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Probate Information

Frequently Asked Questions covered by this section: What is Probate?

Upon death, your will goes through probate. Probate simply means the process by which your last will is determined to be your final dispositive statement and which confirms the appointment of the person or institution you have named to administer your estate. The term probate is also used in the larger sense of probating your estate. In this sense, probate means the process by which assets are gathered, applied to pay debts, taxes and expenses of administration, and distributed to those designated as beneficiaries in the will.

The executor or personal representative named in the will is in charge of this process, and probate provides an orderly method for administration of the estate. The executor is held accountable by the beneficiaries (and sometimes is supervised formally by a probate court). The executor is entitled to a reasonable fee or commission. Probate law generally encourages or provides for partial distribution during the period of administration; assets may generally be distributed in kind rather than sold during this time. The tax laws generally focus the responsibility for death tax filings and payments on the executor under a will. Thus, the choice of an executor is an important one.

The basic job of administration and accounting for assets must be done whether the estate is handled by an executor in probate or probate is avoided. In the recent past, lawyers and other professionals have advocated the use of probate avoidance techniques (including revocable trusts) in states where the probate process was perceived as being too slow and too costly. Many states have simplified or streamlined their probate processes over the years. In such states there is now less reason to employ such probate avoidance techniques.

How is the Will probated?

The following is a VERY simplified outline the general probate process:

(1) The original of the Will is deposited with the Court (if any).

(2) The filing of the Petition for Probate first needs to be published in a local newspaper, before the Executor named in the Will (if one exists) or Administrator (if there is no Will) is appointed. Executors and Administrators are commonly referred to as Personal Representatives, so from this point forward in our outline, we will refer to Will Executors and Administrators simply as Personal Representatives.

(3) The Personal Representative then files a Petition for Probate of the Estate. Generally, for a period of four months from the date of publication of the Petition for Probate, creditors of the Estate can file claims against the Estate. This would include any prior creditors or judgment holders, debts resulting from last illness, funeral expenses, taxing authorities, etc.

(4) During this time period, the Personal Representative has to identify and collect assets of the Estate. To do this, the Personal Representative finds all bank and security accounts, debts owed to the Decedent, property owned by the Decedent, etc. The Personal Representative also has to maintain the assets in good condition, and to collect income for the Estate. This consists of maintaining insurance coverage, collecting rent, protecting assets from theft or damage, etc. The Personal Representative may also liquidate assets such as cars, real estate, etc.

(5) When the four month Claims period has expired, and when all assets have been collected, real property sold, and assuming no problems have presented themselves such as the Will being contested, the Personal Representative then files a petition with the probate court to allow a distribution of all remaining assets to the beneficiaries/heirs, and files a detailed accounting with the Court setting forth all monies received, monies disbursed, how assets were invested, and the proposed plan for distribution.

(6) If the Court approves the plan, the Personal Representative then divides the assets as instructed in the Will, or as required by statute if no Will exists. The minimum amount of time that the probate process can be completed is approximately six months, but it normally takes longer. Reasons for delays can include Will contests, property cannot be sold, one or more claimants not being notified in the original four-month Claim period so they end up having to be re-noticed, etc. This is among the reasons why it is important to have a good probate attorney; it reduces the chances of complications during the probate process.

Why is Probate necessary?

The primary function of probate is transferring title of the decedent's property to his heirs and/or beneficiaries. If there is no property to transfer, there is usually no need for probate.

Another function of probate is to provide for the collection of any taxes due by reason of the deceased's death or on the transfer of his or her property.

The probate process also provides a mechanism for payment of outstanding debts and taxes of the estate, for setting a deadline for creditors to file claims (thus foreclosing any old or unpaid creditors from haunting heirs or beneficiaries) and for the distribution of the remainder of the estate's property to ones' rightful heirs.

Does all of the decedent's property have to go through probate?

No. Some process is a must to transfer legal title from the deceased's own name to his or her beneficiaries or heirs. Most states also allow a limited amount of several types of property to pass to certain beneficiaries free of probate, or through a simplified probate procedure.

Real and personal property owned as a joint tenant passes to the surviving co-owners without going through probate.

Other types of benefits, such as a life insurance policy or annuity payable directly to a named beneficiary bypass probate. Money from IRAs, Keoghs, and 401(k) accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death account (POD for short) or an "in trust for" account (a "Totten Trust") with a named beneficiary also pass to that beneficiary without probate.

If a Living Trust holds legal title to some of your property, that also passes to the beneficiaries without probate. (The Trust is a legal entity which survives you after your death.)

Where is Probate handled?

Probate usually occurs in the appropriate court in the State and County where the deceased permanently resided at the time of his or her death. Such courts go by different names in various states. In many states the court is simply called the Probate Court. However, in some states they go by different names. In New York, for example, the probate court is known as the Surrogate's Court while in California it is the Superior Court, Probate Division.

The probate court usually handles all the personal property the deceased owned, plus all of the real estate that the deceased owned that is located in that same state.

What if the decedent owned land in more than one state?

The laws of the state in which the deceased was a permanent resident or "domiciliary" govern who would receive all the deceased's personal property, wherever it was located, and all the deceased's real property located within the state. Thus probate almost always is undertaken in the home state.

If the decedent owned out-of-state real property, the laws of the other state govern who gets it (unless there is a Will). If there is a Will, after it is admitted to probate in the home state, it is usually must be submitted to probate in the other jurisdiction in which the deceased owned real property. That separate probate procedure is formally referred to as "ancillary probate". Some states insist upon the appointment of a Personal Representative who is a local resident to administer the in-state property.

If there is no Will, Probate is usually required in each state where the real property is situated, in addition to the home state. Each state will have its own unique pattern for distributing the deceased's real property. The real estate in State A all might go to the spouse, in State B it might go 1/3rd to the spouse, 1/3rd to the son and 1/3rd to the daughter, and in State C it might go 1/2 to the spouse and 1/4 each to the son and daughter.

Do we have to go through probate if there is a will? Why can't we just distribute the assets as the will says?

Generally it is necessary to go through probate or, in the case of smaller estates, a less formal procedure that is still under the general supervision of the probate court, before the deceased's property can be legally distributed.

Even if a person dies with a Will (which is known as dying "testate"), a court generally has to have an opportunity to allow others to object to the Will, and if there are any objections, to determine if the Will is valid, because it is always possible that

(1) there was a later Will (which, if valid, would replace the older Will), or

(2) the Will was made at a time the deceased was not mentally competent to make a Will, or

(3) the Will was the result of fraud, mistake or "undue influence" or

(4) the Will was not properly "executed", or

(5) the so-called Will is actually a forgery, or

(6) for some other reason (such as a pre-existing contract) the Will is not fully valid, or

(7) there are other claims against the deceased's estate that impact what the beneficiaries under the Will would receive.

For example, if the deceased owned real estate in his own name, no knowledgeable outside person would accept title to the property, and no bank would lend a new buyer mortgage money on it, unless the estate went through probate so "clear title" could be given the new buyer. Similarly, few outsiders would enter into any other transactions involving the deceased's property before the Will is "admitted to probate" and/or someone is lawfully appointed to act for the estate.

Who is responsible for handling the probate process?

The Personal Representative (sometime also referred to as the "executor" or "executrix" if there is a Will, or the "administrator" or "administratix" if there is no Will) is appointed as part of the probate proceeding and has the responsibility for managing the estate through the proceeding, subject to established probate rules and procedures.

In many states, the probate court has a considerable amount of control over the activities of the Personal Representative, and requires that she or he obtain prior permission of the court before certain actions, such as the sale of real estate or business interests owned by the estate, may take place.

What are the main duties of a personal representative?

The main tasks of a Personal Representative are to:

(1) determine if there are any probate assets;

(2) identify, gather, and inventory the assets of the deceased;

(3) receive payments due the estate, including interest, dividends, and other income (e.g., unpaid salary, vacation pay, and other company benefits);

(4) set up a checking account for the estate;

(5) figure out who is going to get what and how much under the Will (if there is no Will, the state's "interstate succession laws" apply);

(6) value or appraise the estate's assets;

(7) give legal notice to potential creditors (the procedure and deadlines for creditors to file claims vary from state-to-state);

(8) investigate the validity of all claims against the estate;

(9) pay funeral bills, outstanding debts, and valid claims;

(10) pay the expenses of administrating the estate;

(11) handle various paperwork, such as discontinuing utilities and charge cards, and notifying Social Security, Civil Service, and Veterans Administration of the death;

(12) file and pay income and estate taxes;

(13) distribute the remaining property in accordance with the instructions provided in the deceased's Will; and

(14) close probate.

I was named as the executor in my sister's will. Do I have to serve?

No, it is your choice to serve or decline to serve. If you choose to serve as Personal Representative you can later resign, although you may have to provide an "accounting" for the period you served. If you decline to serve, or resign after serving, the alternate Executor named in the Will typically is then appointed by the probate court.

If no alternate is named in the Will, or the named alternates die or are unwilling to serve, or a person dies without a Will, the probate court will appoint someone to serve.

Unless state laws require that another family member or beneficiary wishing to serve be appointed, and such family members or beneficiaries are qualified, willing to serve and readily available, it is not unheard of for a probate court to select a "political crony" or a trust company that has made contributions to the judge or her political party to serve as the Personal Representative as the fees sometimes can be quite lucrative.

If I serve as an executor, do I get paid?

Yes. In addition to all out-of-pocket expenses in managing and settling the estate, Personal Representatives generally earn a fee of about 2% of the probate estate for their work. (This varies moderately from state to state, and generally decreases as a percentage as the size of the estate increases.)

All fees and reimbursed expenses are subject to court approval. Additional fees may be allowed by the court in cases of unusual difficulty or extraordinary circumstances. On the other hand, if a Personal Representative is derelict in duty, the court may reduce or deny compensation, and the Personal Representative may be held responsible for any damages s/he caused.

If a person is both the sole beneficiary of the estate, and the estate is not subject to Federal Estate Tax, it usually does not make sense to take any fees as all fee income is subject to income tax. (The money a beneficiary receives from the estate is income tax free.)

What happens if the personal representative fails to perform his or her duty?

An executor or administrator who is derelict in his or her duty is personally liable for damages caused in the administration of the estate.

Liability may arise from improperly managing the assets of the estate, failing to collect claims and moneys due the estate, overpaying claimants, selling an asset without the authority to do so, or at an inappropriate price, neglecting to file tax returns on time, distributing property to the wrong beneficiaries, etc.

This means that the Personal Representative might wind up paying for the loss out of his or her own pocket.

What goes on in the probate of an uncontested will?

Typically the person named as the deceased's Personal Representative (a more formal term is "Executor" or "Executrix") goes to an attorney experienced in probate matters, who then prepares a "Petition" for the court and takes it, along with the Will, and files it with the probate court.

The lawyer for the person seeking to have the Will admitted to probate typically must notify all those who would have legally been entitled to receive property from the deceased if the deceased died without a Will, plus all those named in the Will, and give them an opportunity to file an formal objection to admitting the Will to probate.

A hearing on the probate petition is typically scheduled several weeks to months after the matter is filed. Depending on the state, and sometimes who the named beneficiaries are, how long before the death the Will was signed, whether the Will was prepared by an attorney, who supervised the "execution" of the Will, and/or whether the Will was executed with certain affidavits, it may be necessary to bring in the persons who witnessed the deceased's signature on the Will.

If no objections are received, and everything seems in order, the court approves the petition, appoints the Personal representative, orders that taxes and creditors be paid, and requires the Personal Representative to file reports with the court to assure all the deceased's property is accounted for and distributed in accordance with the terms and conditions of the Will.

Can I handle probate without a lawyer?

While there is no requirement to use a probate lawyer, probate is a rather formalistic procedure. One minor omission, one failure to send Great Aunt Maggie a copy of the petition, or a missed deadline, can cause everything to come to a grinding halt or expose everyone to liability.

The death of a family member or friend sometimes tends to bring out the very worst in some people. Experience shows that even in close families there is a tendency to get overly emotional about relatively trivial matters at the time of a loved one's death, such as who gets the iron frying pan and who gets the kettle. Such minor matters, or any delays or inconveniences can be upsetting, pose issues of fairness, and create unfounded suspicion among family members. Thus it generally is a very good idea to "let a lawyer do it".

What if someone objects to the will?

If someone files an objection to the Will, or produces another Will, what is known as a "Will contest" has begun. While Will contests are not that rare, and while few people actually win one, they can be extraordinarily costly and create incredible delays.

It is not just anyone that can contest a Will. For example, if you feel your recently deceased next door neighbor's out of state children are awful people who didn't give her proper respect and they do not deserve to get anything, that does not cut it. To properly contest a Will a person must have "standing" to object.

If, a person has proper standing to contest a Will -- such as a child who was cut out of the Will by an angry parent, or even by a kindly parent who felt that the local charity, not his children, should get his assets, that child would have standing to bring a "Will contest". If a Will gives the one sibling 2/3rds of a parent's estate and the other 1/3rd, the one receiving less has standing to bring a Will contest. Similarly, if a later Will is less favorable to someone than an earlier Will, or no Will at all, that person has standing. A Will contest sometimes is launched to have a different person, bank or trust company serve as Personal Representative for the estate, or as a trustee of Trusts created by the Will.

What is the basis for a will contest?

Most of the challenges to invalidate Wills are by potential heirs or beneficiaries who got little or nothing. Questions on the validity of a Will must be filed in probate court within a certain number of days after receiving notice of the death or petition to admit the Will to probate.

The typical objections and unhappiness is not one of them are:

(1) the Will was not properly drawn, signed or witnessed, according to the state's formal requirements;

(2) the decedent lacked mental capacity at the time the Will was executed;

(3) there was fraud, force or undue influence; or

(4) the Will was a forgery.

If the Will is held invalid, the probate court may invalidate all provisions or only the challenged portion. If the entire Will is held invalid, generally the proceeds are distributed under the laws of intestacy of the probating state.

Needless to say, if there is even the possibility of a Will contest, an experienced probate lawyer is a must.

What if there is no will?

If a person dies without a Will (known as dying "intestate"), the probate court appoints a Personal Representative frequently called an "Administrator" or "Administratix" to receive all claims against the estate, pay creditors, and then distribute all remaining property in accordance with the laws of the state.

The major difference between dying testate and dying intestate is that without a valid Will an intestate estate is distributed to beneficiaries in accordance with the distribution plan established by state law; a testate estate is distributed in accordance with the instructions provided by the decedent in his/her Will.

What happens if a will cannot be found?

Missing Wills raise all sorts of interesting legal issues which often turn on the specific facts and circumstances, and the law of the state in which the deceased resided.

The Will may be missing because the deceased intentionally revoked it, in which case, depending on state law, an earlier Will or the state's rules on interstate succession would determine who gets the deceased's estate.

Alternatively, the Will may be missing because it can be proven the Will was stored in a bank vault that was destroyed in an explosion and fire. In that case the probate court may accept a photocopy of the Will (or the lawyer's draft or computer file), together with evidence that the deceased duly signed the original.

How can I find out if there was a will?

The first place to check is with the probate court in the County of the State where the deceased lived. In almost every case the Will, if filed, will be available to the public.

Anyone can get to see it, and for a modest fee, obtain a copy. If you are far away, a local lawyer or legal service bureau often can arrange to do a search and get a copy for you, at a relatively modest fee.

The fact that a person died -- even if he or she "owned" substantial assets -- does not mean that he or she actually had a Will, or that the Will was duly filed with the Court. In fact, if the deceased held property exclusively through a Living Trust, or a joint ownership arrangement, there may not have been a need to file a Will, because the Trust did not "die" with the individual, and with certain forms of joint ownership, the property usually passes to the other joint owners automatically, by operation of law.

How much does probate cost?

The cost of probate may be set by state law or by practice and custom in your community.

When all the costs are added up - and the costs may include appraisal costs, executor's fees, court costs, costs for a type of insurance policy known as a "surety bond", plus legal and accounting fees, probate can easily cost from 3% to 7% of the total estate value, and more. If there is a "Will contest" all bets are off.

How long does probate take?

The duration varies with the size and complexity of the estate, the difficulty in locating the beneficiaries who would take under the Will, if there is one, and under state law.

If there is a Will contest, or anyone objects to any actions of the Personal Representative, things can really drag out. Some matters have taken decades to resolve.

How can I avoid probate of my estate?

One approach to reduce or eliminate the need for probate is through use of a Living Trust that holds legal title to some or all of your property at the time of your death. The Trust is a legal entity which survives you after your death.

My relative left only a very small estate. Is there anything easy?

Some states have what they think are "simplified procedures" to handle certain estates whose value is below certain dollar limits. The limits may be as low as $5,000 or as high as $100,000, depending on the state.

Whether the simplified procedure is available or even appropriate given the particular circumstances is something that a lawyer can discuss with you. For example, if there are debts against the estate, it may make sense to go through regular probate processes.

How are estate creditors handled?

As part of the probate process, creditors are notified of the death (specific requirements for notification vary from state-to-state, and may vary from a personal letter to a notice published in an obscure weekly newspaper).

Creditors must file a claim for the amounts due within a fixed period of time to either the personal representative or, in some states, with the court. If the claim is approved by the executor, the bill is paid out of the estate. If the claim is rejected, creditors must sue for payment.

If there are insufficient funds to pay debts, states have statutes of one kind or another establishing who gets paid first. Executors most likely will commence selling property to pay off approved creditor claims. Any claims remaining are pro-rated.

Do beneficiaries have to pay creditors out of their own pocket if the estate is insolvent?

Generally not. Just as you "can't take it with you" you just can't make others responsible for your general debts, at least without their consent. (Otherwise a person could run up lots of debts, name his worst enemy as his beneficiary, and saddle his enemy with those debts at his or her death.)

Unless the deceased had gifted away his or her assets to someone shortly before dying, or otherwise acted in concert with them to defraud his or her creditors, beneficiaries should not have any liability to the deceased's creditors just because they are beneficiaries. Of course, the Estate may not have anything left for them, but the beneficiaries would not be in the hole.

Of course, if the children or beneficiaries took any property or benefits from the deceased or the estate, or had assumed liability for care given the deceased, or guaranteed payment, they could be held liable for some or all of the deceased's debts separately, not because they are relatives or beneficiaries.

How are taxes handled in probate?

For federal and state tax purposes, death triggers two events:

(1) It ends the decedent's last tax year for purposes of filing an income tax return, and,

(2) It establishes a new, separate entity for tax purposes, the "estate."

For Federal tax purposes, it may be necessary to complete and file one or more of the following, depending on the decedent's income, the size of the estate, and the income of the estate:

(1) Final Form 1040 Federal Income Tax return.

(2) Form 1041 Federal Fiduciary Income Tax returns for the estate.

(3) Form 709 Federal Gift Tax return(s).

(4) Form 706 Federal Estate Tax return.

For state purposes, an executor must file the appropriate state income tax return (assuming the decedent was required to do so while living) and any state income tax returns during the probate period, plus possible estate tax, inheritance tax and gift tax returns. (In many states, gift, estate and inheritance taxes have been eliminated for most small and medium-sized estates.) The requirements for filing and payment vary widely from state-to-state.

Other taxes require the attention of the personal representative in the probate process, such as local real estate and personal property taxes, business taxes, and any special state taxes.

The executor should also be alert to the possibility of issues arising from tax years prior to the decedent's death.



Wills

List of Frequently Asked Questions covered by this section: What is a 'will'? Is it the same as a 'last will and testament'?

A Will is a written document, generally prepared with the help of an attorney, which provides instructions for the disposition of a decedent's (dead person's) property. The term "Last Will and Testament" is simply a more complicated name for a Will.

Who should have a will?

Anyone who cares how his/her property is distributed upon his/her death, or who would handle matters for those she or he leaves behind, or be guardian for minor children. After all, "you can't take it with you".

Does a will cover all my property?

No. A Will does NOT cover all of what you may consider to be "your property". For example, if you own pension plan assets, or 401(k) plan assets, or life insurance, or annuities, or property held through a "Trust", such property and benefits would typically pass to the specific beneficiaries you have named with the manager of the pension plan, the company sponsoring the 401(k), each life insurance company, each annuity company, and in the Trust. Of course if the beneficiary of such assets is simply named as "my estate" then the Will would control who gets the property and benefits -- although this very often creates bad tax consequences and major delays and expense for your beneficiaries.

What is probate?

Probate is the process by which legal title of property is transferred from the decedent's estate to his/her beneficiaries. Since you can't take it with you, the court determines who gets it.

If a person dies with a Will ("testate"), the probate court determines if the Will is valid, hears any objections to the Will, orders that creditors be paid and supervises the process to assure that property remaining is distributed in accordance with the terms and conditions of the Will.

If a person dies without a Will ("intestate"), the probate court appoints a person to receive all claims against the estate, pay creditors and then distribute all remaining property in accordance with the laws of the state. The major difference between dying testate and dying intestate is that an intestate estate is distributed to beneficiaries in accordance with the distribution plan established by state law; a testate estate (after payment of debts, taxes and costs of administration) is distributed in accordance with the instructions provided by the decedent in his/her Will.

The cost of probate is either set by state law or by practice and custom in your community. The typical cost to probate an estate is in the range of 3% to 7% of the total estate value.

What can happen if I do not have a will?

If you die without a Will, you have died in testate. Your property must go through the probate process in order to have the legal title to the property transferred to your heirs at law. Your heirs at law are defined by applicable state statutes. The law of the state where you live controls the distribution of your personal property.

The rules for determining who gets property distributed from an in testate estate have many variations. Subtle differences between the rules states can have a material effect on who inherits when there is no Will.

An example of an in testate estate distribution rules, taken from the community property state of California, is:

If married, the spouse gets 100% of the community property, but only one-third or one-half of the separate property left, as children, parents, and any issue of children or parents, can share in the distribution.

If not married (this includes widows and widowers), the property is distributed to relatives in the following order:

(1) All to your issue - your children, grandchildren, great-grandchildren, etc., if there are any. If none, then,

(2) All to your parents (equally), or to the surviving parent, if any. If none, then

(3) All to the issue of your parents (your brothers and sisters, then your nieces and nephews, etc.). If none, then

(4) All to your grandparents (equally) or the surviving grandparent, or the issue of your grandparents (your aunts and uncles, then your cousins, etc.). If none, then

(5) All to the issue of any predeceased spouse (your step-children). If none, then

(6) All to your next of kin. If none, then

(7) All to the parents of a predeceased spouse (your mother- and father-in-law), or the issue of the parents of the deceased spouse (your brothers- or sisters-in law). If none of the above exist, then

(8) All to the State of California

In addition, in common with many other states, California has many special rules that apply to widow/widowers, half-siblings, children born out-of-wedlock, foster- and step-children.

The rules for in testate estates are very technical. The simple alternative is to control how your property is to be distributed, by preparing a valid Will.

When should a will be prepared and signed?

A Will needs to be prepared and properly executed (signed by the principal and witnesses) while you still have legal capacity.

Thus, anyone who wants a Last Will and Testament should have one prepared, and sign it in accordance with the applicable state law while s/he is healthy and has full control over his/her mental functions. If you wait until an accident or an illness strikes, it could be too late.

Why not wait until I am very ill?

We all put things off until tomorrow, but in the case of a Will, procrastination can be potentially disastrous and have major consequences. First, many people don't know when the end is coming. It just happens in an instant, perhaps in an auto accident or plane crash, or with a sudden heart attack. Even if a person gets a critical illness, he or she may be reluctant to prepare a Will fearing doing so will be a jinx. Of course illness or stroke, or medicine to relieve pain, may preclude a person from making a valid Will.

I want to update my will. How do I go about it?

There are two basic choices, and professional assistance is in order for both:

(1) You can prepare and properly execute a new Will that revokes the earlier Will, or

(2) You can prepare and properly execute a Codicil to the Will. (A Codicil is a separate document that adds to and/or replaces one or more provisions in an existing Will.

The approach that makes sense depends on the specific facts and circumstances. For example, there are sometimes tax provisions that grant a preference to provisions in old Wills, but not new Wills. Or there may be a possible question about your mental competence. In such a case a Codicil would generally make sense.

While Codicils were often used in the past, now lawyers use word processing programs which are able to quickly integrate any changes you want to make -- even minor revisions -- into a new Will that is up to date. The fee for such revisions is typically very modest, and the lawyer can suggest other possible revisions to take account of new statutes, tax regulations and changes in circumstances that you may have overlooked.

MAJOR WARNING. NEVER TRY TO MAKE CHANGES IN A WILL ON YOUR OWN! Writing in the margins, crossing out words, lines, or sections of the original Will invites confusion, potential ambiguity, and likely nasty and protracted Will contests.

Are 'death-bed wills' valid?

Although a hastily-drawn "death-bed" Will may be just as valid and binding, the closer to the death the Will is prepared the more likely it is to be challenged by a disappointed beneficiary. That could lead to a costly, protracted and family wrenching Will Contest, discussed later in this article, on the grounds that the person lacked mental capacity to make a Will or was subjected to undue influence.

A last minute Will also raises the potential hazard that hasty preparation may lead to errors, that the Will may not distribute the property in the manner that the person really wanted, or failed to take advantage of some features that can dramatically reduce the Federal Estate Tax, or that the Will would be found invalid because it does not conform to some legal requirement. "Haste makes waste" could cause your family heartache and major expense.

What is a 'holographic' last will and testament?

Some states allow you to hand write your Last Will and Testament. However, state law can be very particular with respect to holographic Wills; for example, California requires that all material provisions be written entirely by hand, and that the Will must be signed by the person making the Will.

Sometimes a holographic Will is better than no Will at all, sometimes it is not. If the holographic Will creates an ambiguity or an unintended result, then it would have been better to have no Will at all.

Is an 'oral will' valid?

Because of the possibility of fraud or misunderstanding, generally an "Oral Will" is only recognized when made by members of the military or merchant marine in active service in time of conflict, when the person making the Will does not have time to prepare a written Will and have it properly executed. In most other circumstances, to use the old joke, "An Oral Will is not worth the paper it is printed on."

In fact many states have laws requiring promises to make or change a Will, or not to make a Will, be done in writing. Our advice is NEVER RELY ON AN ORAL WILL OR ORAL AGREEMENTS OR STATEMENTS ABOUT A WILL OR TRUST. Get it in writing, preferably with legal counsel to assist you.

Should I write my own will?

No. A Will is a critically important legal document. IF YOU DIE YOU WILL NOT BE AROUND TO EXPLAIN WHAT YOU INTENDED. A Court will have to interpret your Will.

Anyone who thinks she or he would be better off without the self-prepared Will can contest it. If it does not meet some very stringent tests it can and will be disregarded. The costs of litigation can -- and too often do -- wipe out an estate.

What about form books and computer programs?

Most forms in books are terrible. If they are not adjusted for the laws of your state -- and most do not even purport to be -- they may be totally off base for you. Even if they are supposedly tailored to residents of your state, very often they are not. Most computer programs are not much better when used by a non-lawyer. Just look at the huge disclaimers they put on the box or in the instructions. If something goes wrong, your heirs are out of luck.

If you want to do it yourself, DON'T. If you insist, you may want to take a look at the site of Will Works, but we urge you to contact a lawyer and not even try to do it yourself -- with or without the help of a form book or program or document preparation service.

What about books on estate planning?

As you begin the process "caveat emptor" (let the buyer beware). There is a lot of information out there; while some of it is very good, some is misleading at best. There are many "over-the counter" guides to estate planning available at bookstores. Some are pretty decent, most are awful. If you are planning to do it yourself, be prepared to spend a fair amount of time on this project.

What about software programs?

Unlike the fill-in-the-blank forms, GOOD software programs ask most of the questions lawyers would ask, and tailor the Will to the answers given. However, far too many software programs are poorly designed, overly complicated, or overly simplistic.

With overly complicated programs, it is easy to make a mistake and create errors and excess levels of complexity in your Will. Simplistic programs are no better than the fill-in-the-blank form and any alterations can make it worse.

One of the best uses of software programs is to help you understand the process and get your thoughts in order before visiting a lawyer. Among the better software programs on the market are those produced by Broderbund (Family Lawyer) and Nolo's WillMaker.

Just as with fill-in-the-blank forms, the biggest problem with Will software programs relates to execution of the Will and the potential difficulties and expenses getting it admitted to probate.

What about 'fill-in the blanks' forms?

They should carry an Attorney General's warning.

Some thoughts to keep in mind before filing out "fill-in-the-blanks" forms:

(1) Fill-in-the-blank forms vary widely. Too many are just plain awful.

(2) Even if the fill-in-the-blank form is tailored to your state, it will likely not meet your personal requirements. The forms usually are designed for people with very limited assets and no potential for litigation (such as a family that will go along with anything the person decides, even if it "cuts out" some family members). Fill-in-the-blank Wills are not right for families who have special circumstances, such as owning an out-of-state vacation home, or having a disabled child or grandchild, or a beneficiary who has received public assistance, etc.

(3) Fill-in-the-blank forms rarely deal with possible Federal or state estate taxes, or their impact if both spouses die at or about the same time. As Federal estate taxes are from 7% to 50% of your total estate, and start at $675,000 for persons dying in 2000 (that limit increases to $1,000,000 in 2002 and will be at $3.5 million by 2009) that can take quite a bite out of your estate. And for Federal estate tax purposes the value of your estate is not only the property you own that passes by Will, it also includes property that passes by joint tenancy, plus the face amount of all life insurance, plus the value of your IRA, 401(k) and other retirement plans which typically pass under beneficiary designations and not the Will. Thus, instead of having a coordinated estate plan, use of a fill-in-the-blanks form could divide your assets in proportions that you (and your beneficiaries) would regard as unfair while penalizing them with major tax consequences.

(4) Even with the best possible fill-in-the-blank forms, the crucial step most likely to be messed up is the execution of the Will. A Will is not valid unless "properly executed" in accordance with the laws of your state of residence (or the state in which it was made). Some states require that in order to make a valid Will there must be three witnesses, all present at the same time who see you signing the Will, who then sign it immediately afterwards as witnesses. If even one of the necessary witnesses was not present, the Will would not be valid. If one of the witnesses is also a beneficiary, that witness may be disqualified from taking anything under the Will.

(5) Fill-in-the-blank form Wills typically take longer to probate because judges frequently question the process used in their execution, requiring the witnesses who saw you sign the Will to appear in court. That creates expense, delay, and added legal bills. And if any person who would benefit if the Will is thrown out starts a "Will contest", if the Will were not properly signed and witnessed, it would not be admitted to probate. In other words, you may think you prepared a valid Will, but it would not be worth the paper it is written on, and that would not be known until after your death.

What is a 'pour-over will'?

A pour-over Will is a particular type of Will used in conjunction with a Trust. Most people intentionally don't put all their property into the Trust, sometimes for convenience (such as a car -- some states and insurance companies seem incapable of dealing with vehicles held in a trust) or other times for tax reasons (it may be Subchapter S stock that often does not fit well in a Trust, or real estate and they don't want to risk triggering a property tax re-assessment). Most often people forget to put newly acquired property into a Trust on an on-going basis.

To prevent the creation of an intestate estate, a pour-over Will is created to catch any property which had been (intentionally or inadvertently) left out of the Trust at the time of your death. By the terms of the pour-over Will, the property that it catches is distributed to the existing Trust.

Whenever a Trust is used, it is essential to also have a pour-over Will to catch your property which was not held by the Trust, not held in joint tenancy, or subject to other contractual arrangements at the time of your death.

How much should it cost me to have a lawyer prepare a will or a trust for me?

Asking how much a Will or Trust costs is much like asking how much a house costs. There is a wide range between a tiny cabin in rural Montana and the castles of the rich and famous in Beverly Hills or on Park Avenue.

Generally, the cost of a Will or Trust will depend on:

(1) The amount of legal time and skill your circumstances will require. For example, doing a Willl and Trust for a billionaire with numerous categories of property and a complicated family situation, such as children from several marriages, is likely to require far more time and effort and skill than doing a "simple Will" leaving a modest bank account to one's spouse.

(2) How well you have thought out your wishes. When you get to the lawyer's office, you should have a general idea of what it is you would like done. The lawyer thus can help you through any hazy areas, suggest alternatives and point out any problem areas.

(3) The type and nature of your assets. For example, if all that billionaire owns is publicly-traded stock held in one account at one brokerage firm, and she wants to keep on owning it, relatively little time would be needed by the lawyer to plan to deal with the assets. On the other hand, if she or he holds a bunch of real estate located in different states, oil and gas interests, patent rights, non-publicly traded stock, several partnership interests, owns several private businesses, has a 401(k) plan and IRAs, and was the beneficiary of several family trusts, dealing with that variety of property would usually take a lot more professional time.

(4) The total value of your assets. It's usually not that the lawyer figures you can afford more, but because the more assets you have, the more tax planning you'll likely need. Also, the more you have, the greater the potential liability the lawyer assumes if she or he makes a mistake.

(5) How anxious you are to reduce or minimize potential Federal Estate Tax, and depending on where you live and hold property, possible state and local estate and inheritance taxes. For example, you can leave an unlimited amount to your spouse, and also can leave a total of $1,000,000 free of Federal Estate Taxes to others. (That assumes you have not made certain lifetime gifts (starting in 2002) of more than $11,000 per individual per year -- $22,000 if your spouse joined in the gift. The $1,000,00 amount increases slowly to $3.5 million in 2009; in 2010, it is repealed entirely, but the repeal only lasts one year at which time it will be reinstated to the way it was before the law was enacted.)

(6) If you have a large estate, and the type of assets you hold are appropriate, setting up a Family Limited Partnership might significantly reduce estate taxes, but would increase the cost of the project.

(7) Whether you are also looking for protection from possible future claims of creditors--which may involve the use of various US and foreign partnerships and trusts for your assets.

(8) How unusual your bequests are. For example, if you intend to cut out the natural objects of your bounty (your spouse, children, grandchildren and other relatives) and instead leave everything to a caregiver or a cult, it would take a lawyer lots of extra time to make sure you have all your marbles and to plan to make the Will as safe from attack as possible.

(9) How detailed you insist on in terms of the property you would leave behind. For example, if you insist on designating a separate beneficiary for each and every item you own -- the big pot to Bill, the yellow frying pan to Susan, etc. -- that takes lots of extra time and is lots of work.

(10) How much of a hurry you are in. If the lawyer must drop everything else to handle your Will, it may cost a bit more.

(11) Your health -- mental and physical. If it's very bad, that would require some extra effort to minimize the likelihood of any challenge.

(12) Where you are based -- and how good a lawyer you want. It often costs a bit more for a top lawyer in a major city than in a small locale. A highly experienced lawyer often charges more than an inexperienced lawyer. However, in most estate planning matters, the lawyer's fee is almost meaningless compared with the amount your heirs might save in estate taxes and probate costs, not to mention the hassle you can reduce for those who you'd leave behind.

(13) Whether the lawyer expects s/he'll ever get any more work from you, your family, or your estate. If it is a one-shot matter, you'd likely pay more.

Doing a Will or Trust is NOT a "Do It Yourself" project. Consult an experienced lawyer. While you should always ask the fee, it makes little sense to shop for any professional service based solely on price.

Does it make sense to use an attorney? Is it expensive?

Only a Wills attorney who regularly practices in the fields of wills, trusts, probate and estate planning is able to provide you with really sound legal advice as you put your estate plan into place. Attorneys are subject to regulation by state bar organizations, many of which have continuing education requirements and mandatory liability insurance in case the lawyer makes a mistake.

When you speak with an attorney, you can get answers to your questions -- including how much it would cost.

Often the expense incurred in retaining an attorney to prepare and help you put an estate plan into place is worth hundreds of times what you and your family would pay with no planning or poor planning. It would also avoid the financial and emotional nightmares that can occur with a poorly drafted (or improper) plan.

How long is a will valid?

A validly prepared and properly executed Will is valid until you intentionally revoke it or prepare and execute a new Will that revokes the previous Will. In addition, a change in marital status, such as a divorce, also may impact provisions in a Will and/or beneficiary designations.

What is the difference between a will and a trust?

A Trust is a way of transferring your property to an artificial legal entity or "person" before your death, while still having the use and/or control of it during your lifetime. As the Trust owns legal title to the property in it at the time of your death, and the Trust does not die with you, the property does not have to go through "probate". Probate is the legal process which inherited property goes through to transfer the title to the beneficiary. If you have a large estate, or even a small estate with real property (i.e. real estate), it is often advantageous to set up a Trust, as it usually ultimately is far less expensive. A probate lawyer can help you decided whether a Will or a trust is best for you and your estate.

What are self-probating wills?

A so-called "self-probating Will" typically has affidavits of the witnesses who saw the deceased sign the Will attached to the Will. In those affidavits, the witnesses say that they saw the deceased execute or sign the Will, the deceased asked them to be witnesses to the Will, he or she appeared mentally competent at the time, and acted voluntarily (not out of fear, intimidation, or coercion). Without such affidavits, it would typically have been necessary for the Executor (or a lawyer for the Executor) to round up the original witnesses and have them come into court (if possible) to state the circumstances surrounding the execution of the Will, or at least give an affidavit, even to be able to file the Will in the court for probate.

The affidavits help authenticate that the Will is genuine. Courts generally allow the Will to be filed with the affidavits, without the need to get witnesses or new affidavits. They then give notice to other heirs at law who can object to the Will being admitted to probate.

With self-proving affidavits, only if anyone choses to challenge the Will in a Will contest, is the probate court likely to require witnesses to come into court (if they are still available) to testify about the circumstances in which the Will was signed.

In some states, self-authenticating affidavits are not accepted where the death occurs shortly after the Will is signed, or the Will was not executed under the guidance of an attorney.

What is the effect of a divorce on a will?

It depends on your state's law. In some states, a divorce decree automatically revokes your entire Will and in others, it revokes only those provisions that made gifts to the former spouse, not the Will itself. Either way, any property arrangements in a Will (or other document, such as a life insurance policy, bank account) should always be reexamined when you contemplate a divorce. Frequently, these matters may be required to be addressed as part of any divorce agreement or court decree.

Suppose a person is mentally competent at the time of making a will but subsequently loses it. Is the will still good?

Yes. The fact that the person making the Will loses it or has weakened mentality sometime after the Will is made has no bearing. It only becomes important should the person having an unstable mind want to change the Will at a later date.

What is the effect of senility on a will's validity?

Don't think that just because the deceased wasn't as sharp as she used to be, or that because he was old and forgetful, it is sufficient to getting a Will thrown out as invalid. The person seeking to have the Will accepted for probate generally has to establish that the deceased was of sound mind and memory at the time the Will was executed. As you might expect, the people who served as witnesses when the Will was signed almost always say the deceased was of sound mind, knew where he was, what the day was, who his family members are, and knew that he was signing his Will. Then the burden often shifts to the person challenging the Will to prove it should not be admitted to probate.

It can be very difficult, and costly to prove that the deceased was mentally incompetent, or made a mistake, or was subject to fraud, coercion, duress, or undue influence when he or she was making the Will.

What is a 'living will'?

A Living Will is the popular name for a document spelling out the general kinds of medical care you would want--or not want--in the event you became unable to communicate with your health care providers. Other names for a Living Will are a "medical directive" or "medical declaration". It does NOT impact who gets your property or who is your Personal Representative or Guardian of your minor children. For details, please see our section on Elder Law.

What effect does moving to a different state have on a will?

A Will that is properly made and properly executed in your former state of residence, that would be valid under the laws of your former state, will almost invariably be regarded as valid by the laws of your new state. However, as the laws of all states differ, if you move it makes sense to have your Will reviewed by a lawyer in your new state.

For example, sometimes the new state has different processes to "prove" the Will. Or the new state may permit probate matters to be handled on a less formal and less expensive basis, simply by adding to the Will reference to certain specific statutory provisions in the new state's laws. Occasionally complications arise because different states have different classifications of property. For example, if your Will was executed in a state that does not have a community property system and you move to one of the 9 community property states, you may wish to get in touch with a Wills attorney to determine whether your Will should be redrafted to achieve your intended result.

If I have a living will, would I also need a real 'will' or a 'living trust'?

Yes. A "Living Will" has absolutely nothing to do with managing or controlling your property either during your lifetime or at your death. It deals only with health care options.

Can I disinherit my spouse?

Not completely, unless you and your spouse have waived the right to be included in the other's estate in a prenuptial or postnuptial agreement. Each state has laws that shield a surviving spouse from being completely cut off.

In most states, the surviving spouse can choose between the property left in the deceased spouse's Will or a statutory share set by state law (usually one-third or one-half of the estate). Whether it is advantageous to elect the state's share - generous in some states, minor in others - depends on the rules for calculating the elective share, which rules and exceptions have a remarkable number of variations between the states.

In a community property state, the surviving spouse already owns half of the community property at the death of the other spouse.

Can a parent disinherit a child?

Generally Yes. To do so, it is necessary to specifically say in the Will that the omission is intentional. Often Wills have language along these lines: "I have previously taken care of my daughter Susan during my lifetime, and have chosen to leave nothing to her in this Will. Similarly, I am leaving nothing to my son John, for reasons known to both of us."

If a child is a minor, the states do provide an allowance to support the child until they reach the age of majority, typically age 18.

What reasons are there to change or update a will?

Typical reasons for changing or updating a Will are:

(1) You marry or divorce

(2) Birth or adoption of child

(3) Death of a family member or beneficiary

(4) Changes in the Federal Estate Tax laws or State Tax laws

(5) Substantial change in the value of your estate

(6) Change in the nature of your property holdings - for example, if your Will leaves the farm to a son, and the ranch to your daughter, and half the balance to your son and daughter, and then you sell the farm, your daughter would wind up with more (the whole ranch plus one half of everything else) than your son (who would get only one half of the balance).

(7) A Guardian or Executor or Trustee moves away, dies, or is no longer willing or able to serve

(8) Your children are no longer minors, or are old enough to handle financial matters on their own

(9) You move to another state

(10) You wish to eliminate gifts to certain beneficiaries

How can I revoke a will?

If you are mentally competent, you can revoke a prior Will by destroying it, obliterating it, burning it, or tearing it up. Of course, unless the act of revocation is properly witnessed and recorded, someone may later contend the Will was simply "lost" and not revoked, or that you lacked mental competence at the time you "attempted" to revoke your Will. This could give rise to a "Will Contest".

A change in your marital status may revoke part of a Will relating to your former spouse.

What are will contests?

A Will Contest is a type of litigation challenging the admission of a Will to probate. As discussed in detail in our section on Probate, a person cannot challenge the validity of a Will simply because she does not like its provisions, or did not, in her opinion, get what she wanted. Tests on the validity of a Will are not contingent on the elements of "fairness" or the reasonableness of its provisions or on the timing of disbursements (such as if you want it now, and the Will says you get it at age 50).

A Will is likely to be attacked by those who assert that a person lacked mental capacity (senile, delusionary, unsound mind) at the time the documents were created, that the Will maker was subjected to fraud, coercion or undue influence during its creation and implementation, that there are ambiguities in the document, or the Will is a forgery or does not conform to legal requirements as to the number and nature of the witnesses.

If the Will is thrown out, the court may disallow only the part of the Will that was challenged or throw out the entire Will of the decedent, distributing the property as if the person died without a Will, or use the last previous Will, depending on state law and the specific facts and circumstances.

Suppose that I am afraid someone might challenge my will. How can I 'bullet proof' it?

First, a Will is such an important document that you'll want to have a lawyer help you draft it, even if you do not fear someone may challenge it. You'll want to make sure it does what you want it to do, without ambiguity, with the lowest expense possible when it comes time for probate, and that it helps you and your family avoid or minimize taxes. That's what good lawyers do.

Second, if you tell the lawyer you suspect challenges, they'll work extra hard. They may ask a physician to evaluate your mental competence -- and perhaps serve as a witness when you sign it. They may videotape your execution of the Will. And they may put in provisions that would result in anyone challenging the Will to increase his or her share getting nothing at all should the challenge fail.

My brother who was left out of dad's will is challenging it. We want to settle before more anger, nastiness, and resentment sets in. What can be expected in a settlement?

In a settlement, instead of getting nothing, and having to pay his or her own legal bills, the cut-out heir would get something, deplending on the size of the estate. If the estate were not huge the cut-out heir might take the lesser of $10,000 or 10% of the net estate. While that's 40% less than the 50% of the net estate (less the legal fees) one he or she would get if the contest were successful (less his or her own legal bills) if there were only 2 heirs at law (such as if only 2 kids and no spouse or surviving children of a deceased sibling), it is far better than a stick in the eye if the Will were NOT thrown out.

Apart from what the Will says, in many families a parent can vacilate between kids, changing the Will repeatedly with one favored, then another, etc. It thus becomes a matter of change who was "in" and who was "out" at the time of death. In such cases, even if lack of mental competence cannot be proven, the "moral" settlement may be something far closer to a 50-50 split, or even 50-50, regardless of what the Will says.

My brother was intentionally left out of dad's will because of some past happenings. Now with our dad's death, he is going to contest the will. What's going to happen?

Nearly all people left out threaten to contest the Will. But as there must be a real legal basis for the contest (and bringing the action is expensive), few actually do, and nearly all of those who do, wind up losing if it goes to trial.

The funds in the estate are used to pay the expenses of the proceeding on behalf of the estate, and depending on the EXACT facts, the contest may be costly to the estate. (The contestant bears his or her own expenses.) Thus, very often a settlement is made to spare the estate the costs, delay and intra-family unpleasantness.

When should a last will and testament nominate a guardian and what role does a guardian play with respect to minor children?

A Guardian is the person who is responsible for the health, education and welfare of minor children. Technically there is a Guardian of the Person and a Guardian of the Estate of minor children (usually the same person serves in both roles). The Guardian of the Person has responsibility for decisions regarding the health, education and welfare of the minor child, and the guardian of the Estate is responsible for the child's property and for handling all financial matters for the minor child.

When one parent dies, generally the other parent is appointed as the Guardian for minor children, whether or not the parents were married at the time. If someone besides the other parent of a minor child is nominated as Guardian, the other parent can contest the nomination. It is then necessary for the court to determine that the appointment of the other parent as the guardian would be detrimental to the best interests of the minor child (which is a very heavy burden of proof to establish).

In the event of the deaths of both parents, however, it is important to have a Guardian for minor children named, to ensure that the children Will be well cared for by someone the parents trust.

What role does the personal representative play under a will?

The Personal Representative of your estate (also commonly referred to as an administrator or executor) is responsible to gather and inventory all of your property at the time of your death, determine all your outstanding debts, pay all of your legitimate debts and then distribute the remaining property in accordance with the instructions provided in your Will.

The Personal Representative is appointed as part of the probate proceeding and has the responsibility for guiding your property through the proceeding, subject to established probate rules and procedures. In many states, the court has a considerable amount of control over the activities of the Personal Representative, and prior permission of the court is required for the Personal Representative to take action with respect to property in the probate estate.

Since your Personal Representative is given access to all of property in the probate estate, the selection of a competent and trustworthy person is very important. It is wise to nominate someone who has business experience, intelligence, and the utmost integrity and honesty to serve as your Personal Representative. Your nomination of Personal Representative, (along with Alternates who are asked to serve in the event that the prior nominee is unwilling or unable to act), should appear in your Will. This is your chance to tell the court who you think is best to do this job for you (since you can't speak to the court in person).

Most states require the Personal Representative to post a surety bond covering his/her actions. This requirement can be waived if your Will states that you want your nominated Personal Representative to serve without bond.

What does a will usually contain?

Typical provisions of a Last Will and Testament include:

(1) name of the testator (your name)

(2) name of the testator's spouse and date of marriage, if any

(3) name of all of the testator's children (and how foster and stepchildren are to be treated), if any
v (4) revocation of all prior Wills

(5) special gifts, if any
v (6) distribution instructions for the remainder of the estate after payment of just debts, taxes and expenses incurred in administration of the estate

(7) nomination of the Personal Representative and alternates

(8) powers that are to be given the Personal Representative (often defined as those provided under state statute), and

(9) waiver of the surety bond requirement

Can a will reduce estate taxes?

A Will alone does not necessarily reduce Federal Estate Tax. However, as such taxes begin at 37% and reach 45% in 2007--2009, and are the highest in the federal tax arsenal, estate planning can often take advantage of tax avoidance techniques that would not be available to your family if you die without a Will. Unless you want to make Uncle Sam a major beneficiary of your estate, you'll want to have at least a Will.
v

Does a will change named beneficiaries for life insurance policies, pensions, and similar accounts?

No. No matter whom you've chosen as beneficiaries in your Will, the person or persons you have properly designated as the beneficiary(ies) of your life insurance policy, a payable-on-death bank account, an IRA, or 401(k) or other retirement plan -- typically by filing the beneficiary designation with the company or plan sponsor -- governs.

I was told by my accountant to exclude my grandchildren from my will because they would be subject to a generation-skipping transfer tax. Was my accountant correct?

The generation-skipping transfer tax (GST) only applies after $1,060,000 million (in 2001) or more is transferred (whether during a person's lifetime or at his death) to grandchildren whose parents are alive and bypassed. (GST tax drops to $1,000,000 in 2002 and thereafter increases to match the estate tax exemption levels in effect during the calendar year. The GST is abolished in 2010 but reapplies in its entirety in 2011.) In estate planning matters, it is best to consult a lawyer.

I owed a debt to a friend of mine who recently died. Do I still owe the money to the heirs, even though my friend died without a will?

You still owe the debt to the individual's estate. The obligation to repay does not die with the creditor or no one would ever lend money out on the risk that if they die it's a gift to the borrower.

If there was no Will, a survivor, usually one who would inherit in the absence of a Will, would have to go to court and seek to be appointed Aministrator of the deceased's estate, make a demand on you and if necessary, sue you in the name of the estate to collect. Who knows, the deceased also may have owed others money and so anything you pay in would essentially go to the estate's creditors.

If you knew there were say only 2 surviving children and no claims, you could work out a deal to pay the 2 kids a portion of the amount owed, and avoid their need to file for probate, assuming they would otherwise not have to go through that expense. You'd explain there are risks to you in paying them, should other creditors turn up, that becasue of that risk you would expect a discount, and still insist they agree to indemnify you should there be other claims (such as from the deceased's creditors, other heirs that may become known in a Will you all are unaware of, or tax authorities) to the money you pay them.

The bank holding my deceased mom's Certificate of Deposit [CD] will not distribute the funds to her estate without her will being probated. Can the bank require my family to go through that process?

What looks like a Will, says it is a Will, and feels like a Will, is not necessarily valid, nor the last Will or that there may not be creditors that come up out of the woodwork or taxes payable. The probate process is what is used to "prove" the document is in fact her last Will, there are no challanges to it, and any claims against the estate are adjudicated under court supervision.

If the account was solely in her name, it now is the property of her estate, and only the executor named in a Will after the appointment is confirmed by the probate court, or a Personal Representative of her estate designated by the probate court, has rights to the money. Further if the bank paid a beneficairy and any creditor did not get paid, or any Federal estate tax was not paid, the bank could be held liable to the creditors/tax authorities if it did anything else.

In some cases it is true an institution may waive the requirement that it be probated IF the beneficiary is the principal heir at law, all other possible heirs at law have signed waivers and authorizations to pay the money to the beneficiary, and have agreed to indemnify the bank should any claims be made. But that's the exception, rather than the rule for nationally operating institutions.



Trusts

Frequently Asked Questions covered by this section: What is a trust?

A Trust is a well recognized type of legal entity which is used to hold legal title to property for the benefit of one or more persons. The person creating the Trust is often known as the Trust Creator or Grantor. The person or institution holding legal title to the property is called the Trustee. The persons who are intended to benefit from the Trust are known as Beneficiaries.

What is a trust estate?

The property that is transferred to a Trust becomes the Trust Estate. A Trust Estate consists of all of the property, rights and obligations that are transferred to the Trust. The Trust Estate is managed in accordance with the terms and conditions of the document creating the Trust.

Who are the parties to a trust?

There are typically three main parties to a Trust:

(1) The Trust Creator, sometimes called the Grantor or Settler, is the person who started out as owner of the property that is to be transferred to and held by the Trust.

(2) The Trustee is the person or financial institution (such as a bank or Trust company) that holds the legal title to the Trust estate. There may be one or more Trustees. If a Trustee is unwilling or unable to serve, then a successor Trustee steps in to hold and manage the Trust estate. The Trustee is obligated to act in accordance with the terms of the Trust for the benefit of the Trust beneficiaries.

(3) The Beneficiaries are the persons who the Trust Creator intended to benefit from the Trust estate. The rights of the beneficiaries depend on the terms of the Trust. Beneficiaries are said to have the "equitable title" to the property held in the Trust.

Can I create a trust, serve as the trustee and be the trust beneficiary?

Yes, in most states. Historically courts concluded that there was no need for a Trust when the Trustee was also the beneficiary. (The legal and equitable titles were said to have "merged".) However, now, in most states, if it is done right, a Trust Creator may establish a revocable Trust, serve as the initial Trustee and be able to obtain immediate benefits as a Beneficiary from Trust property.

What is a 'trust agreement' or a 'declaration of trust'?

These two terms refer to a written document that sets forth the terms and conditions of the Trust. The differences between them are largely matters of style and local practice.

Typical provisions in a Trust agreement or declaration of Trust for an individual or married couple include the following:

(1) a statement of the purpose of the Trust

(2) the names of the Trust creator's family members

(3) whether the Trust creator, or anyone else, may amend or revoke the Trust

(4) who will serve as the initial Trustee(s), and who would serve, and in what order, if the initial Trustee becomes unable or unwilling to serve, in the event of illness, death or for any other reason

(5) what powers the Trustee should have, in terms of investment and management, and what discretion the Trustee is to have in terms of releasing money to beneficiaries, such as for education
v (6) who the beneficiaries of the Trust are, or how to determine them; the Trust creator and his or her spouse are typically beneficiaries in a "living" Trust.

(7) who is to receive distribution of the Trust estate upon the death of the grantor, and

(8) when the beneficiaries would be entitled to receive the distributions, often at age 21, or half at age 21 and half at age 30.

What are some of the different forms of trusts?

Trusts come in a variety of forms and can be established in many different situations. Some common forms of Trusts include:

(1) Asset Protection Trust - A type of Trust that is designed to protect a person's assets from claims of future creditors, frequently established in foreign countries.

(2) Charitable Trust - A Trust - and there are many different types of charitable Trusts - established to benefit a particular charity or the public. Typically charitable Trusts are established as part of an estate plan to lower or avoid imposition of Federal (and some states') estate and gift taxes.

(3) Constructive Trust - An implied Trust establish by operation of law. While a person may take legal title to property, equitable considerations require that the equitable title of such property remain with others. Typically fraud is a requirement for the establishment of a constructive Trust, the person who took legal title to the property did so as a result of a fraud brought upon the prior legal title holder.

(4) Express Trusts - are those specifically created by the grantor under a Trust agreement or declaration of Trust.

(5) Implied Trusts - arise from particular facts and circumstances in which courts determine that although there was not any formal declaration of a Trust, there was an intention on the part of the property owner that the property be used for a particular purpose or go to a particular person. For example, if a neighbor asks you to take care of her car for her when she is on vacation, and never returns, there was an implied Trust, as she was not making you a gift of the car.

(6) Inter Vivos Trust - A Trust that is created during the lifetime of the grantor. A common type is a revocable "living" Trust in which the grantor transfers title to property to a Trust, serves as the initial Trustee, and has the ability to remove the property from the Trust during his/her lifetime.

(7) Irrevocable Trust - A Trust that cannot be altered, changed, modified or revoked after its creation (absent extreme extenuating circumstances). Once a grantor transfers property to an irrevocable Trust, the grantor can no longer take the property back from the Trust.

(8) "Living" Trust - A Trust created during the lifetime of a grantor which can be altered, changed, modified or revoked. Typically the grantor is the initial Trustee as well as the initial beneficiary of the Trust, with his/her spouse and children as the ultimate beneficiaries of the Trust.

(9) Resulting Trust - A Trust that arises from, or is created by operation of law, when the legal title to property is transferred, but the beneficial interest is to be enjoyed by someone other than the person who got the legal title.

(10) Special Needs Trust - A Trust that is established for a person who receives government benefits so as not to disqualify the beneficiary from such government benefits. Ordinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person's eligibility for such benefits. By establishing a Trust which provides for luxuries or other benefits which otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the Trust without defeating his/her eligibility for government benefits. Often a Special Needs Trust includes a trigger which terminates the Trust in the event that it could be used to make the beneficiary ineligible for government benefits.

(11) Spendthrift Trust - A Trust that is established for a beneficiary which does not allow the beneficiary to sell or pledge away his or her interests in the Trust. A spendthrift Trust is beyond the reach of the beneficiaries creditors, until such time as the Trust property is distributed out of the Trust and placed in the hands of the beneficiary.

(12) Tax By-Pass Trust - A type of Trust that is created to allow one spouse to leave money to the other, while limiting the amount of Federal Estate tax bite that would be payable on the death of the second spouse.

(13) Testamentary Trust - A Trust that is included under the terms and conditions established in a Will. Such Trusts take effect after the death of the person making the Will.

(14) Totten Trust - A Trust that is created during the lifetime of the grantor by depositing money into an account at a financial institution in his or her name as the Trustee for another. This is a type of revocable Trust in which the gift is not completed until the grantor's death, or an unequivocal act reflecting the gift during the grantor's lifetime.

Many Trusts themselves establish "sub-Trusts". For example, a revocable "living" Trust might establish spendthrift Trust and a tax by-pass Trusts upon the death of the first. Trusts can be structured to handle a variety of situations but careful drafting is essential to make the plan work.

What is a Bypass Trust?

A Bypass Trust, sometimes called a Life Estate or A-B Trust, is a way for couples of combined estates of more than $1 million (2002 and 2003) to be exempt from estate tax if one or the other dies. This amount, which is exempt from Federal Estate Tax, increases to 1.5 million in 2004 and 2005, 2 million in 2006 through 2008; 3.5 million in 2009 and then in 2010 there is no federal estate tax. However in 2011 the Federal Estate Tax is returned to the 2002 level.

A Bypass Trust is designed to let the $1 million tax exemption be used by each spouse. Through a Bypass Trust, the surviving spouse can receive any portion of the decedent`s estate free of estate tax. The surviving spouse never legally owns the property within the Trust because it`s legally owned by the Trust. The spouse can use the assets and property within the estate with certain restrictions. However, when the surviving spouse dies, if the estate is worth more than $1 million, a significant amount of estate taxes will be due before the beneficiaries can receive their inheritance.

What is the QTIP trust?

QTIP trust stands for the qualified terminable interest property trust. It allows certain property to qualify for an estate and gift tax marital deduction even though it ordinarily would not qualify for such tax deductions. One type of QTIP property that can qualify for a marital tax deduction are trusts which provides income to a surviving spouse for life and after the spouse dies the remainder goes to the children. Please contact an attorney if you would like more information about this type of trust.

What is a Living Trust?

A Living Trust is an effective way to provide lifetime and after-death property management and estate planning. When you set up a Living Trust, you are the Grantor; anyone you name within the Trust who will benefit from the assets in the Trust is a beneficiary. In addition to being the Grantor, you can also serve as your own Trustee (Original Trustee). As the Original Trustee, you can transfer legal ownership of your property to the Trust. While this can save your estate from estate taxes when you die, it does not alleviate your income tax obligations.

Within a Living Trust you must provide the name of a Successor Trustee who will take over the management of the Trust if you die or become incapacitated. You don`t have to go through the court to appoint a successor trustee. After your death, your Successor Trustee either terminates the Trust and distributes the assets to the beneficiaries you named in the Trust, or he/she continues to maintain the Trust on behalf of your beneficiaries, depending on the terms of the Trust.

What is a Spendthrift Trust?

A Spendthrift Trust helps to protect the beneficiary from creditors. Most of the assets in the Trust will pretty much be safe from banks or creditors. However, creditors can still collect any money paid directly to the beneficiary from the Trust. If you think that your beneficiary could have problems with creditors, you can give the Trustee broad control over the Trust. The Trustee may be instructed by the Trust to withhold income and/or principal from the beneficiary. For maximum effectiveness, a Spendthrift Trust should be irrevocable. It must also give the Trustee full discretion over the assets of the Trust, so the Trustee will have full power in deciding when and how much money should be given to your beneficiary.

What is a Totten Trust?

Setting up a Totten Trust is as simple as going to a bank and opening a Trust account by yourself. A Totten Trust is best for amounts of about $20,000 or less. Larger amounts could present problems in payment of estate taxes at your death, since the assets in these accounts are added to your taxable estate. A Totten Trust can be paid out quickly after your death with a minimum of formalities. Because the money transfers directly, you don`t need to choose a third-party Trustee. As with any other Trust, you keep your assets out of probate. You can revoke a Totten Trust at any time during your life, and the beneficiary can`t withdraw the money from the Trust account until you die.

What is a Testamentary Trust?

Unlike a Living Trust (made while you are alive), a Testamentary Trust is established through your Will at your death to handle your minor children`s estate (financial affairs), should you die and there is no other living parent. This alleviates the necessity of having to set up a guardianship of the estate, with all of the concurrent court filings, accountings and supervision.

The Executor is given full discretion to decide if the Trust is beneficial to the children, and the trust should be established. If you currently have minor children, or are considering having children, including this provision gives your Executor the greatest flexibility in handling your children`s estate if neither parent is alive while the children are still minors.

Normally, the person or one of the people named as guardian of your minor children will also be named the Trustee of the Trust. However, in some situations it may be advantageous to have different people fulfill these roles. For example, the best person for the emotional and moral upbringing of your child may be your Aunt Mary, but Cousin Joe could be a better financial manager. So, it may be in your children`s best interest for you to choose Aunt Mary to be the guardian and Cousin Joe to be the Trustee of the Trust.

What is an Abstract of Trust?

A condensed version of a Living Trust document, which leaves out details of what is in the Trust and the identity of the beneficiaries. An Abstract of Trust is normally used to prove to a financial organization or other institution that you have established a valid Living Trust, without revealing specifics that you want to keep private. In some states, this document is called a Certification of Trust.

What is an Accumulation Trust?

A trust in which the income is retained and not paid out to beneficiaries until certain conditions are met. For example, if you create a trust for your child`s benefit that stipulates that he/she will not have access to the assets until he/she turns 21 or graduates from college.

What is the difference between a Revocable Trust and an Irrevocable Trust?

A Revocable Trust is where the Grantor can change the terms of the Trust or even revoke the Trust altogether and take back all of the assets in the Trust. An Irrevocable Trust is where the terms of the Trust cannot be changed (i.e., the beneficiary cannot be changed), and that whatever assets are placed in that Trust cannot be withdrawn by the Grantor.

How is a trust helpful in estate planning?

A Trust, if properly drawn and "funded", can be extremely helpful in many situations such as:

(1) To avoid a conservatorship. If property is held in a Trust, a successor Trustee can step in and take over management, without the delay and expense of going to court to appoint a "conservator" to manage the property, if the Trust Creator becomes disabled.

(2) To avoid probate. A properly drawn Trust is a separate entity that does not die when the creator dies. The successor Trustee can take over management of the Trust estate and pay bills and taxes, and promptly distribute the Trust assets to the beneficiaries, without court supervision, if the Trust agreement gives the Trustee that power.

(3) Maintaining privacy. Trusts, unlike Wills, are generally private documents. Your neighbors and the public would be able to see and how much you had and who your beneficiaries were under a Will, but usually not with a Trust.

(4) Help keep certain property separate from other property. For example, if you want your daughter to get your vacation home, and your son to get your house in the suburbs, if you create a separate Trust for each property there would be no question of commingling or who gets what.

In many estate plans, the Trust is the central tool that is used to control and manage property. A Trust continues despite the incapacity or death of the grantor. It determines how a Trustee is to act with respect to the Trust estate. It determines how property is to be distributed after the death of the grantor. A Trust is thus one of the major estate planning tools used for a grantor's property so that court interference in the event of incapacity or death can be dramatically reduced (if not completely eliminated).

Who should have a trust?

You should discuss the advantages of a Trust over a Will (even with a Will creating a "Testamentary Trust") with an attorney if:

(1) you are the parent of minor children, or

(2) privacy is important to you, your business or your family, or

(3) you own real property, particularly any property outside of your home state, or

(4) your estate has a gross value in excess of $1,000,000 (this amount increases slowly to $3.5 million in 2009; the tax is completely repealed in 2010, but reinstated in 2011), or

(5) you wish to avoid conservatorship or probate.

A Trust in NOT necessary for everyone, and some lawyers prefer to have matters go through probate, but it certainly makes sense to discuss it.

How much do trusts cost?

That varies considerably, and is sort of like asking "how much does a house cost"? The fees are typically based

(1) on the complexity of the estate,

(2) the nature of the property involved, and to a lesser extent, its value,

(3) the amount and nature of the tax planning that is necessary,

(4) the amount of time the client will be spending with the lawyer, and the extent of "hand-holding",

(5) what the client will do on his or her own, and what the lawyer will do,

(6) the other documents involved (powers of attorney, deeds, health care powers), etc.

Generally the most crucial part of a Trust (or a Will) is the planning that goes into its preparation. Words are pretty commonplace, and it is advising you what the alternatives are, how to solve foreseeable problems, and only then "drafting the documents" -- essentially arranging the words to say what you would want done -- and taking the risk of an error, that lawyers charge for.

While it generally costs more to prepare a Trust than a Will, a Trust often does a lot more than a Will.
One bit of advice. DO NOT USE PRE-PRINTED FORMS. Even the best pre-printed form is likely to have provisions in it that are harmful. Further, unlike lawyers, stationery stores and computer software manufacturers do not assume any responsibility for errors that are in the programs, language or that result from faulty execution.

When should I create a trust?

The only time that you can prepare and implement a Trust and an estate plan is while you are alive and have legal ("mental") capacity to enter into a contract. If you should become unable to manage your own affairs or suffer from some other disability which affects your legal capacity, your Trust may be effectively challenged by those who assert that you lacked capacity at the time the documents were created, that you were subjected to fraud, coercion or undue influence during the creation and implementation of your Trust.

The best time to discuss the need for a Trust and its role as part of a comprehensive estate plan with an attorney is now, while you have the capacity to do so.

How do I select the trustees and successor trustees?

A Trustee is a person or institution selected to follow the instructions provided by the declaration of Trust. A Trustee has a very high "fiduciary duty" to act with the utmost good faith in dealing with the Trust estate.

Many grantors and their respective spouses act as the initial Trustees of a revocable living Trust. In this way they remain in control until they are incapacitated or die. Then pre-selected successor Trustees are appointed in accordance with the terms of the declaration of Trust. Usually a spouse, family member or Trusted friend are selected as successor Trustees.

Trustees should be knowledgeable about financial matters, be Trustworthy, know how to manage and invest the Trust estate, care about the beneficiaries of the Trust, and have the financial capacity to reimburse the Trust in the event that they make serious mistakes. If a bank or Trust company is selected to serve as a Trustee of a Trust, it will usually charge a fee for this service, which is then paid from the Trust estate. An attorney can give you specific advice as to who you might name as a Trustee, in light of your own personal and family situation.

What is conservatorship?

If you suffer from an incurable disease or are involved in a debilitating accident and are unable to manage your own affairs, state law might require someone to go to court to have a conservator appointed by the court. The conservator is given the authority to make financial decisions and handle your financial affairs, under court supervision, when you lack the capacity to manage them on your own.

The conservator has to make periodic reports to the court and petition the court for additional authority under certain circumstances. Typically, the conservator may be paid for services rendered on your behalf and there will be attorney fees as well. In addition, the court will often require your conservator to purchase a "surety bond" which is a type of insurance policy, to protect the conservatorship estate. The costs and expenses of a conservatorship are paid by your estate.

How can a trust prevent a conservatorship proceeding?

A Trust is used to hold the property, and the Trustees manage the Trust estate. In the event of your incapacity your pre-appointed Successor Trustee(s) will manage the Trust estate in accordance with the instructions that you have provided. Thus, a properly prepared and funded Trust can enable you to avoid a conservatorship proceeding over your estate. Compared with the cost of a conservatorship proceeding, a Trust can be very attractive.

How can a trust lower the Federal Transfer Tax liability?

Everyone gets a "credit" against Federal Estate Taxes of $550,800 on an exemption amount of $1.5 million in 2004 and 2005 (or $2 million in 2006, 2007 and 2008). (Unless previously used up, in whole or in part, as a result of gifts of more than $11,000 to any one person in any year, or $12,000 to any person in any year starting in 2006).) Individuals and married couples with a total estate value less than the current exemption level don't have to worry about Federal Estate or Gift Tax (the exemption amount slowly increases in steps to $3.5 in the year 2009 but then drops back to $1 million when the estate tax is reinstated in 2011).

For those who are married, there is an unlimited marital deduction. All estate taxes can be avoided upon the death of the first spouse to die. However, the surviving spouse would have to remarry and give his/her entire estate to the new spouse in order to get another unlimited marital deduction. Most people would rather their children or other relatives benefit from the estate than a new spouse and his/her family.

An estate plan can take advantage of certain tax avoidance techniques for those who have accumulated some wealth; this gets more of your property to your intended beneficiaries and less to the federal government. By using a Trust, you can establish a tax by-pass Trust at your death to hold property for your children but enable it to provide for your surviving spouse during his/her lifetime. This enables you to place up to $1,000,000 (or the current exemption amount) in a Trust for the benefit of your surviving spouse and children (which will not be subject to estate tax upon the death of your surviving spouse). Coupled with your surviving spouse's estate and gift tax credit, this enables your spouse and you to send up to $2,000,000 (or the applicable exemption level in that calendar year) to your children free from Federal Estate and Gift Tax. (Some states also have state estate or inheritance taxes.)

What protection is available by a revocable 'living' trust?

A revocable living trusts is a vehicle that is very helpful in avoiding probate. During your lifetime, you can transfer ownership of your assets to the revocable trust so that it is owned by the trust at the time of your death, and thus not subject to probate.

A revocable trust is not a very good asset protection technique - assets that you transfer to the trust will remain available to your creditors. However, it does make it more difficult for creditors to access these assets; before doing so, the creditor must petition a court for a charging order to enable the creditor to get to the assets held in the trust.

In addition, in most instances a revocable trust becomes irrevocable, usually upon the death of the grantor. Once it is irrevocable, a typical "anti-alienation clause" protects the assets held in the trust form being used as collateral by the trust beneficiaries. While the assets are held in the trust, the beneficiaries do not have control over the property, and any distributions are subject to the trustee's discretion. Creditors cannot force a trustee to make a distribution to the trust beneficiaries; thus the assets held in a trust can remain outside the reach of the beneficiaries' creditors (until distributed into the hands of the beneficiary).



Asset Protection

Frequently Asked Questions covered by this section: What is asset protection planning?

Asset protection planning involves figuring out and applying a lawful series of techniques that protect your assets from claims of future creditors. The techniques are designed to deter potential creditors from going after you, and frustrate them if they do, generally by making it difficult or impossible for future creditors to grab hold of your assets or collect judgments against you.

In cases where significant sums are involved, asset protection planning often includes setting up a series of trusts, partnerships and/or off-shore entities to hold legal title to your assets. A future creditor who recognizes how difficult it would be to collect on any judgment it may win, might decide it makes little sense to pursue a claim, or be willing to settle for pennies on the dollar.
There is a very sharp dividing line between "legal" asset protection planning on the one hand, and actions to defraud creditors, which are criminal, on the other. For that reason it is essential to have an attorney guide you through the process.

We urge all visitors to Free Advice to beware of some operators, sometimes posing as foreign trust companies, that market packages of services that they claim will protect your assets. Some of them are criminal enterprises that will steal your assets. Some are fast buck artists that will leave you with no protection. Some will open you up to serious criminal charges. Many will do all three - take your money, leave you with no protection, and set you on the road to prison.

Why might I need asset protection?

If you are "wealthy", "comfortable" or even if you just have some positive net worth, most likely you are concerned about keeping what you have, and preventing others from taking it. This concern is real, as there are people who will take advantage of any opportunity to take what you have.

If you are a physician you are aware of horror stories about colleagues who lost everything after being held liable for medical malpractice in amounts far beyond their malpractice insurance.

Asset protection planning enables you to employ legal techniques to prevent anyone from taking your assets. However, there are limitations as to what you can and cannot do.

Your degree of exposure to risk of liability, the type of assets you own, and your total net worth are essential factors to consider when you and your lawyer develop a strategy for asset protection. Your occupation can be one indicator of the risk of liability -- for example, a pyrotechnics engineer has tremendous occupational exposure. Statistics can help you decide your risk factor, and help you to assess what kind of asset protection you need.

Insurance is the most common asset protection technique. By "transferring" the risk to an insurance company, you can usually protect your assets. But even if you buy insurance, it might not cover all possible risks that you face, or the amount you buy might not be sufficient, or the insurance company may be able to deny the claim (perhaps it could claim there were misstatements made in your application), or the insurance company may become insolvent. Asset protection planning helps you prepare for these "wild-card risks".

What are some simple asset protection techniques?

Many of the traditional forms of estate planning can be used effectively as asset protection techniques. Gifts of property not intended to defraud creditors remove the assets from your estate. If your child owns the farm, it is no longer at risk from your creditors - although your son's creditors and his spouse may pose a risk.

Retirement plans have a considerable amount of asset protection built in due to federal and state law. Spendthrift provisions in life insurance contracts and certain trusts can prevent creditor attack while the assets are outside the hands of the beneficiary. Conduction business as a corporation, using limited liability companies, limited partnerships and other business entities afford considerable personal liability protection as well as possible tax advantages.

When considering an asset protection plan, these traditional forms of asset protection should be the first ones considered. But they may not be enough.

How do I know if I need to employ additional asset protection techniques?

Together with an experienced lawyer you should first perform an asset risk analysis to assess both the likelihood and extent of your exposure -- in light of your occupation and other activities that could create liability - and the nature and extent of your assets, your family situation, as well as your own personal wishes and desires. You and the lawyer, perhaps with input from other professionals, would evaluate the various risks and exposures you face, and figure out how far you are willing to go to protect your assets from attack. Sometimes, and for some people, merely buying more insurance or incorporating your business will suffice. For others, more would be required to give you the level of confidence you desire.

Can I own property without exposing it to risk of loss?

A seasoned attorney, before filing a lawsuit, often conducts an "asset search" of the proposed defendant. The person filing the lawsuit will want to know whether it is worthwhile to sue, and whether a judgment would be collectible.

Information about you and your assets is readily available from public records. An investigative firm can quickly gather all sorts of information about you -- the location of your real property, bank and brokerage accounts, ownership of automobiles and water craft, business interests, any bankruptcy petitions you may have filed, plus all kinds of other personal information for a surprisingly low fee. Thus an attorney will be able to tell if the lawsuit is worth taking, based upon the ability to collect the potential judgment. Be aware that this information is available to almost anyone who knows how to go about obtaining it.

One key to an asset search is your name. By changing the name of the registered owner of a piece of property, you can change the ownership records, and your property will "disappear" from your asset information. Simple changes, such as recording the name of the owner of a piece of real property from William Smith to Bill Smith, or putting a piece of property in your spouse's name is not good enough. However, more innovative name changes can keep the true identity of the owner confidential.

It is important to note that changing the name of ownership may have other unintended consequences. For example, in California, if a parcel of real property is transferred to a family limited partnership, real property tax reassessment will be triggered. So if William Smith transfers his personal residence to the "Secretive Limited Partnership," his purpose of concealing the true name of the property owner will be achieved, but the local tax collector may investigate this change of ownership to see if his property tax can be increased. In addition, changing the ownership may trigger Federal gift taxes. So before you change the ownership of your property, consider the unintended consequences.

Transferring property out of your name may also result in a loss of control. Some people will trade a lower degree of control for the benefits obtained. The amount of control that you want to have over your property will help you to determine what asset protection technique should be used. As a general rule, the less control you have over your assets the greater the degree of your asset protection.

Do I have to employ asset protection for all types of assets?

All assets are not treated in the same manner. Some assets are exempt from attack, while others need more protection. For example, your bank account can be more easily attacked than the home you share with your spouse. Consider the difference between exempt and non-exempt property as you develop your asset protection plan.

Some examples of exempt property include:

(1) public and private retirement benefits;

(2) household furniture and furnishings;

(3) personal effects, such as clothing and jewelry;

(4) disability and health benefits;

(5) proceeds of life insurance and annuity policies;

(6) social security benefits; and

(7) tools of a trade or business.

State law governs whether property is exempt or non-exempt. When looking at your state law, be sure to check to see how much of an exemption is allowed for the particular type of property - it may be completely exempt, or exempt only up to a certain amount. For example, jewelry, heirlooms and works of art may be exempt up to $X, while 100% of the assets in your pension plan may be exempt.

Using the applicable exemptions, you and a knowledgeable attorney can structure your property holdings to turn non-exempt property into exempt property. For example, instead of putting cash into a bank account, you might decide instead to fund a retirement program.

Using the allowable exemptions is one of the most cost effective techniques for asset protection. Unfortunately, exemptions alone are insufficient to protect many of your assets; more sophisticated techniques may be required.

How can I protect my personal residence?

Depending on your state of residence, the "homestead" exemption may protect some or all of your interest in the house and the adjoining land that you occupy as a home. Creditors may not be able to force the sale of homestead property. The amount of the homestead exemption that is available is set by state statute.

If the equity in your residence exceeds the exemption allowed, one way to decrease it is to borrow against the property. You can use the proceeds of the loan to acquire additional exempt property. This strategy enables you to maximize the exemption available for a dwelling or a declared homestead.

Some state homestead examples are:

(1) California - between $50,000 and $100,000 (depending on the circumstances).

(2) Florida - up to 160 acres of contiguous land together with the improvements thereon if the homestead is located outside a municipality, or up to one-half acre of land together with the residence located thereon if the homestead is within a municipality.

(3) Texas - up to 200 acres of land, in one or more parcels, together with improvements thereon if the homestead is not located in a town or city, or not more than one acre of land, together with improvements thereon, if the homestead is located in a city, town or village. In Texas it does not matter if your homestead is worth $10,000 or $10 million.

How can I use a retirement plan to protect assets?

If your retirement plan is qualified under the Federal Employee Retirement Income and Security Act (ERISA), your ownership in the plan is exempt. No third party is able to get to retirement funds held in ERISA qualified plans. This makes an ERISA qualified plan an excellent asset protection technique.

Conversely, a private retirement plan that is not ERISA-qualified is not automatically exempt from judgment creditors. This does not mean that the funds are non-exempt, it just means that formalities - such as filing a Claim of Exemption in the event of a levy - must be followed in order to protect these assets.

Self-employed retirement plans, IRAs and annuities are exempt only to the only to the extent provided by state law. For example, in California, the only non-ERISA retirement plan assets that are exempt are those necessary to provide for your support when you retire, and for the support of your spouse and dependents, taking into account all resources that are likely to be available for your support when you retire.

From an asset protection standpoint, you should consider maximizing the earnings that are placed into your ERISA retirement plan. In addition to the deferral of income tax, you obtain substantial protection against creditors while the funds remain in the retirement plan. In most instances, funds are protected until they are distributed out of the retirement plan and placed in your hands.

What techniques can I use with my business property?

The legal structure of your business is extremely important. State law enables you to create a legal entity - a separate "identity" from your own person - under which you can transact business, without the risk of exposing your assets to any personal liability that might arise out of your business affairs.

Sole proprietorship affords the least amount of asset protection. Anything you or your employees do in a business that is a sole proprietorship exposes your assets.

In terms of asset protection, being a general partner can be even worse. Anything that one partner, or any employee, does in the course of the business affects all of the partners, because each partner of the of a general partnership is personally responsible for all obligations of the partnership.

To avoid risking personal liability for activities arising out of business, you need to consider other available forms of business organization which provide greater protection. Changing the form of business ownership will involve some legal work, documentation, filings with various government agencies, and have some tax impacts. They should be discussed with an attorney.

Some of the more common forms of business ownership which reduce personal liability are discussed in the sections on Corporations and Partnerships.

What protection is available by a Revocable 'Living' Trust?

A revocable living trusts is a vehicle that is very helpful in avoiding probate. During your lifetime, you can transfer ownership of your assets to the revocable trust so that it is owned by the trust at the time of your death, and thus not subject to probate.

A revocable trust is not a very good asset protection technique - assets that you transfer to the trust will remain available to your creditors. However, it does make it more difficult for creditors to access these assets; before doing so, the creditor must petition a court for a charging order to enable the creditor to get to the assets held in the trust.

In addition, in most instances a revocable trust becomes irrevocable, usually upon the death of the grantor. Once it is irrevocable, a typical "anti-alienation clause" protects the assets held in the trust form being used as collateral by the trust beneficiaries. While the assets are held in the trust, the beneficiaries do not have control over the property, and any distributions are subject to the trustee's discretion. Creditors cannot force a trustee to make a distribution to the trust beneficiaries; thus the assets held in a trust can remain outside the reach of the beneficiaries' creditors (until distributed into the hands of the beneficiary).

What protection is available through a Family Limited Partnership?

A Family Limited Partnership ("FLP") is a limited partnership that is formed to manage and control jointly-owned family property. All the requisites of a limited partnership must be followed in order to have a valid FLP. Upon formation, the assets of the family are assigned or transferred into the FLP for ownership, management and control. In most FLP's, the parents are the general partners with a 1% interest, while the children and siblings share the remainder as limited partners. Thus the parents' exposure to risk of loss of property held by the FLP is greatly reduced. Even if a charging order is obtained by a creditor, the partnership can limit distributions (for legitimate purposes) to reduce exposure.

An FLP also can have a dramatic effect on gift and estate taxes. By transferring assets to a FLP, general partners can use valuation discounts to lower values. With lower valuations, the amount of tax imposed can be substantially reduced.

Can I use bankruptcy to protect my assets?

Bankruptcy can protect your assets in several ways. In a Chapter 7 (liquidation) case, the trustee will take all your non-exempt assets for the benefit of your creditors. But sometimes you can convert nonexempt assets into exempt ones prior to filing. Exemption planning requires advice from a local attorney because rules vary between states and even between judges within a single state. If a judgment creditor (someone who has won a lawsuit against you) obtains a lien on your property, and if that lien impairs an exemption to which you're entitled under the Bankruptcy Code, you can "avoid" that lien. Avoiding the lien wipes it out, which prevents the lien holder from seizing your property and selling it to satisfy your debt. Some states have homestead laws that protect you only from subsequent creditors. In those states, a bankruptcy filing will probably allow you to use the state homestead exemption against all your creditors, even if you file the homestead the day before the bankruptcy.

Finally, in a Chapter 13 case, your plan may allow you to pay off the arrears on your mortgage or car loan, thereby avoiding foreclosure or repossession.

What about foreign trusts and other off-shore entities?

For people who have larger estates, and thus larger potential creditor exposures (running into millions of dollars), "off-shore" foreign trusts can be used to provide a high degree of asset protection. Common destinations for these trusts, such as the Bahamas, Bermuda, the Turks and Caicos Islands, the Cayman Islands, the Cook Islands, Gibraltar, and the Isle of Man, have laws which tend to insulate and protect grantors. In establishing a foreign trust, you transfer ownership of your assets a trust that has only foreign trustees (with no offices or agents in the United States), which manages and administers the trust property from the off-shore sites. When your creditors begin looking for your assets, even if they discover the off-shore trust they will have to deal with the foreign trustee. The creditors may then find that there is no available remedy obtainable against an uncooperative foreign trustee. This is because the courts here in the United States have no jurisdiction over foreign trustees, and therefore are unable to provide any relief to creditors. Further, the actual geographic distance between the creditor and the trustee poses significant real barriers to creditors.

However, care must be taken prior to establishing and funding a foreign trust. The grantor should execute a statement of solvency with a balance sheet (or other appropriate financial statement) showing a positive net worth. This is essential in order to establish that you are not entering into this transaction in order to defraud creditors. Such a statement of solvency will also help those who assist you, so that they will not be attacked on the basis that they were co-conspirators in a fraudulent scheme.

Further, not all of your property should be placed into the foreign trust. You should retain locally assets sufficient to sustain your lifestyle, and transfer the remaining bulk of the estate to the off-shore foreign trust for protection. Remember it may be nearly as difficult for your family to recover your money from a foreign trust as it would be for your creditors to do so.

It is also possible to put foreign trusts, corporations, and other entities together into a limited partnership. In this case, creditors may be forced to wade through several layers of protection before they can get to your assets. Multiple entity structures serve to dissuade casual creditors as only the most sophisticated and well financed creditors have the knowledge, resources, and time to penetrate multiple entity structures. While the cost to you to establish multiple entities is increased, often the level of protection afforded is exponentially increased.

Why do I have to be careful about 'fraudulent transfer rules'?

There are many federal and state statutory prohibitions regarding efforts you take to deter creditors.

Whenever you employ an asset protection technique, you must be careful not to trigger prohibitions against fraudulent transfers. A fraudulent transfer occurs whenever you transfer your property in an effort to stop a legitimate creditor from taking the asset, in order to satisfy a legitimate debt. Further, if you transfer your property away while you know of the existence of a creditor, or have reason to know that a potential creditor exists, such a transfer may be considered fraudulent. The transfer could be undone, and you could be charged with a crime and face fines, restitution orders, probation or incarceration.

Many attorneys are reluctant to assist people in certain asset protection schemes because of the fraudulent transfer rules. An attorney who participates in a fraudulent transfer scheme can be regarded as a co-conspirator in the fraud, and can be subject to the same penalties as his/her client. By creating a statement of solvency prior to the proposed transfer, you can protect the transaction from being labeled as fraudulent.

How can a trust lower the federal transfer tax liability?

Everyone gets a "credit" against Federal Estate Taxes of $550,800 on an exemption amount of $1.5 million in 2004 and 2005 (or $2 million in 2006, 2007 and 2008). (Unless previously used up, in whole or in part, as a result of gifts of more than $11,000 to any one person in any year, or $12,000 to any person in any year starting in 2006).) Individuals and married couples with a total estate value less than the current exemption level don't have to worry about Federal Estate or Gift Tax (the exemption amount slowly increases in steps to $3.5 in the year 2009 but then drops back to $1 million when the estate tax is reinstated in 2011).

For those who are married, there is an unlimited marital deduction. All estate taxes can be avoided upon the death of the first spouse to die. However, the surviving spouse would have to remarry and give his/her entire estate to the new spouse in order to get another unlimited marital deduction. Most people would rather their children or other relatives benefit from the estate than a new spouse and his/her family.

An estate plan can take advantage of certain tax avoidance techniques for those who have accumulated some wealth; this gets more of your property to your intended beneficiaries and less to the federal government. By using a Trust, you can establish a tax by-pass Trust at your death to hold property for your children but enable it to provide for your surviving spouse during his/her lifetime. This enables you to place up to $1,000,000 (or the current exemption amount) in a Trust for the benefit of your surviving spouse and children (which will not be subject to estate tax upon the death of your surviving spouse). Coupled with your surviving spouse's estate and gift tax credit, this enables your spouse and you to send up to $2,000,000 (or the applicable exemption level in that calendar year) to your children free from Federal Estate and Gift Tax. (Some states also have state estate or inheritance taxes.)

How can a trust prevent a conservatorship proceeding?

A Trust is used to hold the property, and the Trustees manage the Trust estate. In the event of your incapacity your pre-appointed Successor Trustee(s) will manage the Trust estate in accordance with the instructions that you have provided. Thus, a properly prepared and funded Trust can enable you to avoid a conservatorship proceeding over your estate. Compared with the cost of a conservatorship proceeding, a Trust can be very attractive.

I am middle age, engaged to be married shortly. I have a 19 and 24-year old; my fiancÚ has a 12 and 10 year old. Each of us has wills leaving our assets to our own children. When we marry, what should be done in regard to our estates? Our assets are not likely to exceed $600,000.

There is no one answer, but what you each seem to want makes sense, seems fair, and reasonable.

The first thing that may make sense is to do a pre-marital agreement that waives claims against the other's estate. It also could provide for you to keep the property you bring into the marriage separate, so if things don't work out neither of you loses what you started with. That's not being "unromantic", just realistic.

The second is to each prepare new wills. One approach is to leave your pre-marital property to your kids from the first marriage, and leave your post-marital (other than any future inheritances) property to each other.

Third, buy an inexpensive TERM life insurance policy on each other to protect each of you financially in the event of the other's death. If you are in decent health and in your 40s-50s, it is very cheap, perhaps $800 per year for a $100,000 policy.

Fourth, agree to re-examine things in 5 years. If you still both feel the same way, leave it. But in 30 years you may feel different.

Fifth, most people's major assets are their life insurance, IRAs and 401(k) and similar plans. Name new beneficiaries, and get the consent from the other to name your own kids as beneficiaries, waiving any spousal rights.

Sixth, for a jointly owned home, consider use of Q-TIP trusts that give the survivor the value of the other's half for life and then at the second death, the value of one spouse's half goes to the first to die's kids unless it is actually needed for the survivor's support.

Since my spouse died, I was thinking about adding the names of my adult children to my house deed. Is this a good idea?

While sharing title to property avoids probate after your death, naming "joint tenants" has legal and tax consequences. In effect, adding a joint tenant to your home deed means that you have now gifted a portion of that property to those named. And when you make gifts in excess of $10,000 (increased in 2002 to $11,000) in value within a calendar year to someone other than a spouse, the IRS may expect you to file a gift tax return, and in some cases pay gift taxes.

When gifting an interest in your home to anyone, you also are jeopardizing your own financial security. If the person named on the deed owns the home in its entirety, then he or she can decide to sell the home out from under you. Also, if you transfer property in some states you may lose certain property tax and other exemptions you enjoy as a senior, veteran, or homesteader.

A better idea is to create a Living Trust and name your children as beneficiaries of the Trust after you die. This has the advantage of avoiding probate, yet it gives you total control of your house prior to transferring ownership. You can also change beneficiaries if you so desire, and also provide for the circumstance if one child predeceases you.



Estate Planning

Frequently Asked Questions covered by this section: What is a Living Will?

A living will is your written expression of how you want to be treated in certain medical conditions. Depending on state law, this document may permit you to express whether or not you wish to be given life-sustaining treatments in the event you are terminally ill or injured, to decide in advance whether you wish to be provided food and water via intravenous devices ("tube feeding"), and to give other medical directions that impact the end of life. "Life-sustaining treatment" means the use of available medical machinery and techniques, such as heart-lung machines, ventilators, and other medical equipment and techniques that will sustain and possibly extend your life, but which will not by themselves cure your condition. In addition to terminal illness or injury situations, most states permit you to express your preferences as to treatment using life-sustaining equipment and/or tube feeding for medical conditions that leave you permanently unconscious and without detectable brain activity.

A living will applies in situations where the decision to use such treatments may prolong your life for a limited period of time and not obtaining such treatment would result in your death. It does not mean that medical professionals would deny you pain medications and other treatments that would relieve pain or otherwise make you more comfortable. Living wills do not determine your medical treatment in situations that do not affect your continued life, such as routine medical treatment and non life-threatening medical conditions. In all states the determination as to whether or not you are in such a medical condition is determined by medical professionals, usually your attending physician and at least one other medical doctor who has examined you and/or reviewed your medical situation. Most states permit you to include other medical directions that you wish your physicians to be aware of regarding the types of treatment you do or do not wish to receive.

What is a Health Care Proxy?

A "health care proxy," sometimes called a "health care surrogate" or "durable medical power of attorney," is the appointment of a person to whom you grant authority to make medical decisions in the event you are unable to express your preferences. Most commonly, this situation occurs either because you are unconscious or because your mental state is such that you do not have the legal capacity to make your own decisions. Normally, a single individual is appointed as your health care proxy, though quite commonly one or more alternate persons are designated in the event your first choice proxy is unavailable. As with the living will, medical professionals will make the initial determination as to whether or not you have the capacity to make your own medical treatment decisions. The health care proxy is a durable power of attorney specifically designed to cover medical treatment. As with living wills, depending on your state of residence, it may be a state-determined form or may be drafted individually by your estate planning attorney.

Why Have Health Directives?

Regardless of the name your state gives to these documents, their purpose is to allow you to express your preferences concerning medical treatment at the end of your life. By expressing such preferences in a written legal document, you are ensuring that your preferences are made known. Physicians prefer these documents because they provide a written expression from you as to your medical care and designate for the physician the person he or she should consult concerning unanswered medical questions. Rather than the physician having to obtain a consensus answer from your family as to your treatment, the physician knows your preferences and knows who you want to provide decisions when you cannot do so.

These documents provide your expressed wishes, rather than making the family guess your desires. Making your wishes known in advance prevents family members from making such choices at what is likely one of the most stressful times in their lives. Further, providing such information and designating a health care proxy means that the physician knows whose direction is to be followed in the event your family disagrees as to what medical treatment you would want.

How do you obtain and Maintain Living Wills and Health Care Proxies?

Your personal estate planning attorney can provide you with each of these documents. Generally, these documents require at least two witnesses. It is the policy of some hospitals and other medical institutions not to permit their employees to witness the signing of such documents. In most states there are other restrictions as to who may witness such documents. Generally, the persons who act as witnesses are not permitted to be individuals entitled to any inheritance as a result of your death, either by will or by state law. Often the law does not permit a person to witness such documents if they are related to you by blood or by marriage, or if they are responsible for payment of your medical bills. In any event, the witnesses must be adults as defined by your state law.

While all states recognize these advance health care directives, the law varies as to recognizing a document prepared in another state. It is not necessary to prepare additional documents in case you might vacation in another state. However, if you spend a considerable amount of time living in more than one state, you should consider having advance directives prepared in each of the states in which you spend significant periods of time.

Should you change your mind as to your living will decisions or your choice of health care proxy, you can simply destroy the document you have and create a new one. Once you have a living will, health care proxy, or advance health care directive, you should keep it among your important papers. Make sure a responsible adult, such as the named health care proxy or your estate planning attorney, knows where you keep these documents. If you have a regular physician who keeps your medical records, you should provide a copy of the documents to him or her for your medical records. In the event you are admitted to a hospital you should take these documents with you at the time you are admitted and permit the hospital to place copies into your medical files. It is also a good idea to discuss the decisions you have made in your documents with family members so that they may better know and understand your wishes concerning these matters.

What about Organ and Tissue Donation?

In many states you can include in your advance directive your preference to become an organ or tissue donor at the time of death. State law varies, and you should check with your estate planning attorney. Even if your state is one in which your driver's license contains an organ or tissue donor statement, you need to express this by letting your health care proxy, your family, and your physician know your desire to become a donor. In some states you also need to be registered as an organ and tissue donor.

What is estate planning?

Estate planning is a process to consider alternatives for, to think through, and to set up legally effective arrangements that would meet your specific wishes if something happens to you or those you care about. Good estate planning is more than just a simple Will. Estate planning also typically minimizes potential taxes and fees, and sets up contingency planning to make sure your wishes regarding health care treatment are followed. On the financial side, a good estate plan coordinates what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event you became disabled or if you die. On the personal side, a good estate plan includes directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you select would do that for you, and know when you would want them to authorize heroic measures and when you would prefer they pull the plug.

Should I have an estate plan?

You should have an estate plan if:
  • You are the parent of minor children
  • You have property that you care about
  • You care about your health care treatment.
If you do not have minor children, do not care about your property, and have no concerns about your health care treatment, then you do not need an estate plan. But if you meet any of these categories above, you should have an estate plan.

When should I start my estate plan?

The only time that you can prepare and implement an estate plan is while you are alive and have legal capacity to enter into a contract. If you are unable to manage your own affairs or suffer from some other disability which affects your legal capacity, your estate plan may be effectively challenged by those who assert that you lacked capacity at the time the documents were created, that you were subjected to fraud, coercion or undue influence during the creation and implementation of your plan.

What sorts of instructions are made as part of an estate plan?

An estate plan consists of one or more documents that set forth instructions. Some documents are used to control health care decisions, others control your property in the event of your incapacity, and still other documents will control the distribution of your property in the event of your death.

Does it make sense to use an attorney? Is it expensive?

Only an attorney who regularly practices in the fields of wills, trusts, probate and estate planning is able to provide you with really sound legal advice as you put your estate plan into place. Attorneys are subject to regulation by state bar organizations, many of which have continuing education requirements and mandatory liability insurance in case the lawyer makes a mistake. When you speak with an attorney, you can get answers to your questions --including how much it would cost. Often the expense incurred in retaining an attorney to prepare and help you put an estate plan into place is worth hundreds of times what you and your family would pay with no planning or poor planning. It would also avoid the financial and emotional nightmares that can occur with a poorly drafted (or improper) plan.
What about books on estate planning?

As you begin the process caveat emptor (let the buyer beware). There is a lot of information out there; while some of it is very good, some is misleading at best. There are many over-the counter guides to estate planning available at bookstores. Some are pretty decent, most are awful. If you are planning to do it yourself, be prepared to spend a fair amount of time on this project.

What are some typical estate planning documents?

Several of the following documents are typically used as part of the estate planning process:
  • A Will, sometimes called a Last Will and Testament, to transfer property you hold in your name to the person(s) and/or organization(s) you want to have it. A Will also typically names someone you select to be your Personal Representative (or Executor) to carry out your instructions and names a Guardian if you have minor children. A Will only becomes effective upon your death, and after it is admitted to probate.
  • A Durable Power of Attorney for Health Care or Health Care Proxy appoints a person you designate to make decisions regarding your health care treatment in the event that you are unable to provide informed consent.
  • A Living Will or Directive to Physicians is an advance directive that gives doctors and hospitals your instructions regarding the nature and extent of the care you want should you suffer permanent incapacity, such as an irreversible coma.
  • A Durable Power of Attorney for Property appoints a person you designate to act for you and handle financial matters should you be unable or perhaps unavailable to do so.
  • A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You can select the person or persons you want -- often even yourself -- as the Trustee(s) to carry out the instructions you want in the Trust and name one or more Successor Trustees to take over if you cannot. Unlike a Will, a Trust usually becomes effective immediately, continues in force during your lifetime even in the event of your incapacity, and continues after your death. Most Trusts are revocable which allows the person who creates the Trust to make future changes, modifications and even to terminate it. (If the Trust is irrevocable, changes, modifications and termination are very difficult (and sometime impossible), although such Trusts often carry some tax benefits.) Trusts also help you avoid or minimize the expenses, delays and publicity of probate.
  • A Family Limited Partnership can be used to own and manage your property, in a similar manner to a Trust, but allowing additional tax planning techniques to be employed. Family Limited Partnerships are typically used for those who have large estates and thus have a need for specialized estate planning in order to minimize federal and state estate/death/inheritance taxes as well as provide elements of asset protection.
How can an estate plan prevent a conservatorship proceeding?

An estate plan uses several tools that can prevent the court from gaining jurisdiction over your affairs.
  • A Living Will or Directive to Physicians is used to determine if artificial life support systems are to be used or withheld.
  • A Durable Power of Attorney for Health Care is used to provide authority to a person, in whom you have the utmost trust and confidence, to make decisions regarding health care treatment when you are unable to provide informed consent.
  • A Durable Power of Attorney for Property enables you to authorize a person to act in your place and stead in the event of your incapacity; this attorney-in-fact can manage your financial affairs without the need to have intervention by the courts.
  • A Trust or Family Limited Partnership is used to hold property; the Trustees or Partners manage the property held by either of these entities.
  • Both the Trust and the Family Limited Partnership continue to manage the property even if you are incapacitated.
Thus, a properly prepared estate plan can enable you to avoid a Conservatorship proceeding over your estate. Compared to the cost of a Conservatorship proceeding, an estate plan can be very attractive.

How can I reduce my Estate Tax upon my death?

Federal Estate Taxes are only charged against Estates with assets exceeding $1 million in value (2002 and 2003). If you think your Estate will exceed $1 million at the time of your death (or $2 million if you are married), the following general tips can be used to reduce death (estate) taxes by lowering the value of your Estate at the time of your death. This amount that is exempt from Federal Estate Tax increases to 1.5 million in 2004 and 2005 (3 million if you are married); 2 million in 2006 through 2008 (4 million if you are married); 3.5 million in 2009 (7 million if you are married) and then in 2010 there is no federal estate tax. However in 2011 the Federal Estate Tax is returned to the 2002 level.

What is a final arrangements document?

It is a way to express your death and burial preferences in writing. What you choose to include in your final arrangements document is a personal matter. A typical final arrangements document may include:
  • The name of the mortuary or funeral home that will handle burial or cremation
  • How your remains will be transported to the cemetery/memorial park and gravesite
  • Whether or not you want to be embalmed
  • Details of any ceremony you want before the burial or cremation
  • Who your pallbearers will be (if you want any)
  • Type of casket or container in which your remains will be buried or cremated, including whether you want it present at any after-death ceremony
  • Details of any marker you want to show where your remains are buried or interred
  • Where your remains will be buried, stored or scattered
  • Details of any ceremony you want to accompany your burial, interment or scattering.
Can I include my final arrangement preferences in my Will?

A will is not a good place to express your death and burial preferences because it probably won`t be located and read until several weeks after you die. The Will should be reserved for the purpose of dictating how you distribute your assets. It`s best to prepare a separate final arrangements document before you die. Preplanning some of your final arrangements not only can spare your survivors the difficulty of making these decisions while they are grieving, but it can save a great deal of money. For many people, death goods and services cost more than anything they bought during their lives except homes and cars. Wise comparison-shopping in advance can help ensure that costs will be controlled or kept to a minimum.

What happens if I don`t prepare a final arrangement document?

If you die without leaving written instructions about your death and burial preferences by preparing a final arrangements document, state law will determine who will have the right to decide how your remains will be handled. In most states, the following people (in this order) have the right to decide and the responsibility of paying for the reasonable costs of disposing of the remains:
  • Spouse
  • Child or children
  • Parent or parents
  • The next of kin, or
  • A court-appointed public administrator
Disputes may arise if two or more people share responsibility for final arrangement decisions, such as whether the body of a parent should be buried or cremated. These disputes can be avoided if you are willing to do some planning and express your wishes in writing.

How can I prepay for my final arrangements?

Shopping around and prepaying for the most suitable and affordable funeral goods and services is a wise idea. By preplanning, your survivors can be spared from having to make these decisions while they are grieving. You can also spare your loved ones from the financial burden of having to entirely pay for your funeral arrangements-which can be quite costly. The following are typical ways to prepay for final arrangements.

Have a licensed funeral director at your local funeral home or mortuary establish a regulated Trust fund. If you choose this method, be sure you go to a funeral home that you expect will stay in business at the time of your need. There are times when funeral homes have gone out of business and the consumer finds him/herself without funds and without recourse. Also, be sure that you can transfer or withdraw funds without incurring a large financial penalty. While there are laws that regulate prepayment plans, it`s best to be careful because there are cases of Trust fund abuse and theft by funeral homes and mortuaries which could be quite devastating to your survivors.

Purchase a life insurance policy that approximately equals the projected value of your funeral.

Go to your bank or savings institution to set up a Totten Trust or Payable Upon Death (P.O.D) account earmarked for your final arrangement expenses. Most financial institutions will set one up for a small fee. Unlike money applied to traditional funeral prepayment plans, these funds are easily transferred or withdrawn, and you have complete control over the money while you are alive.

What services can I expect to receive from a mortuary or funeral home?

Most mortuaries or funeral homes are equipped to handle many of the details related to disposing of a person's remains. These include:
  • Collecting the body from the place of death
  • Storing the body until it is buried or cremated
  • Making burial arrangements with a cemetery or memorial park
  • Conducting ceremonies related to the burial
  • Preparing the body for burial, and
  • Arranging to have the body transported for burial
The costs of these services vary, depending on which mortuary or funeral home you choose. It is essential that you shop around if cost is an important part of your decision. Ask for the General Price List whenever you visit a funeral home or mortuary. The General Price List must, by law, contain identifying information, itemized prices for the various goods and services that each funeral home/mortuary sells, and other important disclosures. The General Price List enables consumers like you to comparison shop and to purchase, on an itemized basis, only the goods and services you want. By law, if you request to see the General Price List, the funeral home/mortuary MUST, by law, comply.

What is a guardian?

A guardian is a person who is designated to make legal, financial, and health care decisions for you if you become incapacitated or incompetent and can no longer make these decisions for yourself. A guardian can be any competent person, including a spouse, a friend, a relative, a non-profit agency, or a public or private corporation. If a person is considered incompetent and a relative, agency, or corporation cannot be found or considered as a guardian, then a public agent guardian will be appointed.

In some states, guardianship is known as custodianship, conservatorship, or curatorship. In each case the guardian may be called a custodian, conservator, or curator. The person whom the guardian is appointed to is called the ward.

Guardians can be appointed to:
  • Decide on the ward`s living arrangements
  • Assure that good health care is provided to the ward
  • Approve needed medical, legal, dental or other services for the ward
  • Take care of the ward`s personal belongings
  • Take legal protective action on behalf of the ward
  • Handle the ward`s financial affairs
  • Maintain the ward`s personal records
What types of guardians are appointed for a ward`s care?

There are two types of guardians appointed for a ward's care:
  • Guardian of the Person. The guardian may provide for medical care services and determine the place and kind of residential setting best suited for the ward. The guardian must also present a detailed plan of the ward`s care to the court every year for review.
  • Guardian of the Property. The guardian takes an inventory of the ward`s property, invests it prudently, uses it for the ward`s support, and accounts for the ward`s property by providing detailed annual reports with the court. The guardian must also obtain court approval for certain financial transactions. In most cases a single guardian is appointed to handle all responsibilities of both the ward`s property and health care. You may appoint a guardian of the person, the property or both for limited time periods and for limited purposes. Generally, this is the case only for individuals who request a guardian while they are still competent. Normally, guardianship is the last resort for people who are incompetent and can no longer do things for themselves. In these cases, guardianship remains in effect for the rest of the ward`s life.
Are conservators paid?

Typically a conservatorship allows the conservator to be paid for his or her services. The conservator is also entitled to attorney fees to seek legal advice. In addition, the court will require a conservator to purchase a type of insurance policy known as a surety bond to protect the conservatorship estate. The costs and expenses of a conservatorship are paid from the property of the person.

How long does a conservatorship last?

Jurisdiction of the court in a conservatorship continues while the incapacity exists but ends at death. The conservator has to make periodic reports to the court and petition the court for additional authority under certain circumstances.

My close relative is losing it and doing bizarre things. What can I do?

If a person has truly lost mental competence, and is unable to exercise rational control over his or her property, the courts may appoint a conservator in a conservatorship proceeding.

Just because someone is acting a bit eccentric is not likely to be sufficient to justify the appointment of a conservator. The courts are likely to respect a person`s wishes to control his or her own affairs unless convinced that the person really needs to be protected against him or herself. A very careful determination of mental capacity must be made, and this typically involves at least one physician, often a psychiatrist, and a lawyer familiar with elder law matters.

What is a Power of Attorney?

Powers of Attorney are governed by the law of agency, a branch of common law concerned with the delegation of power from one person, generally called the principal, to another, called an attorney-at-fact or agent.

When a person becomes incapacitated, the government or the court often steps in and appoints someone to represent and make legal decisions that the person would have to take. One of the ways to avoid government or court intervention, and the appointment of a stranger to act as your guardian, is to use a Power of Attorney. A Power of Attorney is a written document stating that one person gives to another the full power and authority to represent him or her. It must be signed by both the attorney and the principal, witnessed by two people and notarized.

What is a Durable Power of Attorney?

A durable power of attorney is a form of agency. The person who gives the power is the principal, and the person who receives the power is the attorney-in-fact or agent. Durable in this context means that the agent`s power will survive the principal`s incapacity or disability. As a result, a Durable Power of Attorney can be used as an alternative to guardianship in some states under certain circumstances, provided the principal executed the document before losing capacity. There are two types of Durable Power of Attorney: Financial Durable Power of Attorney and Healthcare Power of Attorney. The difference between the two is the authority granted to the agent, as described below:
  • The Financial Durable Power of Attorney is also known as a General Durable Power of Attorney. The agent`s authority to act for the principal under a Financial Durable Power of Attorney is based on the powers that the principal gives to the agent. Whether broad, general powers or limited, the specific powers given to the agent are completely determined by the principal. Among other things, the principal may delegate to the agent in the Financial Durable Power of Attorney the authority to make deposits and withdrawals from his/her checking account, to file his/her tax returns, and to sell his/her home. However, there are a few powers that the principal may not delegate. For example, the agent cannot prepare a Will, vote, or seek a divorce on the principal`s behalf. If the agent has a financial interest in the subject matter of the power of attorney, the power is generally irrevocable. Most senior citizens who execute Durable Powers of Attorney are getting assistance with their day to day personal affairs and their agents do not have an ownership interest in the senior`s property which would preclude revocation. In addition, revocation can be by implication, in addition to, destruction of the document or express revocation by the principal.
  • A Healthcare Power of Attorney specifically grants authority to the agent to make decisions about and relating to medical treatment. For example, the agent may consent to treatment, refuse to consent to treatment, or withdraw consent to treatment. In addition to these decisions directly about medical treatment, the agent may make all arrangements at any hospital or nursing care facility, employ or discharge care personnel, request, receive, and review any information about the personal affairs or physical or mental health of the principal.
In preparing a Financial or Healthcare Durable Power of Attorney, the principal must sign the document in the presence of two qualified witnesses, and it must be notarized. As laws vary from state to state, it would be in your best interest to consult an Estate Planning attorney in your area if you want more information about Powers of Attorneys.

What options do I have in assigning Power of Attorney?

There are many ways to designate a decision-maker for you with a Power of Attorney document. You can assign a General Power of Attorney that covers all of your financial and personal decisions, or a Limited Power of Attorney that only covers decision-making in areas that you specify. You can make your Power of Attorney Durable, which means that it stays in effect if you become incompetent. Or, a Power of Attorney can be springing, which means that it becomes effective only when you become incompetent. Another option is to delegate a Health Care Proxy or Durable Health Care Power of Attorney, a person designated to make health care decisions for you.

What does a financial attorney-in-fact (agent) do?

Many times, people will give an attorney-in-fact broad power over their finances. But you can give your attorney-in-fact as much or as little power as you wish. You may want to give your attorney-in-fact the authority to do some or all of the following:
  • Use your assets to pay your everyday expenses and those of your family
  • Buy, sell, maintain, pay taxes on and mortgage real estate and other property
  • Collect benefits from Social Security, Medicare, other government programs or civil or military service
  • Invest your money in stocks, bonds and mutual funds
  • Handle transactions with banks and other financial institutions
  • Buy and sell insurance policies and annuities for you
  • File and pay your taxes
  • Operate your small business
  • Claim property you inherit or are otherwise entitled to
  • Hire someone to represent you in court, and
  • Manage your retirement accounts.
Whatever powers you give the attorney-in-fact, the attorney-in-fact must act in your best interests, keep accurate records, keep your property separate from his or hers and avoid conflicts of interest.



Elder Law

Frequently Asked Questions covered by this section: What is elder law?

Elder Law is a relatively new specialized field of law that deals with the issues faced by the fastest growing segment of the US population, the elderly. It combines elements of Estate Planning, Wills and Trusts, Conservatorship, Health Care Planning and Medicare/Medicaid Planning.

My close relative is 'losing it' and doing bizarre things. What can I do?

If a person has truly lost mental competence, and is unable to exercise rational control over his or her property, the courts may appoint a "conservator" in a "conservatorship" proceeding.

Just because someone is acting a bit eccentric is not likely to be sufficient to justify the appointment of a conservator. The courts are likely to respect a person's wishes to control his or her own affairs unless convinced that the person really needs to be protected against him or herself.

A very careful determination of mental capacity must be made, and this typically involves at least one physician, often a psychiatrist, and a lawyer familiar with elder law matters.

How long does conservatorship last?

Jurisdiction of the court in a conservatorship continues while the incapacity exists but ends at death. The conservator has to make periodic reports to the court and petition the court for additional authority under certain circumstances.

Are conservators paid?

Typically a conservatorship allows the conservator to be paid for his or her services. The conservator is also entitled to attorney fees to seek legal advice. In addition, the court will require a conservator to purchase a type of insurance policy known as a "surety bond" to protect the conservatorship estate. The costs and expenses of a conservatorship are paid from the property of the person.

How can an estate plan prevent a conservatorship proceeding?

An estate plan uses several tools which can prevent the court from gaining jurisdiction over your affairs.

A Living Will or Directive to Physicians is used to determine if artificial life support systems are to be used or withheld.

A Durable Power of Attorney for Health Care is used to provide authority to a person, in whom you have the utmost trust and confidence, to make decisions regarding health care treatment when you are unable to provide informed consent.

A Durable Power of Attorney for Property enables you to authorize a person to act in your place and stead in the event of your incapacity; this attorney-in-fact can manage your financial affairs without the need to have intervention by the courts.

A Trust or Family Limited Partnership is used to hold property; the Trustees or Partners manage the property held by either of these entities. Both the Trust and the Family Limited Partnership continue to manage the property even if you are incapacitated.

Thus, a properly prepared estate plan can enable you to avoid a Conservatorship proceeding over your estate. Compared to the cost of a Conservatorship proceeding, an estate plan can be very attractive.

My father cannot do simple math. What can be done?

Some people simply are not able to manage their own financial affairs. For these people, there are a number of courses of action, depending on the mental state of the person and the laws of the home state. A popular choice is to obtain a power of attorney, which is a notarized, revocable document allowing you to handle a specific matter or a wider range of affairs. It can involve one or more than one person, but if they are required to act together, getting consensus on how to handle your affairs will, undoubtedly, prove to be irritating and infuriating at times.

They are three types of power of attorney: (1) a durable power of attorney that remains in effect during incompetence or other disability; (2) a standby power of attorney that is triggered when there is an incapacity to manage affairs; and (3) a temporary power of attorney that generally applies only if an emergency arises.

A Guardianship may also be used. The guardian, a relative, friend, or heir, can be appointed by the court to handle your affairs and well-being.

My dad has some savings. I fear he will have to go into a nursing home, and that will wipe out all his savings. Is there anything I can do?

There are very strict laws, with criminal penalties, designed to prevent people from giving their property away at the last moment, or even within a few years of the time that they enter a nursing home, if the result is that the Government will be expected to pay the costs of nursing home or other care, rather than the person himself from his or her assets.

If you anticipate that you may have to enter a nursing home down the road, an elder care attorney may be able to help you create a plan that will both protect much of your assets and make you eligible for Government benefits.

I am a senior citizen. Do I have the right to refuse to consent to medical treatment?

Yes, if you are in full command of your senses and understand the pros and cons of treatment. You call the shots - not the doctor, even if by refusing treatment you may die or put your life in a threatening condition.

I don't want to be kept alive if I am in a 'vegetative' condition or with irreversible brain damage. Can I use a living will to state my desires?

Yes. But despite its popular name, a Living Will is not actually a Will at all. A Living Will is a document spelling out what kind of medical care a person wants in the event of terminal illness and incapacity to communicate one's wishes. A Living Will can also spell out the kinds of treatment a person does want or does not want in any circumstances. Any competent adult can make a Living Will.

The requirements for Living Wills vary from state-to-state. For example, some require witnessing, a standard form of document, or an acknowledgment before a notary. Others are more lenient.

We strongly recommend having a Living Will drawn by an attorney if a Living Will is an viable (and crucial) option. Careful drafting is important. Language, such as "Pull the plug if life is not worth it", is not particularly clear and not recommended.

Is a living will different from a 'living trust'?

A Living Trust is VERY DIFFERENT from a Living Will. A Living Trust is a way to manage and control property during your lifetime and to distribute it at your death. See our section on Estate Planning.

If I have a living will, would I also need a real 'will' or a 'living trust'?

Yes. A "Living Will" has absolutely nothing to do with managing or controlling your property either during your lifetime or at your death. It deals only with health care options.

Which is better: a living will or a durable power of attorney for health care?

We recommend both. Some states approve one kind over the other; some health care providers are more comfortable with one type of document than another. But whatever document is elected, make sure that it is consistent, describes treatment choices in a variety of situations, and names someone (called a "proxy") to make decisions for you, should you be unable to make decisions for yourself.

What happens if there is no living will or durable power of attorney?

If you have not planned ahead, the decision-making power passes to a family member or relative, sometimes a close friend, the attending doctor, or a court-appointed guardian. With medical technology advancing at a dizzying pace, should you not have had your wishes made known to someone, someone will "step into your shoes" and make that crucial decision during life-and-death situations or when you are not competent to make the "call".

Does my family have liability if my advance directive instructs no heroic measures or life support?

No.

I'm interested in donating my organs after my death for transplantation, teaching, or scientific research. What should I do?

Fill out a Uniform Donor Card and put it in your wallet. Also make sure you communicate your wishes to your close family members and friends.

My uncle wanted his organs to go to a hospital near where he used to live. If they cannot accept the organs, what happens?

Generally speaking, the Uniform Anatomical Gift Act, which all states have adopted with some variation, provides that they would go to another institution or person, factoring in need, biological match, and geographic proximity.

Can family members approve an organ donation for a deceased relative?

Yes. While it might be possible for one's next of kin to do so even if the deceased has not completed a Uniform Donor Card, very often relatives are unsure about a person's wishes, or the one on the scene may be afraid to make a decision without consultation with all the others (and that sometimes takes too long). That is why it is so important to tell everyone -- ideally in writing -- that you want to donate your organs.

What is elder abuse?

Elder abuse may be domestic or institutional. Domestic elder abuse refers to maltreatment of an older person residing in his/her own home or the home of a caregiver. Institutional abuse refers to the maltreatment of an older person residing in a residential facility for older persons, e.g., a nursing home, board and care home, foster home, or group home.

What are the forms of elder abuse?

The four common kinds of elder abuse are:

(1) physical abuse, the infliction of physical pain or injury, e.g., slapping, bruising, sexually molesting, restraining;

(2) psychological abuse, the infliction of mental anguish, e.g., humiliating, intimidating, threatening;

(3) financial abuse, the improper or illegal use of the resources of an older person, without his/her consent, for someone else's benefit; and

(4) neglect, failure to fulfill a care taking obligation to provide goods or services, e.g., abandonment, denial of food or health-related services.

All states provide laws prohibiting elder abuse, and most have state agencies, such as adult protective services, to help achieve compliance with those laws. Some states operate hotlines 24 hours a day, 7 days a week. Criminal and financial penalties can generally provided.

My mom is ready to consider various types of housing options for seniors. How can an attorney help me?

An attorney who is a veteran in elder law can guide you through the potpourri of housing options -which come in all sizes, settings, and shapes - on the market for seniors and the ones that are best suited for your mother. (A very helpful article posing questions to be considered in choosing a facility is at Nursing Home Guidelines) Briefly, housing options generally fall into three categories, based on level of services and/or care provided:

(1 ) Independent Living Retirement Communities: These complexes are for seniors who are able to live on their own, but want the convenience of a comprehensive service package. Meals, housekeeping, activities, transportation and security are provided to active older adults.

(2) "Assisted Living" Facilities: In addition to the services mentioned above, these facilities provide personal care assistance to residents. This means that, in addition to housekeeping services, residents receive assistance in managing their medications. and a helping hand with bathing, grooming and dressing. Settings can range from three or more older people in a homelike setting, to dozens of residents in an institutional environment.

(3) Nursing homes: Nursing homes offer continuous round-the clock nursing care as well as other support services in a single setting. Nursing homes are certified to provide different levels of nursing and medical services, from custodial to skilled nursing (services that can only be administered by a trained professional).

Other options are continuing care retirement communities (also called Life Care Communities), group homes, share housing, adult foster care, home and community care, and elder cottage housing (commonly known as ECHO housing).

Is there any government regulation of nursing homes?

With the media assault on nursing homes and oft-told tales of patient neglect, nursing homes became subject to stringent federal standards with the passage of the Nursing Home Reform Act (NHRA) of 1987. The law covers many aspects of resident care and rights, staffing, the quality of care, restraints, privacy, and record keeping. The law applies to all the various types of nursing homes who receive funds under Medicaid or Medicare programs.

In addition to federal law, states have enacted their own statutes on nursing home care and services, some a beefed-up version of the federal law. Typically, the state laws require a nursing home to be licensed in order to operate, annual inspection, a procedure for handling complaints, prohibition on discrimination, sanctions for violation, licensure suspension and revocation. Any reports of alleged abuse or violations are investigated by the state regulatory agency. Click here for an article regarding abuses in nursing homes.

What are the remedies if a nursing home patient is being neglected?

There is a slew of playing fields to voice grievances and complaints.

First and foremost, make yourself heard by speaking directly with the nursing home management itself. Each nursing home is required by law to have in place a formal complaint or grievance system to deal with resident's issues. The procedure should make it easy and comfortable for a resident to air his or her complaint. The nursing homes must follow up on the complaint quickly and make an effort to correct the problem(s).

If the grievance mechanism does not resolve the issue, both federal and state law have created a "watchdog" advocate program for nursing home residents, called the "long-term-care ombudsmen". The Ombudsman Program, whose genesis is in the Older Americans Act of 1978, assists residents of long-term care facilities, their families and friends, to voice concerns and correct conditions that affect the quality of their care. If they are unable to resolve a problem, they will direct you to who can.

Still frustrated, you can also complain to the state regulatory agency that governs nursing homes and residents. The agency will investigate the complaint and impose sanctions if there are violations.

If you reach an impasse at that level or are hobbled by the sludge of recalcitrant bureaucracy, you can take private legal action in state court.

How do you prove a nursing home gave bad care?

While many defendants try to deny liability for their actions, or blame the other party, this pattern is the rule when an injury occurs in most nursing homes.

It is very important, as soon as an injury occurs, to start to gather the facts as you are unlikely to get much cooperation from the senior management of the nursing home and people start to change their stories if they fear being involved in a lawsuit or investigation.

Because of the vulnerability of their residents, widespread patterns of abuse, and the fact that Federal tax dollars are used to pay for a large percentage of nursing home stays, the nursing home industry is very heavily regulated. Federal law requires that nursing homes have to:

(1) Develop comprehensive care plans for each resident,

(2) Conduct an initial assessment of each resident's functional capacity,

(3) Update the assessment periodically,

(4) Prevent the deterioration of each resident's ability to bathe, dress, groom, transfer, ambulate, toilet, eat, and talk or otherwise communicate,

(5) Avoid bed sores and treat those that develop,

(6) Have sufficient nursing staff to maintain the highest practical level of physical, mental and psycho-social well being, and

(7) Ensure adequate nutrition.

Many states have additional laws that impose additional requirements.

One of the first places to start is with the patient's chart. Ask for a copy immediately and try to get it while you are there. If the home receives Federal funds it must provide the records within 2 days, but getting it immediately lessens the chances that it will be "altered". Cases are legion where staff members at the nursing home, fearing they may be criticized, or there may be litigation, make changes in the chart to exonerate themselves. If you can get a copy right away, that problem is lessened.

Witnesses to abuse may be guilt ridden that they allowed a loved one to go to a place that treated them so poorly. They may be family members of the injured person, or of other residents in the home. They probably spoke to staff members, and may have been told what the staff member saw or did, or a sympathetic staff member may have confided in them what she saw or what another staff member said had happened. They should immediately be asked to write down what they were told, by whom, and when, before their memories start to fade.

Similarly the injured person should be asked to state his version of what happened and what was done about it. Who said what to him or her?

Photos of the actual injuries, and of the place where the accident occurred, should be taken right away, before the injury starts to heal, or the home makes changes that it should have made much earlier which might have prevented the accident or injury.

Former nursing home employees, or temporary staff, may be able to assist you, and their interests are less intertwined with these of the management of the home. They can be a goldmine of information. Even if they may not have been there to see the particular incident, they know how the patient had been treated (or neglected), what really happens in the home when visitors are not there, and can share other stories of similar incidents that may help demonstrate a pattern of carelessness or abuse.

Much of the lawyer's assessment of the merits of the case will be based on the history of violations by the particular nursing home, and if it is (like most) part of a national or regional chain, that of its parent company and affiliates.

My dad fell in a nursing home and was seriously injured. Might he have a case?

That largely will depend on whether the fall was an unavoidable, isolated incident, or instead was the result of a failure of the nursing home to comply with legally required levels of care. If the fall is the result of a long term pattern of substandard care, it could give rise to a significant claim.

All nursing homes have the obligation to properly assess the health and needs of each resident and to implement and follow a care plan. They prepare a "minimum data set" on entry, and develop a care plan which should, among other things, prevent likely falls. The plan may involve use of safety devices, such as bed alarms, to show if a resident needing assistance is trying to get out of bed without help, and a toileting program, etc. In addition the nursing home has to be adequately staffed.

Failure to regularly reassess the needs of the resident and modify the care plan or to adhere to the processes a care plan should prescribe, is negligence and the basis for a suit. In addition, the nursing home has a contractual duty to provide safe and reasonable care to its residents in exchange for the payment to the nursing home. There may be other bases for a claim, or recovery, under state adult protection laws.

Where there is a clear need for a fall prevention program or nursing interventions, and no action was taken, it may mean (1) the home failed to pay attention to the needs of the resident, (2) the staff was not properly trained to deal with the resident's needs, (3) there was not enough staff to properly assess the resident and implement a care plan, and/or (4) the home lacked the proper equipment to provide for this resident's safety. On the other hand, if the home improperly restrained the resident, to prevent the resident from getting up (some homes do so because it is easier for them), and he was injured in trying to "escape", the home also might be liable. Total restraints, under Federal law, may be used only as a last-resort actions.

Nursing homes will typically try to explain the fall away by blaming the patient. If he fell while getting to the bathroom, they will say he failed to use the call light or wait for assistance. However, if the equipment was not working, or such calls routinely went unanswered because of understaffing or otherwise, that does not absolve the home. If they claim the staff warned the person about not getting up alone, that does not take away the home's duty to have adequate safety devices. And if the resident has Alzheimer's or other mental lapses, giving him warning instructions that he can not remember will not cut it. Although "accidents happen", and a nursing home can not prevent every fall, it does have the legal and moral duty to take all reasonable actions to prevent them from happening, and will be liable for failing to do so.

To determine if there is a claim in your father's case you should talk with an attorney. There should not be any charge for the initial consultation, and if the lawyer takes the case he or she typically handles it on a contingency fee basis.

It will be very helpful if you get a copy of the resident's entire chart from the nursing home. Under Federal regulations a copy of the chart must be provided promptly (often 2 business days) to a relative. In addition, you may want to file a complaint with the State Health Department as that will generate an inquiry that may shed some light on how the accident happened.

While advanced age and poor health of the injured person often would limit the likely recovery if your father is treated as a routine slip and fall case, a pattern of incidents and violations at the nursing home, and failure of the nursing home to adopt corrective recommendations, would make it more likely that there will be a good case and that your father, or his estate, will have a substantial recovery. And do not think that yours is an isolated case. A 1997 Time magazine article reported that nearly 35,000 elderly patients in nursing homes die or endure serious injury or pain each year because of neglect in nursing homes.

What are typical grounds that private lawsuits can be filed against nursing homes?

You can sue on a number of legal grounds, such as fraud, neglect, financial irregularities, failure to provide adequate care, breach of contract, pain and suffering, mental anguish, or failure to comply with state nursing home statutes. (Click here for an article on abuses in nursing homes.) In March 1998, the nation's biggest nursing-home company received national publicity when it was jolted by a $95.1 million award in damages for fraud, negligence and abuse.

Will Medicare pay for a stay at a nursing home?

The only type of "nursing home" care Medicare helps pay for is skilled nursing facility care. Medicare does not pay for custodial care when this is the only kind of care your mother or father need. Custodial care is primarily for the purpose of helping your mother or father with daily living or meeting personal needs such as walking, dressing and eating, etc. His or her condition must require daily skilled nursing or skilled rehabilitation services which can only be provided in a skilled nursing facility. The skilled care she receives must be based on a doctor's orders.

Medicare Part A can help pay for certain inpatient care in a Medicare certified skilled nursing facility following a hospital stay of at least three days in a row, not counting the day of discharge.

Custodial care in a nursing home may be covered by Medicaid if the individual meets the specific state income and resource requirements for Medicaid assistance.

My father is in a nursing home and I pay for the entire cost. Can I deduct this on my tax return?

You may deduct qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a Multiple Support Agreement. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person did not meet the gross income or joint return test.

Nursing home expenses are allowable as medical expenses in certain instances. If you, your spouse, or your dependent is in a nursing home or home for the aged, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense. If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.

You must itemize deductions on Schedule A, Form 1040, to claim a medical expense deduction. You can include only the medical expense paid during the year, regardless of when the services were provided.

What if I do not want to go to a nursing home?

You cannot be committed to an institution against your will (except temporarily in an emergency) unless a court authorizes the commitment after a hearing. At the hearing, the court must determine that you are mentally ill and either unable to care for yourself or a danger to yourself or others. You have the right to be represented by an attorney at the hearing. If you cannot afford an attorney, the court must appoint one. If you sign a document waiving your rights to a hearing and to an attorney, you can apply to the court at any time to have those rights reinstated.

Can a difficult/disruptive patient be forced to leave a nursing home against his or her wishes?
  • Legally, a nursing home resident cannot be moved unless he or she:
    • endangers the safety or health of other individuals,
    • has medical needs that no longer can be met by the facility,
    • has recovered his or her health significantly that care is no longer necessary,
    • has failed to pay for services, or the facility closes.
  • There are other circumstances that result in the involuntary or abrupt moving of a resident, such as loss of certification, or strike by its staff. In these cases, ordinarily special arrangements are made to transfer the residents to other housing accommodations.
  • If there is a planned transfer, the residents must be given 30-days written notice, the reason(s) for the move, and the mechanism for challenging the proposed move. Hearing procedures differ from state-to-state.
My great aunt Maggie has been threatened with eviction. What can be done?

If Aunt Maggie is to be moved against her will, don't fret. She has the right to legally appeal the decision through legal service programs established by the state. She may also solicit the services of an ombudsman to mediate the dispute or hire an lawyer who is a specialist in the legal issues of older Americans.

Do children have to pay for parents in nursing homes?

No. Children have no legal obligation to pay for their parents' care.

Can older employees be forced to retire?

Mandatory retirement is outlawed under the 1967 Age Discrimination in Employment Act. (See our section on Job Description for further details.) Workers over 40 are protected if working in a business with more than 20 employees. (However, those under 40 years of age, or who work for smaller employers often are protected by state law.) In fact, a March,1998 three-judge appellate panel decision out of New York held that for purposes of the 20-or more rule, the non-U.S. overseas employees of a foreign corporation may be counted in determining whether or not the foreign company, which had fewer than 20 U.S. employees, was large enough to be subject to the Age Discrimination in Employment Act.

Your boss can offer older workers a voluntary retirement package without violating ADEA. Typically, should you accept the package, you will be asked to sign a waiver of your right to sue under the ADEA.

What if I suspect age discrimination?

If you believe that you have been illegally discriminated against based on your age, file a complaint with the Equal Employment Opportunity Commission (EEOC, for short) within a certain time frame. You can mail the complaint, call the EEOC toll free at 1-800-669-EEOC or 800-669-6820 or drop in at the EEOC local offices in person. More information on filing a complaint can be located on-line at the EEOC's Internet address at: http://www.eeoc.gov. (See also our section on Job Description for more details.)

Also, file a copy of the complaint with your local state office of civil rights. Be prepared to document your allegation.

The EEOC will investigate and attempt to resolve the problem informally. The EEOC will file suit against the employer, but, due to budgetary constraints, lawsuits are filed in only a very small number of cases. Individuals, however, can sue independently if the EEOC has not filed its own lawsuit.

I am 55 and want to retire next year. Can I receive my pension benefits then or do I have to wait until I am 65?

It depends on the provisions in your plan. If your plan is a defined benefit plan, you may not be able to start receiving benefits until age 65. Many plans, however, provide for payment of pension benefits at an earlier age (although they frequently reduce amount of the monthly benefit to reflect the fact that you would start receiving the benefits sooner). Even if you are able to take early retirement, it often pays to consult a tax lawyer and a highly qualified financial advisor to assess all the implications of early retirement.

What about Medicare and Medicaid?

The number one issue facing older Americans is health considerations. Since most of us do not have a personal, on-site, physician, we work with the federal Social Security and Medicare systems. Whether you are entitled to benefits depends on if your circumstances and if you satisfy the system's requirements.

In the Medicare program, people who are receiving full retirement benefits, those who have attained age 65 with reduced benefits and those who qualify for social security disability benefits are eligible for Medicare.

Do not confuse Medicare with Medicaid, which is the health insurance system, run by the state, for those people with low income and limited assets.

Do I need Medicare if I'm ready to retire but my employer is going to provide me with benefits? I'm age 65 and ready to retire.

Yes. Medicare pays first in all situations unless you (or your spouse) are currently employed and covered by an employer group health plan. In this situation, there will be no surcharge if Medicare is refused until employment ceases. If you are not working, whether your employer provides benefits or not, Medicare is primary and you should enroll. If you refuse Medicare at age 65 and again don't accept Medicare when you retire you will risk a premium surcharge and possibly a delay in receiving Medicare benefits. See our section on Social Security Law for more details.

A very brief word about Social Security-

Your Social Security benefits - paid by a tax on you and matched by your employer - supplements other income you have through pension plans, savings, investments, etc. Social Security benefits are based upon your earning averaged over your working lifetime. A formula is used to determine the amount of your benefit - as a rule of thumb, about 42% of your earnings is replaced by social security benefits. See our section on Social Security Law for further details.

How does supplemental security income fit into this picture?

Supplemental Security Income - typically referred to as "SSI" - provides payments to people with low incomes and few assets. To qualify, you must:

(1) be living in the United States (or the Northern Mariana Islands)

(2) be a citizen of the United States or be legally living in the United States

(3) be age 65 or older, or blind, or disabled.

The base income level to be eligible for SSI depends on whether or not you work and where you live (some states have higher SSI rates and higher income limits than the national standard). The basic asset test is $2,000 for an individual or $3,000 for a married couple - although not all property owned is included - the primary residence and many personal belongings are exempt.

What about the reverse mortgage program to help me with finances?

A reverse mortgage is a special type of private home loan that lets homeowners convert the equity in a home into cash. While we are all familiar with the monthly payment formats of conventional mortgages, the reverse mortgage, in contrast, allows eligible homeowners (typically those 62 years of age or older) to borrow against the value of their home. The equity built up over years is paid by the lender in a stream of payments (or possibly in a lump sum). Unlike a traditional home equity loan or second mortgage, no repayment is due, under most plans, until the home is no longer used as a principal residence, a sale of the home, or death.

My mother is quite ill. I think she is dying. My sister, who has never been very caring or responsible, moved in with mom to take care of her 18 months ago. Before that, I took care of her for eight years. Now my sister is making it difficult for me to see mom, and I have heard that she is saying untrue things about me to her. What should I do?

This is one of the uglier scenarios that gets play out with regularity. Your sister may be trying to take over all your mother's property before she dies, but you should also wonder if she is taking good care of her in the meanwhile. The familiar pattern is to seize control of the elder and her finances; get a power of attorney; transfer property to the abuser's name; and above all, keep other children and caring relatives away so they don't discover what's going on. Try to find out how your mother is being "cared for," what attorney has written her will, and where the will is. Is your mother in possession of all her faculties? For a variety of reasons, you might consider a conservatorship to protect both her person and her property. See a probate lawyer promptly.

I am pretty sure that my deceased grandmother had a life insurance policy, but I have no paperwork or other record. Is there a way that I can find out?

Finding life insurance policies or annuities outstanding is not always easy, as there is no "central registry" and some policies are paid-up and did not require ongoing payments.

Here are some techniques to use:

1. Go through all the papers of the deceased to see if the actual policy, or any forms or correspondence related to an insurance policy or annuity turns up.

2. Go through the checkbook of the deceased for as many years back as possible looking for premium payments made to an insurance company.

3. If the deceased was employed, inquire at the firm about any Group Life Insurance that it carried for the deceased. Many larger employers provide paid up group life to retirees.

4. Did the deceased belong to any association or clubs or fraternal organization that may have sponsored or otherwise provided life insurance programs? For example, such diverse organizations as AARP, Knights of Columbus, Rotary, Lutheran Brotherhood, etc. try to market insurance to members. Contact the organization and ask what companies they sponsored.

5. Ask friends and neighbors if the deceased ever mentioned life insurance, or an insurance agent, and if so what company or agent.

6. If you have any lead or clue, write to the home office of the insurance company with as much information as possible, including the name, date of birth, social security number, and all known past addresses.

7. If you find nothing, it may be worthwhile to write to the top 10 or 20 life insurance companies with the same information; the top 20 life companies (MetLife, Prudential, John Hancock, New York Life, Northwestern Mutual, Equitable, MassMutual, Transamerica, Allstate, State Farm, Mutual of Omaha, Guardian) wrote over 50% of all life insurance sold some years back when the policy likely would have been bought.



Estate Terminology

A-B Trust -- see bypass trust.

Administrator -- Person appointed to oversee the handling of an estate when there is no will.

Advance Directive -- see living will.

Affidavit -- A written statement made under oath.

Age of Majority -- The age when a person acquires all the rights and responsibilities of being an adult. In most states, the age is 18.

Annulment -- A legal decree that states that a marriage was never valid. Has the legal effect of wiping out a marriage as though it never existed.

Arbitration -- A method of alternative dispute resolution in which the disputing parties agree to abide by the decision of an arbitrator.

Assignment -- The transfer of legal rights, such as the time left on a lease, from one person to another.

Beneficiary -- Person named in a will or insurance policy to receive money or property; person who receives benefits from a trust.

Bond -- A document with which one party promises to pay another within a specified amount of time. Bonds are used for many things, including borrowing money or guaranteeing payment of money.

Bypass Trust -- Also called a marital life estate or an A-B trust. A trust designed to help couples with combined assets over $600,000 save money on estate taxes. A bypass trust allows each member of a couple to use the $600,000 estate tax exemption.

Capital Gain -- The profit made from the sale of a capital asset, such as real estate, a house, jewelry or stocks and bonds.

Capital Loss -- The loss that results from the sale of a capital asset, such as real estate, a house, jewelry or stocks and bonds. Also the loss that results from an unpaid, non-business (personal) loan.

Chapter 7 Bankruptcy -- A type of bankruptcy in which a person's assets are liquidated (collected and sold) and the proceeds are distributed to the creditors.

Chapter 13 Bankruptcy -- A type of bankruptcy in which a person keeps his assets and pays creditors according to an approved plan.

Children's trust -- A trust set up as part of a will or outside of a will to provide funds for a child.

Closing -- In a real estate transaction, this is the final exchange in which the deed is delivered to the buyer, the title is transferred, and the agreed-on costs are paid.

Codicil -- A supplement to a will.

Cohabitation Agreement -- Also called a living-together contract. A document that spells out the terms of a relationship and often addresses financial issues and how property will be divided if the relationship ends.

Common Law Marriage -- In some states, a couple is considered married if they meet certain requirements, such as living together as husband and wife for a specific length of time. Such a couple has all the rights and obligations of a traditionally married couple.

Community Property -- Property acquired by a couple during their marriage. Refers to the system in some states for dividing the couple's property in a divorce or upon the death of one spouse. In this system, everything a husband and wife acquire once they are married is owned equally (fifty-fifty) by both of them, regardless of who provided the money to purchase the asset or whose name the asset is held in.

Conservator -- Person appointed to manage the property and finances of another. Sometimes called a guardian.

Creditor -- A person (or institution) to whom money is owed.

Custodian -- Under the Uniform Transfers to Minors Act, the person appointed to manage and dispense funds for a child without constricting court supervision and accounting requirements.

Decedent -- A person who has died.

Devise -- A gift made by a will or a trust. A devise is made to a beneficiary under the terms of the will or trust.

Domicile -- A person's permanent legal residence. While a person may have more than one residence, he or she can have only one domicile. Typically, the domicile is the same place you use for purposes of voter registration.

Durable Power -- A power (typically a power of attorney) that continues despite mental incompetence of the principal. See also Power of Attorney and Attorney-in-Fact.

Durable Power of Attorney for Health Care -- A document that grants a person, sometimes known as a Health Care Agent, the legal authority to make health care decisions for another in the event that the latter person is unable to make them for him/herself.

Estate -- The total of all assets, all debts and other obligations of an individual. At the time of death the total amount of benefits (life insurance, annuity and retirement benefits) to be paid to beneficiaries are often also considered part of the estate for Federal Estate Tax purposes

Executor (or the feminine, Executrix) -- A person or institution named in a will and appointed by a court to carry out the will's instructions and to manage the probate estate. The duties of the executor include making an inventory of all property, paying debts and expenses, and distributing the remaining estate to the beneficiaries. Known as the Personal Representative in California.

Execution -- The act of properly signing legal documents, such as a Power of Attorney, a Trust or a Will. For example, proper execution of a will is more than "just signing" and normally requires at least two witnesses who are not beneficiaries under the will. For a power of attorney or a trust, proper execution involves having a notary public certify your signature. Advice & Counsel has its clients follow a special document signing ceremony when executing their Legal Control and Protection Plan' documents.

Exemption Credit -- The amount of tax credit, similar in nature to the personal income tax exemption, applied to the transfer tax due at a person's death. The exemption credit of $220,550 enables a person to transfer a total of up to $675,000 of property (as of 2000-2001) from his/her estate both during his/her lifetime and after death without incurring a transfer tax. (The estate tax exemption amount rises to $1 million in 2002-2003, $1.5 million in 2004-2005, $2 million in 2006--2008, and $3.5 million in 2009. The tax is abolished in 2010, and then reinstated in 2011.) Currently, annual gifts of up to $11,000 (in 2002) to as many individuals as one wishes may be made in each calendar year by an individual (and gifts of up to $22,000 may be made by a married couple) without counting against the lifetime exemption credit.

Family Limited Partnership -- A legal partnership agreement between members of a family for the management and control of property for the benefit of family members. Sometimes used to minimize transfer taxes.

Federal Estate Taxes -- Taxes imposed by the US Government on the value of a person's estate upon his or her death. To be over simplistic, the Federal Estate Tax for individual citizens begins at a 37% rate on amounts in excess of $1,000,000 (or the current exemption level). The rate quickly increases as the size of the estate increases, and goes as high as 55% (in 2001) (the tax rate declines to 50% beginning in 2002, decreasing until it reaches 45% in 2007-2009. The tax is eliminated in 2010 and reinstated in 2011.) Although some states also impose a State Estate Tax or Inheritance Tax, the total taxes paid on the estates of California residents are not increased by California estate or inheritance taxes. However, if you own property in other states or countries, those jurisdictions may also impose tax.

Fiduciary -- A person in whom one places great confidence in and upon whom one relies for his or her integrity, trust, and good faith. A fiduciary has the legal duty to act in the best interest and benefit of another and therefore is held to the very highest legal standards. A trustee is a fiduciary.

Future Interest -- An interest in property that occurs in the future, after certain events have taken place. See also Remainderman.

Gain -- The difference between the Tax Basis (the amount originally paid for property with certain adjustments) and the amount received for the property when it was sold. This value is used to determine the amount of capital gains tax due on the income from the sale. See also Cost Basis and Stepped-up Basis.

Generation Skipping Transfer Tax (GST Tax) -- A 55% tax imposed on transfers of money or property made during life or at death that skip a generation of family members. The GST tax also applies to transfers to non-family members 37 - 1/2 years younger than the person making the transfer. For example if a grandparent leaves money directly to a grandchild rather than to his own son/daughter (the grandchild's parent), it may create GST Tax. Fortunately, GST taxes apply when the totals of all gifts during lifetime or at death exceed $1,060,000 in 2001 (drops in 2002 to $1,000,000, but then increases to match the applicable estate tax exemptions in effect for that calendar year).

Grantor -- The person who sets up or creates the trust; also called a Settlor, Trust Creator, Trust Maker, or Trustor.

Gross Estate -- The value of an estate before the debts are paid. In California Probate statutory attorneys and personal representatives fees are usually calculated based on the gross value of the estate, so that the value of the home is calculated before deducting the amount due on the mortgage. For example, if a person owns a house worth $500,000 with a $400,000 mortgage, her gross estate is $500,000 although the net value is but $100,000.

Guardian -- The person responsible for the health, education and welfare of a minor child.

Guardianship -- A court-controlled program to manage the affairs of minor children.

Health Care Agent -- Person designated to make health care decisions for an individual.

Holographic Will -- A handwritten will. In California, all material provisions in a holographic will must be written entirely by hand and be signed by the person making the holographic will for it to be valid. Holographic wills are often poorly written. Some can be worse than having no Will at all. Incapacity/Incompetent--Legally unable to manage one's own affairs due to mental disability. This may be temporary or permanent.

Informed Consent -- An authorization to proceed by a person who has been given and understands all of the relevant facts. The concept of informed consent is often used with respect to medical decisions. If the procedures to be used and the associated risks and benefits of the procedures have been fully explained so that you understand them, you are in a position to give informed consent.

Inheritance Tax -- A tax imposed by the state at the time of a person's death that is based upon the total value of the decedent's estate.

Inter-vivos -- Made during one's lifetime, such as a living trust. In contrast, a testamentary trust is a trust that takes effect after a person has died.

Interlineation -- Something written in-between; often a change to a typed document that is made by crossing out words and entering in replacement words. Never change an executed will or trust by interlineation.

In-Terrorum Clause -- A provision of a will or trust that disinherits a person in the event that he/she challenges the terms of the will or trust. Sometimes called a No-Contest Clause.

Intestate -- Having died without a will or without providing legally binding instructions for the distribution of one's property after his/her death. See also testate and probate.

Irrevocable -- Something that cannot be altered, changed or modified. An irrevocable trust is one that cannot be changed, canceled or revoked once it is established.

Issue -- Refers to a person's descendents -- children, grandchildren, great-grandchildren, great-great-grandchildren, etc.

Joint Tenancy -- Property owned by two or more people in a manner such that upon death of one of the joint owners, all of his/her interest in the property is transferred immediately, by operation of law, to the other surviving owners. If the joint tenancy exists between a husband and wife, it may be called a Tenancy-by-the-Entirety. Compare with Tenancy-in-Common.

Judgment (or Judgement) -- An official court order regarding the rights or claims of the parties to a legal action or proceeding.

Legatee -- See Beneficiary.

Living Trust (sometimes called an Inter-Vivos Trust) -- A written legal document established during a person's lifetime into which he/she places property. The living trust contains instructions for management and distribution of the trust property during his/her lifetime as well as upon his/her death or disability. A living trust is typically revocable, enabling the person to change it at any time, so long as the person remains legally competent to enter into contracts.

Living Will (also known as a Natural Death Declaration) -- A document that defines the circumstances -- such as if the person is suffering from a terminal illness with no expectation of recovery -- under which health care professionals should withhold or remove artificial life support, or refrain from using heroic measures, if the person is unable to give informed consent due to incapacity. See also Health Care Agent.

Minor Child -- A child under the legal age of adulthood. The age varies by state but is usually is either the child's 18th or 21st birthday; in California the age of majority is 18. Unless other plans have been set forth in a will or trust any property left to a minor child becomes his or her own property to use, to spend or to give away, once he/she reaches the age of majority.

Natural Death Declaration -- A form of Living Will approved in some states, also known as Directive to Physicians. See Living Will.

Net-income Charitable Remainder Unitrust (NICRUT) -- There is no distribution to the donor until income is earned by the trust.

Net income with Makeup Charitable Remainder Unitrust (NIMCRUT) -- Same as an NICRUT but the income can be deferred by the donor, and credit can accumulate for the unpaid years to be redeemed when assets earn income.

Net Value -- The value of an estate after all debts have been paid. Federal estate taxes are based on the net value of an estate. Compare with Gross Estate.

Notary Public -- A person who has been authorized to administer oaths. Some legal documents, such as deeds, require use of a Notary Public.

Ownership Interest -- The legal right to manage, sell, or give away property.

Per Capita -- A means by which a grantor can distribute his/her estate so that each of the surviving descendants will share equally, regardless of generation. Compare with Per Stirpes.

Personal Property -- Movable property, including furniture, antiques, automobiles, business equipment, cash and stocks. Compare with Real Property.

Personal Representative -- See Executor and Administrator.

Per Stirpes -- A method of dividing an estate among one's surviving descendants. Each survivor receives only the amount that his/her immediate ancestor would have received if that ancestor had been alive at the time of the grantor's death. The following example may make this clearer: Assume a person has 4 children -- 3 sons and one daughter -- each of whom survive, and leaves everything to "the children or their survivors, per stirpes". In that case, each of the 4 children would receive 25% of the estate and the grandchildren receive nothing.. If one of the 3 sons and the daughter have died, that leaves only 2 of the sons alive. If there is also 1 child of the deceased son (a grandchild) and 2 grandchildren from the deceased daughter. Under a per stirpes distribution, the 2 sons each get 25%, the 1 grandchild of the deceased son gets his/her father's share of 25%, and the 2 children of the deceased daughter split her 25% share and receive 12.5% each. Compare with Per Capita.

Pooled-income Fund (PIF) -- These are funds from several donors that are pooled and invested by charity. Donors get tax deduction and annual income prorated. Escapes CRFs cost and administration, but there is some loss of control.

Post-Marital Agreement (also called a Post-Nuptial Agreement) -- An agreement entered into between a husband and wife that defines each spouse's respective rights to property.

Pour Over Will -- A short will often used with a living trust that states that any property left out of the living trust will become part of (or "pour over" into) the trust upon death.

Power of Appointment -- The legal authority to provide instructions. Often used when a person is given the authority to direct the ultimate distribution of property under the terms of another person's will or trust.

Power of Attorney -- A legal document that gives another person, the attorney-in-fact, legal authority to act on the principal's behalf. This authority ends at the death of either the principal or the attorney-in-fact. A durable power of attorney is valid through the principal's disability. If a power of attorney is unrestricted, it is called a general power of attorney. If there are restrictions, it is called a limited power of attorney, such as one for a very specific purpose (to sell a home, for instance). If the power only becomes effective upon certain conditions, it is considered a springing power of attorney.

Pre-Marital Agreement (Also called a Pre- Nuptial Agreement) -- An agreement entered into between a man and a woman prior to their marriage that can define the respective legal rights and obligations to property, whether acquired before or after the marriage.

Principal -- (1) A person who is the original source of authority, often used when the owner of property authorizes another person, through a power of attorney, to act in his/her stead. (2) Capital or original property as opposed to interest or other earnings derived from that property.

Probate -- The process through which the legal title to property is transferred from a decedent to the beneficiaries. If a person dies with a will (testate), the probate court determines if the will is valid, hears any objections to the will, orders that creditors be paid and supervises the process to assure that property is distributed by the Personal Representative or Executor according to the terms of the will. If a person dies without a will (intestate) the probate court appoints an Administrator who receives all claims, pays creditors, and then distributes all property according to the laws of the state.

Property -- Anything that is owned or possessed. See also Real Property and Personal Property.

Quasi-Community Property -- Property acquired during a marriage while not living in one of the 9 community property states that would have been community property if the couple were living in a community property state. As a general rule, everything derived from the earnings of either spouse in one of the non-community property states will be quasi-community property. See also Community Property and Separate Property. Quasi-community property rules can be modified by pre- marital and post-marital agreements made by the spouses.

Real Property -- Land and property that is "permanently" attached to the land such as a house or barn. Compare with Personal Property.

Remainderman -- A person who receives what is left, typically from a will or trust. Children and grandchildren are often remaindermen. For example, a husband may leave property in a trust with the income to go to his wife for life. Upon her death, the remaining estate goes to the couple's children or their survivors.

Revocable -- Subject to alteration, change or modification.

Revocable Trust -- A trust in which the person who created the trust retains the power to change, cancel, or revoke the trust during his/her lifetime (assuming he or she remains competent).

Revocation -- The act of terminating that which has been done. Often used in connection with the taking back of the authority granted under a power of attorney or the termination of an inter-vivos trust during a person's lifetime.

Separate Property -- Property acquired by either husband or wife before a marriage or after the termination of a marriage. In addition, property acquired during a marriage by gift or inheritance by one spouse that is kept separate and distinct from community property remains separate property. See also Commingle, Community Property, Quasi-Community Property and Transmute.

Separation -- The act of taking apart. Often used when a married couple decides that they no longer intend to live as husband and wife. This may have an important impact on community property.

Settlor -- A person who owns the property that is placed into a trust. Also called a Grantor, Trust Creator, Trust Maker or Trustor.

Sole Ownership -- Property that is owned by only one person.

Special Gift -- A specifically identified item of property, such as a home, a ring, antique, or a sum of money, earmarked in a will or trust to go to a particular person or charity, before any other distribution is made.

Spouse -- A husband or wife.

Springing Power of Attorney -- A power of attorney that becomes effective only when a defined contingency occurs, such as if two physicians find that the principal is unable to manage his/her own affairs. See Power of Attorney.

State Estate Tax -- See Inheritance Tax.

Stepped-up Basis -- The revaluation (for tax purposes) of property upon a person's death. For example, if a person bought a home in 1965 for $25,000 and at the time of his/her death in 1999 the home was worth $200,000, his/her heirs would have a tax basis of $200,000 in that property. The importance of a stepped up basis is that no income tax is paid on the $175,000 increase in value, should the heirs sell the home for $200,000. See Cost Basis.

Tax Basis -- See Cost Basis.

Tenancy-in-Common -- A form of ownership of property in which two or more persons share ownership (may be equal or unequal shares). At the death of a tenant-in-common, his/her share in the property transfers to his/her heirs, rather than to the other surviving owner(s). Compare with Joint Tenancy.

Testamentary Trust -- A trust set up in a will that takes effect after death. Compare with Living Trust.

Testate -- A person who dies with a valid will. See also Intestate and Probate.

Transfer Tax -- The combined Federal Estate and Gift tax. A single exemption credit applies whether the property was transferred during a person's lifetime (gift tax) or is held by a person at the time of his/her death (estate tax).

Transmute -- This term is used to describe the transfer of separate property to community property (or of community property to separate property).

Trust -- A long recognized legal concept (first used in ancient Greece during the times of Socrates and Plato) in which some or all property of a Trust Creator is held on behalf of a beneficiary (which may include the trust creator) in the name of the Trustee. The term also refers to the legal document for the control, management and distribution of property. The rights of the beneficiaries, and the rights, powers and duties of the trustee, are set forth in the trust agreement. That is why it is so important that your trust be properly prepared.

Trustee -- A person or institution responsible for the management and distribution of property held in a Trust. The trustee has the authority to act according to the instructions provided in the trust agreement. See Fiduciary.

Trust Maker or Trustor -- A person who owns the property that is placed into a trust. Also called a Creator, Grantor or Settlor.

Will -- A written document that provides instructions for disposing of a person's property upon the person's death. A will generally also names an executor or personal representative to handle the estate. A Will must be signed and (unless it is a holographic will) properly witnessed in order to be valid. Upon the person's death a will must go through the probate process in order to have the instructions carried out.




 
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