What do Estate and Trust lawyers do? Estates and Trusts lawyers i) create, administer, and terminate trusts, and; ii) properly plan for, distribute and protect the assets of a person after their death to maximize the benefits their client’s beneficiaries receive. This includes drafting documents that protect assets against lawsuits, protect assets against taxes, and address healthcare planning issues.
The first thing this type of lawyer does when a client walks into their office is to come up with a plan of what the client actually needs. But to do that the lawyer needs to find out more information about the client’s family and economic situation.
Information including but not limited to; is the client married? Does the client have any children and if so how many? Are they younger children or older children? Do the children have any mental or physical incapacity issues? Where does the client work? What does the client do for a living? What is the client’s yearly income? Does the client own a home? Does the client have multiple bank accounts, retirement funds? What about any stock or other investments?
Often the Estate and Trusts Lawyer will have a questionnaire for the client to fill out that has all the important questions and space for the client’s answers.
1) Last Will and Testament
2) Living Will & Advanced Directive
3) Power of Attorney
4) Various Trusts
The Will is the document that specifies the details of who inherits the client’s property once they die, and who will be in charge of disbursing the assets pursuant to the terms of the will. (This person is otherwise known as the executor.)
The will addresses all of the following concerns:
1) The name and address of the person signing the will (otherwise known as the testator).
2) Who controls the estate after the testator dies? This is the person referred to as the executor of the will and who will handle the instructions pursuant to the will.
3) Who will be the guardian of the testator’s children if the testator dies before his/her children reach adulthood?
4) Does the Will instruct the executor to create any testamentary trust? And if so who will be the trustee of those trusts? (More on this later.)
5) Who are the beneficiaries of the assets of the estate? Also if the beneficiaries are minors how will the assets be distributed to them? Will a trust be formed by the executor to take care of the children? And if so who is the trustee? Also in many instances the testator may want to exclude certain people from their Will.
The Will may contain a testamentary trust which is a trust that is not created until after your client has deceased and the will instructs the executor to create the trust. You will see this type of trust generally used for beneficiaries who are minors, or for those who have special needs and cannot take care of themselves, such as those beneficiaries with mental handicaps.
If someone dies without a will, the assets of the estate are distributed pursuant to the law of the state where they died, which may conflict with the testator’s wishes.
The two most important documents regarding incapacity planning are; 1) Power of Attorney, 2) Living Will & Advanced directive. These documents come up in a situation where the testator is still alive, but unable to make rational decisions to take care of themselves and make decisions concerning their finances and medical issues. Further, usually these documents have language that they do not become effective until the testator has become “Incapacitated” and this is an actual legal standard.
This can be one document in some states and separated into two documents in other states. What is the Living Will? The Living Will is a document that specifies your clients intentions pertaining to what medical procedures and care they do or do not want to receive if they cannot make those decisions themselves. The Living Will addresses the issue of what happens when the client has some sort of accident and is now lying in a vegetative state, unable to make medical decisions for themselves. Part of the Living Will is usually a Health Care Proxy. This is another form of advance directives where the client will specify a person who will make their medical decisions if and when the client is mentally incapable of making medical decisions for themselves. The document will specify whether or not the client wants to remain on life support or have other sorts of invasive procedures conducted.
Often a Living Will comes into play where a the testator is on life support. The person appointed in this capacity usually will be required to make a decision to take the testator off life support. The Living Will offers guidance regarding the testator’s last wishes in terms of to what degree and for how long they are willing to be on life support.
Again the legal requirements for proper Living Will vary from state to state.
Whereas the living will and advance directive concern health care decisions, the power of attorney document generally concerns financial decisions. With a power of attorney client will specify which person is permitted to make financial decisions for the client. There are two main types of powers of attorney, 1) durable power of attorney, and 2) the springing power of attorney.
The durable power of attorney. The durable power of attorney becomes effective as soon as the document is signed by your client. That means that the person designated in the durable power of attorney can legally enter into contracts, use bank accounts, and handle all financial matters for your client as soon as the document signed. The durable power of attorney is often used with clients who are elderly and starting to show signs of diminished mental capacity.
The other type power of attorney, the springing power of attorney is very similar to the durable power of attorney however the financial powers provided to the designee by the client do not become operable until the client becomes mentally incapacitated. However, it is important to note as an estate lawyer that a person needs to be declared incapacitated before this power of attorney becomes effective. The standard for same varies by state to state but generally requires a declaration of incapacity by a Doctor.
This is a different document from a Living Will as it is merely a directive to medical staff that the testator shall not be resuscitated they should experience a medical event where their heart stops.
Tax planning is a major activity for what Estate and Trust lawyers do on a daily basis. The reason is because of estate tax laws. Basically, when someone dies all of their assets transferred to an estate. The estate is a separate legal entity which technically owns all of the assets and interests of the recently deceased. The property and assets in the estate are then subject to what is referred to as the “estate tax”. Upon distribution of those assets, there is both a federal estate tax and state level estate taxes. But estate taxes are only triggered if the amount or value of the estate exceeds a certain level. The goal of estate trusts lawyers in this realm is to try and take out as many assets from the estate as possible to then fly under the estate tax minimum.
A will has to be probated, which is the process of determining the legal validity of the will and either approving or denying the appointment of an executor. Once a will is approved or “probated” the will is a legal document and the executor now has the power to manage the estate and sell or give away the property of the estate.
What is the process of Probate? It all depends on the state and county where the deceased client resided, but generally the executor will go down to the county clerk with the original copy of the will and a copy of the death certificate and possibly a formal written petition to have the will approved and the named executor appointed. Of course some states make this process easier than others, with the main differences being the required standard and proofs to ensure the will is authentic. Assuming that the executor is successful the court (or the county clerk) will provide an order (or another form of legal authorization) approving the will and appointment of the named executor, and now the will is technically “admitted" to probate.
A trust is a legal entity created to hold legal ownership of property on behalf of a beneficiary named in the trust document. A person, bank, or law firm is named in the trust document to manage the assets (or property in the trust), and is referred to as the "trustee," of the trust. The trust document will specify the rules by which the trustee operates the trust, any property or assets conveyed to the trust technically become the property of the trust, and the assets can only be distributed by the trustee per the terms of the trust document.
Choosing the proper trust. Trusts are not just for the very wealthy. Trusts can protect assets from creditors, address disability concerns, address tax or probate issues. First you need to get a sense of the client’s objectives, an understanding of their financial situation, and how the family generally interacts together. There are many different types of trusts, and many different variations of each type. Keep in mind trusts for large estates can be very complicated and we are only covering some of the basics here.
Testamentary Trusts - As we previously discussed, a testamentary trust is a trust created by instructions as described in a will, and thus does not become created until the client has died. This type of trust is often used when your client has young children (or young adults) and the client does not want the child to directly receive all the money from the estate.
Inter-Vivos Trusts - Trusts that are not created pursuant to the terms of a will are called inter vivos trusts. These are created during the client’s lifetime and their existence becomes immediate. An inter vivos trust is very popular in states that have difficult probate procedures, because the assets in an inter vivos trust generally are not included in the estate of the deceased. Also, such trusts are effective tools for avoiding the estate tax, and save your client’s beneficiaries a lot of money which would otherwise have gone to the government.
Revocable trusts and irrevocable trusts are the two main kinds of inter vivos trusts.
Revocable or Living Trusts - Often called Living trusts, revocable trusts allow your client to maintain complete control over the trust assets and the client may revise, revoke or terminate the trust and receive the assets back. This is the key here… the client can get the assets or property they put into the revocable trust back at any time and as a consequence of this fact the assets held in this type of trust WILL be included in the client’s estate and thus WILL be subject to the estate taxes.
Irrevocable Trusts - Unlike a living or revocable trust, if your client creates and puts property into an irrevocable trust, your client will NOT be able to change the terms of the trust OR get the property placed in the trust back. However, there is a major benefit, generally speaking these types of trusts are used for protecting assets from the estate tax because when your client dies the assets of the trust will not be included in your client’s estate. This is a great way to save your client big money.
Special Needs Trusts - Special needs trusts – this type of trust is designed to care for people that have special needs… children who will not be able to take care of themselves or elderly person, or someone who is mentally handicapped. Usually the trust document will specify that the income form the assets owned by the trust can only be used for the health, safety and welfare of the beneficiary.
Credit Shelter Trusts - Credit shelter trusts are designed to maximize the estate tax exclusionary amount. The first $5 million (at the time of writing of this tutorial) of an estate are exempt from federal estate taxes. Let’s say that you have a husband and wife client who has 11 million dollars in assets. If you include credit shelter trusts as part of both of their wills, and you properly design the trust, only 1 million dollars of the 11 million dollars will be subject to the estate tax.
Asset Protection Trusts. Trust that provides assets to be administered to protect the assets from judgments, estate taxes and other protections. The key component to the trusts such as these are preventing the beneficiary from having power of the assets. The original personal contributing has no power over how the distributions are made once the trust is formed.
Other Miscellaneous types of trusts…
1) Q tip trust
2) Charitable Remainder Trust
3) Unified Credit Trust
4) Grantor Retained Annuity Trust
5) Life Insurance Trusts
6) QPERT Trust (Qualified Personal Residence Trust)
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