When preparing an estate plan, there are many things to consider. Our job is to guide you through all of the steps and considerations so that we develop and execute the most advantageous estate plan for you. Here are some issues to consider:

Do I need a will or a trust?

Unless you have no assets of any kind, the answer is yes. If you die without a last will and testament or a revocable living trust, state law will control the disposition of your individually held property. Settling your estate without a will or trust will be more troublesome and more costly, and it will be burdensome for your loved ones. Additionally, in a will or a trust, you get to choose who will administer your estate or trust; contrarily, if you do not have at person designated in your will or trust, you might have someone whom you would not want being in charge of your estate.

Who should inherit my assets?

If you are married, you must first consider a few things: (1) in Maryland, you cannot disinherit a spouse (meaning he/she is entitled to a portion of your probate estate), (2) is this your first, second, third or subsequent marriage, and (3) are there any prenuptial agreements that need to be recognized? States have different laws designed to protect surviving spouses and it is important to speak with your attorney to see if any apply to your situation.  If you die without a will or trust, state law will dictate how much passes to your spouse.

Once you’ve considered your spouses rights, ask yourself these questions:

  • Should your children share equally in your estate?
  • Do you wish to include grandchildren or other beneficiaries?
  • Do you have step children?
  • Do you have beneficiaries who are financially irresponsible?
  • Do you have beneficiaries who have special needs (i.e., are disabled)?
  • Would you like to leave any assets to charity?

Which assets should they inherit?

You may wish to consider special questions when deciding which assets your beneficiaries should inherit, such as:

  • Who are your beneficiaries? Who do you wish to receive assets, and in what amounts?
  • If you own a business, should the stock pass only to your children who are active in the
    business? Should you compensate the other children with assets of comparable value?
  • If you own rental properties, should all beneficiaries inherit them? Do they all have the ability to manage property?
  • If you own art or other items, do these have a special meaning for certain beneficiaries?

When and how should they inherit the assets? 

To determine when and how your beneficiaries should inherit your assets, you need to focus on three factors:

  • The potential age and maturity of the beneficiaries
  • The financial needs of you and your spouse during your lifetimes
  • Tax implications

What is the difference between a last will and testament and revocable living trust?

Two primary documents can be used for transferring your assets on your death: a last will and testament or a revocable living trust. The primary difference between them is that a will directs the transfer of assets once a person dies and the personal representative (executor) is in charge of carrying out the decedent’s wishes whereas a revocable living trust is created while the Grantor (the person who makes the trust) is alive and assets placed in your revocable living trust while you are alive, and all assets in the trust avoid probate at your death.  Your designated Trustee administers the assets in the trust when a person passes.  Trusts also allow for continuity of asset management and expedient administration.  If a person owns property outside of the state of Maryland, one should really consider a revocable living trust so that he/she can avoid probate in two or more states when he/she passes away.

Neither a will nor the revocable living trust eliminates estate taxes; however, if an individual has an estate tax problem, a properly drafted trust can help minimize estate tax exposure. Whether a will or a trust is better for you depends on your specific circumstances and preferences.

What is a last will and testament?

A last will and testament is a legal document that outlines what you wish to happen to your estate and assets upon your death. A will serves two basic purposes: to direct the disposition of your assets upon your death, and to nominate and appoint your personal representative.  Your personal representative (more commonly known as an executor) is the person who administers your estate when your not here anymore. There are two things to remember when it comes to wills: (1) A will only governs assets held in your sole name at the time of your death, and (2) All wills must be probated.

What is probate?

Probate is the process where the orphans’ court oversees the transfer of your assets to your beneficiaries in accordance with the terms of your will or the intestacy laws.  Additionally, during the probate process, creditors of the decedent have the right to assert claims against the estate to be repaid.  Also, probate is a public process where any member of the public can see your will or your estate assets once you pass away.

What is a trust?

A trust is a legal agreement where a Grantor transfers his or her assets to the trust to be managed by a trustee.  A Trustee can be either a person (i.e., the grantor himself or herself, a child, friend, attorney, CPA, etc.) or an institution (i.e., a bank or trust company).  This Trustee holds legal title to property for the benefit of a third party, called a beneficiary. The rules or instructions under which the trustee operates are set out in the trust instrument.

Depending on your situation, establishing a trust may be beneficial to you. First and often the most known advantage of a trust is probate avoidance—any property in the trust prior to the grantor’s death passes immediately to the beneficiaries. This can save time and money.
Certain trusts can also result in tax advantages both for the grantor, the surviving spouse, and the beneficiary. These are often referred to as “credit shelter,” “marital trusts,” “supplemental or special needs trusts,” or “separate share trusts.” Other trusts may be used to protect property from creditors or to help the grantor qualify for Medicaid or other entitlements.

Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust are privy to the trust assets and distribution. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the grantor dies or becomes incapacitated.

Trusts fall into two basic categories: testamentary and living trusts.

A testamentary trust in one created by your last will and testament, and it does not come into existence until you die. In contrast, a living trust starts during your lifetime. There are two kinds of living trusts: revocable and irrevocable.

What is a revocable living trust?

Revocable trusts are often referred to as living trusts because they are in effect during the grantor’s lifetime. With a revocable living trust, the grantor maintains complete control over the trust and may amend, revoke, or terminate the trust at any time. Revocable living trusts are generally used for asset management, probate avoidance, and tax planning.

Revocable living trusts can be useful when the beneficiaries are young or immature, when you own real estate outside the state of Maryland, or when your estate is large enough to cause tax consequences.

What is an irrevocable living trust?

Subject to certain exceptions, an irrevocable living trust cannot be changed or amended by the grantor. Any property placed into the irrevocable living trust may only be distributed by the trustee as provided for in the trust document itself. For instance, the grantor may set up a trust under which he or she will receive income earned on the irrevocable living trust property but that bars access to the principal.

Special irrevocable asset protection trusts are commonly used for long-term care and Medicaid planning.

What is a testamentary trust?

A testamentary trust is a trust created by a last will and testament and has no power or effect until the will is probated. Although a testamentary trust will not avoid the need for probate and will become a public document, it can be useful in accomplishing other estate planning goals. For example, a testamentary special needs trust can be used to provide for the care of a disabled spouse or child after the assets are probated and can ensure that those assets are protected if the spouse or child is receiving entitlement benefits like SSI or Medicaid.

What is a supplemental needs trust and special needs trust?

The terms supplemental needs trust and special needs trust are synonymous.  A supplemental needs trust enables the grantor to provide for the continuing care of a disabled spouse, child, relative, or friend. The beneficiary of a well-drafted supplemental needs trust will have access to the trust assets for purposes other than those provided by public benefits programs. In this way, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid, and low-income housing. A supplemental needs trust can be created during life or as part of a will.

What is a credit shelter trust and a marital trust?

Credit shelter trusts are a way to take full advantage of the estate tax exemption. For federal purposes, roughly the first $5.5 million of an estate is exempt from taxes, so theoretically a husband and wife would have no estate tax if their estate was less than $11 million. However, if one spouse dies and leaves everything to the surviving spouse, the surviving spouse may have an estate that is greater than $5 million. When the surviving spouse dies, any part of the estate over $5 million will be subject to estate tax.

To avoid this, the spouses can create a credit shelter trust as part of their estate plan. When one spouse passes away, the first $5.5 million of that spouse’s estate is put into a the credit shelter trust. The surviving spouse and any other beneficiary can receive income and principle from the trust without any estate tax consequences.  If there is an excess of $5.5 million, then the excess can be placed in a marital trust to be held for the benefit of the surviving spouse only.  The reason it can be held for only the surviving spouse is because it has not been subjected to the estate tax.  Once the surviving spouse dies, any amount left in the marital trust will be subjected to the estate tax.

What does an executor, personal representative, or trustee do?

Whether you choose a will or trust, you will need someone to administer the disposition of your estate—a personal representative (more commonly known as an executor) in the case of a will, and a trustee in the case of a trust. This person or institution serves your interests and disposes your assets after your death and has several major responsibilities, including:

Administering your estate and distributing the assets to your beneficiaries
Making certain tax decisions
Paying any estate debts or expenses
Ensuring all life insurance and retirement plan benefits are received
Filing the necessary tax returns and paying the appropriate federal and state taxes.

How do I select an executor, personal representative, or trustee?

A trusted individual, such as a family member, friend, or professional adviser, or an institution, such as a bank or trust company, can serve in these capacities.

When choosing your personal representative or trustee, be sure to select someone who is willing to serve, who is financially competent, and most importantly, someone you trust.  If you could not envision this person taking over your finances while you are alive and managing your assets for your benefit, then they shouldn’t be in charge when you are gone! The job isn’t easy, and not everyone will want or accept the responsibility. Provide for an alternate in case your first choice is unable or unwilling to perform. Naming a spouse, child, or other relative to act as personal representative or trustee is common, and often times, he or she hires an attorney and other professionals to help guide them through the process.

Also make sure your personal representative or trustee doesn’t have a conflict of interest. For example, think twice about choosing an individual who owns part of your business, a second spouse, or children from a prior marriage. It is not uncommon for a business co-owner to not agree with a surviving spouse, or a stepparent to not agree with stepchildren.

Do I need to select a guardian for my children?

If you have minor children, you will need to select a guardian as part of your estate plan. The well-being of your children is likely one of your highest priorities, and there are serious financial, emotional, and practical issues to consider:

  • Will the guardian be capable of managing your children’s assets?
  • Does the prospective guardian responsibly manage their own assets?
  • Will the guardian be financially strong? If not, consider compensation.
  • Will the guardian’s home accommodate your children?
  • How will the guardian determine you children’s living costs?

You can name separate guardians for your child and trustees for his or her assets. Taking the time to name a guardian or guardians now ensures your children will be cared for as you wish if you die while they are still minors.

Who should draw up my estate plan?

Only an experienced attorney who focuses on trusts and estates should draft your documents. A seasoned attorney can ensure that you have considered every option and that your will or trusts are designed with the utmost care and attention, with your specific needs and goals in mind. In addition, your attorney represents an ongoing relationship and a point of contact during a delicate time period, and will be there for you should a crisis occur.

If you would like to schedule an appointment to discuss your specific needs, please contact us today.