Why have a will?
A Last Will and Testament distributes property upon your death in the way you wish it distributed. It can appoint a guardian and trustee for your minor child; it appoints an executor or personal representative to handle your estate; it can in some circumstances be fashioned to reduce “death” taxes; it can provide for charitable bequests; it can establish trusts that operate after one’s death. It should be carefully prepared and must be executed in a formal manner.
What is a living will?
A living will, sometimes called “health care directive” or advance medical directive, is a completely different document from a last will and testament. A living will does not distribute property and has nothing to do with probate. A living will allows a person to state his or her preferences as to the type of medical life support, if any, to be employed if one has a terminal condition, and no reasonable prospect of recovery. When one is in such a condition and cannot express his or her wishes himself or herself, the living will becomes a guide to the family and to attending physicians as to how to proceed. With a living will, one can also execute a durable power of attorney for health care. This designates someone to make health care decisions in the event of incapacity.
What is probate?
Probate involves the opening of an estate in the county or city where a deceased person was a resident at the time of death. If the deceased left a will, the will is filed in the probate court. Assets of the deceased are appraised, claims of creditors are collected and paid; and taxes, if any, are paid. A will can be challenged in probate court. Eventually assets of the deceased are distributed according to the will or in accordance with state law.
What if you die without a will?
If you die without a will, your property will be distributed according to the intestate succession law of the state where you were a resident at the time of your death. You should consult an attorney for review and interpretation of your state’s intestate succession law. Generally intestate succession statutes distribute property to spouses, children, grandchildren, parents, and then to aunts, uncles, cousins if there is no immediate family.
Can probate be avoided?
In many cases, probate can be limited or avoided by, among other means:
- Establishing a revocable trust
- Holding property jointly
- Establishing beneficiary designations for accounts and insurance policies.
The wisdom and method of avoiding probate depends on the individual situation and should be carefully discussed with your estate-planning attorney.
What is a revocable living trust?
A revocable living trust is a trust created during one’s lifetime that is intended to limit or avoid probate. Assets, including real estate, are transferred into the trust, but the creator of the trust maintains complete control of the assets as trustee during his or her lifetime. Upon the death of the creator, a named successor trustee takes over, and distributes the assets according to instructions left by the creator. There is no probate involved. Many people prefer revocable living trusts because there is no probate, and no public filing of the trust or of an estate
What about “death” taxes?
“Death” taxes can consist of either estate taxes or inheritance taxes. Bequests and inheritances are not income for income tax purposes. Estate taxes are imposed on the value of one’s holdings at death, usually including both probate and non-probate assets, before distribution to heirs or beneficiaries. Inheritance taxes are imposed on the recipient of a bequest or inheritance, not on the estate.
Imposition of these taxes to some extent depends on the state of your residence and the familial relationship of the recipient of your assets. Historically, there has been a large exemption before federal estate taxes are imposed, but in some states, like Maryland, there is a much smaller exemption for estate taxes.
What is a Durable Power of Attorney?
This is a document in which you designate an agent to sign documents for you, and otherwise act on your behalf if you are ill or incapacitated or otherwise unable to act on your own behalf.
What happens to jointly held property?
Bank accounts, real estate, and other assets that are held as joint tenants with another person or as tenants by the entirety with a spouse, do not pass under a will or intestate succession statute. These assets automatically become the property of the surviving joint tenant/tenant by the entirety upon death. A will cannot change this distribution.
What about accounts or life insurance that designate a beneficiary?
It is common for an individual to name a beneficiary on a bank account, IRA, retirement account, or 401K. Once again, the institution will only pay the funds to the named beneficiary. A will or trust provision does not change such a beneficiary designation. One must go to the institution to change his/her beneficiary designation as desired.
** DISCLAIMER: NO ATTORNEY-CLIENT RELATIONSHIP CREATED: use of this information does not create an attorney-client relationship. This document is not intended as a solicitation, nor should any information provided be considered legal advice. **
