manages an estate or other assets for the benefit of other persons or entities, including corporations. There are many different kinds of trusts. Q: What is a probate estate? A: A probate estate is the total of all assets that go through the probate process once their possessor dies. This generally includes all assets in the deceased person’s name and those paid to the estate. It often does not include joint assets, insurance, assets held in trust, or similar assets. Q: What is the federal estate tax (or death tax)? A: This is the tax placed on an estate by the federal government. Estates of less than $1.5 million are currently exempt from the estate tax. By 2009, the exemption will rise to $3.5 million. Under current law, the estate tax will not be assessed in 2010, but will be assessed on estates greater than $1 million in 2011. Q: What is a living trust? A: Under a living ( or a “revocable inter vivos”) trust, a person transfers ownership of their assets to another entity while alive. The terms of the trust instruct the entity on how to manage the person’s assets before and after death. This allows the person to avoid the probate process, and the possibility of a court-appointed conservatorship upon incapacity. Q: What is a conservatorship? A: If you become incapacitated, and a power of attorney has not designated someone to act on your behalf, a court procedure is necessary to assign a legal guardian to you and your estate. The preparation of a power of attorney can avoid the cost and time of a conservatorship process. Q: Is asset protection legal? A: Asset protection is legal when it is done legally. You cannot hide your assets or omit income when reporting your taxes. You cannot transfer assets in order to avoid debts. It is important to consult with an attorney when attempting to protect your assets, in order to avoid taking an illegal action. Q: Do I need an estate attorney when I can write a simple will myself? A: While it may look simple, the drafting of a will and other estate planning is actually very complex. State laws regarding estate planning change often, and failure to comply can make any changes illegal. An attorney with experience in estate planning can help you to avoid making a costly mistake, and keep you up to date on changes in estate law. Remember: an improperly prepared will is invalid, and can create court battles and expenses that can eat away at the assets you spent a lifetime assembling. It is much better to safeguard your assets by consulting an attorney before beginning the writing of a will.

Estate planning, which includes legal documents like wills, trusts, and powers of attorney, is the process of preparing instructions on how to manage your assets after your death. State and federal laws apply to estate planning, and so do taxes. In order to protect your assets, it may be necessary to create legal entities such as limited liability companies (LLCs) or family partnerships. The estate tax and other related issues are a hot political topic, and estate laws change often. It is vital to consult an experienced estate planning attorney, in order to protect your assets and meet the goals of your estate planning process. Estate planning allows you to decide what will happen to your assets after your death. It allows you and your loved one to save time and legal costs, and avoid financial and administrative hassles. Your estate plan should include two vital documents; a will and a durable power of attorney. A durable power of attorney is a legal document that allows you to give directions to another person, who can then make legally binding decisions if you are unable to do so yourself. A will is a legal document which provides instructions on how to deal with your property after your death. In addition, other legal documents such as a health care proxy, a living will, and a revocable (or “living”) trust can help with decisions should you become incapacitated. A revocable trust can take control of your property before you die, allowing you and your family to avoid probate proceedings. The basic purpose of estate planning is not simply to distribute property after death, but to reduce inefficiency and taxes throughout the probate process. Under the current federal estate tax law, the amount of federal estate tax depends on the value of the estate and the date on which the person died. In 2007 and 2008, the tax is imposed on estates valued over $2 million. In 2009, the tax is imposed on estates valued over $3.5 million. In 2010, no estate tax in imposed. In 2011, the tax is imposed on estates valued over $1 million. Many states also impose an inheritance tax. Iowa does have an inheritance tax. Iowa does not impose an inheritance tax on the surviving spouse or on lineal descendents (children and their offspring) or on lineal ascendents (parents, grandparents, etc.). Iowa taxes the shares of other relatives and nonrelatives to varying degrees. Estate planning is vital to work towards security and peace of mind for yourself and your family. If you need help an any stage in the estate planning process, you should contact a lawyer experienced in estate planning to ensure your needs are met and your estate is protected. Wills Your will can do more than simply relay instructions on how to distribute your property after death. You can name relatives, friends, charities, or any other recipient you wish. You can also relay other instructions, such as specifying an executor for your estate or a legal guardian for your children. It is important to ensure that the named guardian has accepted this role, because they are allowed to refuse. The executor is responsible for administering your estate and making sure that your instructions are followed. The executor also represents your estate if it must pass through probate court. Given these responsibilities and the large amount of time they require, you should give careful thought to your choice of executor. You should never consider your will a final document. Laws and legal interpretations change, as does your personal, financial, and familial situation. You should periodically review and update your will with the help of an attorney. Your will can either be replaced by a new will or revised by drafting an amendment or “codicil”. Wills and codicils must be written using specific legal formulas in order to be valid. You should consult an experienced attorney when drafting or revising a will. Trusts A trust is a legal entity which transfers property or assets to a manager or “trustee”. The person who creates the trust, or “trustor”, determines how the trust’s proceeds should be distributed and the trustee manages the property for the beneficiary. The major types of trust are: Living Trusts. A trust established during the life of the trustor. It can provide significant tax benefits, and can allow the trustor to avoid estate taxes. A revocable living trust can be changed or ended by the trustor, while an irrevocable trust cannot be ended by the trustor without court action. Testamentary Trusts. Testamentary trusts take effect upon the death of the trustor, who can make changes to its details at any time before death. A testamentary trust therefore allows the trustor to maintain close control over their property. QTIP Trusts. A Qualified Terminal Interest Property, or “QTIP”, is a marital trust. It postpones any estate tax until both spouses have died. The delay may mean higher estate taxes, but it allows the surviving spouse to reap the maximum benefit of the assets before his or her death. Generation Skipping Trust. A generation skipping trust gives a trustor’s assets to their grandchildren while providing income to the trustor’s children. These trusts are complicated to establish, and current law taxes these trusts above a certain monetary limit. There are many other types of trusts, tailored to specific local laws and individual situations. A trust can be an important part of your estate planning, but the complex nature of these legal entities and the variation between them means that you should consult an experienced attorney before establishing a trust of any kind. Asset Protection An important part of estate planning is trying to keep your estate intact to the greatest possible degree. This does not mean the utilization of secretive and unethical means; there are a number of legal and charitable ways to protect your property for retirement or your estate. Asset protection is complex and requires knowledge of a number of legal concentrations. You should consult an experienced attorney before initiating an asset protection plan. An important tool for this purpose is a family limited partnership, or FLP. An FLP is arranged like a traditional limited partnership, but generally includes family members. The usual arrangement of an FLP makes the parents “general partners” while the children are designated as “limited partners”, who receive a share of profits but no control over the partnership’s decisions. The General Partners (or parents) are responsible to control the operations of and make financial decisions for the FLP. They can also receive a management fee out of the FLP’s income. Upon formation, the parents own all general partner and limited partner interests, but give shares to their children using the annual gift tax exclusion. Under federal law, the general partners can maintain control over the FLP even if they control only one percent of the FLP’s assets. An FLP can allow you to avoid the estate tax credit, by providing annual share gifts. Additionally, because there is no market for shares in the FLP, a gift of FLP assets may be appraised for tax purposes at far below the dollar price, or “discounted”. It should be noted that steep discounts can result in an IRS challenge. As a result, some attorneys have begun crafting LLCs to accomplish the same goals as an FLP. An FLP can also help protect assets from creditors upon death, within limits. Most states have adopted part or all of the Revised Uniform Limited Partnership Act (RULPA). Under RULPA, a creditor can petition a court for a “charging order”. This allows a creditor to receive any income from a partnership due to the individual who owes the creditor, but forbids a creditor from assuming control of a partnership. The same rules apply to creditors pursuing debtors’ interests in LLCs. In many instances, it is possible to transfer the ownership of an asset to a spouse. This makes it unavailable in most instances to creditors. Many people have actually transferred the vast majority of their assets to a trust, foundation, or other entity. They own little in their own name, and assets controlled by the new entity are not subject to any claims against the individual. Asset protection, done legally, is very different from actions taken in order to commit fraud against creditors or the government. It is vital to have the advice and assistance of an attorney who has experience in estate planning. Estate Planning and Elder Law As the number of older Americans continues to grow, we are dealing with health and legal concerns that most Americans fail to anticipate. Elder law attorneys, who are experienced in estate planning, are also excellent resources in preparing for long-term care, preventing elder abuse, obtaining government aid, and establishing guardianships. Your estate planning should include preparation for old age, including consultation with an attorney who is experienced in elder law. Government programs such as Medicare cannot be your only safety net. Medicare only covers the first twenty days of nursing home care in full, and part of the cost for another eighty days. Medicare does not cover long-term health care or extended recovery time. Medicaid is designed to assist low-income citizens with medical bills, and will cover long-term care costs. However, individuals with higher incomes do not qualify, and can see their estates vanish given the cost of staying in a nursing home. An estate plan can allow you to relinquish assets over time in order to qualify for Medicaid. This helps you to prevent simply giving up your assets to pay for health care and nursing home expenses. Medicaid will not allow you to simply transfer your assets immediately before entering a nursing home. You should consult with an experienced lawyer in order to plan ahead for your long-term care needs. While it is never too early to consider these possibilities, it is also never too late. If your health deteriorates and you are unable to manage your own personal and financial affairs, state law can require that a conservator or guardian be appointed to look after your affairs. A conservator has the authority to make legal and financial decisions on behalf of a disabled person. In most states, a conservator is required to purchase a “surety bond” to protect the estate. The estate of the disabled person pays the cost and expenses of the conservator and any attorney’s fees. There can be disadvantages to this system. There is little guarantee that a court-appointed conservator will understand and work towards your goals or wishes for your estate. You should set up an estate plan, and choose a trusted person to manage your affairs if you are incapacitated. A health care directive or living will can provide direction to your doctors on whether to put you on life support. A durable health care power of attorney allows you to grant a trusted person the ability to make health care decisions on your behalf. Early planning allows you to alleviate concerns over these issues before they come up. Given the potentially serious consequences of these decisions, it is vital to consult with an experienced estate planning attorney to ensure that your rights are protected and your estate planning needs are met. Powers of Attorney A power of attorney is a legal document which allows the drafter or “principal” to name an agent or “attorney-in-fact” to act on their behalf under certain circumstances. The attorney-in-fact can act on the principal’s behalf, and make legally binding decisions. The power of attorney can be granted broadly or in limited situations, such as poor health or unconsciousness. Given the different types and variations of a power of attorney, it is advisable to consult a lawyer with experience in estate planning before drafting one. Consider these types of powers of attorney: Health Care Power of Attorney. This document allows the principal to appoint someone to make health care decisions on the principal's behalf should the principal become unconscious or otherwise unable to make decisions for him- or herself. This is distinguished from what is commonly called a "living will" or "advanced directive," which contains instructions on whether to provide life support or other procedures should the principal become permanently ill or unconscious. Frequently, the health care or medical power of attorney is combined with the advanced directive. Financial Power of Attorney. In a financial power of attorney, the principal authorizes the agent to have power for the principal to manage property interests and finances. These can include the authority to manage real and personal property, property, taxes, and other actions. However, a financial power of attorney cannot legally give the agent the power to vote, prepare a will, or seek a divorce on the principal’s behalf. A power of attorney may be referred to as a "durable power of attorney." The word "durable" indicates that the powers granted to the principal endure even when the principal becomes physically or mentally incapacitated (or in legal jargon, "disabled"). The distinction comes from common law in which it was the rule that the power of attorney would cease upon the disability of the principal. Modern statutes allow the power to be durable, which in turn, makes the power of attorney a relatively easy way to plan for one's own care during a disability. A durable power of attorney may be written to be effective immediately or it may be written to take effect upon certain triggers, such as a medical declaration of mental incapacitation. State law differs on powers of attorney. The name of these instruments, not to mention their powers, varies, although all states have some provision for these measures. If a person is unable to act on their own behalf and has not completed a power of attorney, a court may find it necessary to appoint a legal agent. Depending on state law, this agent can be called a guardian, conservator, or committee. If a court appoints a guardian, you may not be able to choose who this will be. Other legal documents such as living wills allow persons to provide instructions about their health care and estate planning. The estate planning process should cover the disposition of assets during your lifetime as well as afterwards. If you are beginning the estate planning process or must have a power of attorney drafted, you should contact an experienced estate planning attorney to protect your assets and fulfill your needs.