return to home page 25 COMMON ESTATE PLANNING QUESTIONS
WILLS, TRUSTS, PROBATE
What is Probate?
This is the process whereby all assets which are solely in the name of the decedent are accounted for through the Court System. Jointly held assets, assets held in a trust and life insurance proceeds payable to an individual (or trust) are not considered probate assets.
Is There Any Size Estate that will Avoid Probate?
Yes, in Massachusetts, if the decedent's estate consists entirely of personal property and (exclusive of automobile) totals less than $15,000, a voluntary administration may be filed and completed quickly.
What is the Probate Process?
Generally, a petition is filed with the probate court requesting that an estate executive be appointed. When the appointment is made by the Court, an inventory is prepared and filed. On an annual basis, as accounting is rendered to the Court until full and final distribution.
Who Must be Left Property in a Will?
It is not necessary to leave property to anyone. However, a surviving spouse has a right to claim one-third of the estate by waiver of the will. Under certain circumstances, an omitted child may file a claim for a proportionate share.
What is a Codicil?
A codicil is an amendment to a Will. Although a codicil is simpler and often cheaper than a new will, it may be practical to prepare a new will instead of a codicil if there is a change in beneficiaries. This is because any beneficiary who was removed is still named in the document and is entitled to certain notices; also, he or she may be motivated to contest the codicil.
Who Can Serve as Executor?
Any resident of the state may serve as Executor; an out-of-state individual may serve as long as a resident is named to be agent for the estate in the state where the Will is filed.
What Does an Executor Do?
To oversimplify, an Executor carries out the directions in the Will for the management and distribution of the estate, processes the necessary papers with the Probate Court, the Department of Revenue, the Department of Public Welfare and the IRS. These efforts may include obtaining appraisals for property, safeguarding specific items, paying debts, collecting receivables, and even managing a business in which the decedent was involved, preparing and filing appropriate income and estate tax returns and ensuring that the estate assets are properly distributed to the heirs.
What is an Intervivos Trust?
An Intervivos trust, sometimes called a living trust, is a vehicle established during one's lifetime to hold and administer assets. It may or may not be funded during lifetime and it may receive assets from the estate on death (either from the Will or as the beneficiary of a life insurance policy).
Why would I Establish an Intervivos Trust?
An Intervivos trust may be established for several reasons: first, to administer assets during lifetime; second, to avoid probate on death; third, to ensure the orderly and pre-arranged processing and distribution of assets on death; forth, to provide a formula for taking the maximum advantage of allowable estate tax deductions.
What is the Difference Between an Irrevocable and a Revocable Trust?
As the names imply, a revocable trust may be terminated or modified at any time by and during the lifetime of the individual who established the trust. It becomes irrevocable upon death. An irrevocable trust may be a separate tax paying entity and may, if properly structured, be a vehicle for tax free gifts during lifetime. The assets in a revocable trust are considered as owned by the person who established the trust for purposes of estate taxation. This is because he or she would have had the right to terminate the trust at the date of death.
What is a "Pour-Over" Will?
This is a will of a person who has a trust. Assets subject to probate are "poured over" into the trust and then administered by the trustee.
Will My Safe Deposit Box be Frozen at my Death?
In some states, yes. In Massachusetts, no tax auditor inventories the safe deposit boxes. Other co-signees can freely enter the box and the decedent's legal representative may enter it upon appointment.
If My Safe Deposit Box is Not Sealed and Inventoried, How Will any Tax Authorities Ever Know What was in my Box?
In estates where a tax return must be filed, the question must be answered (under the pains and penalties of perjury) if all assets have been properly accounted for.
How Do I Choose an Executor or Trustee?
There are advantages and disadvantages associate with the selection of both banks and individuals. Banks have expertise, continuity of existence, are highly regulated and impartial. On the other hand, banks charge for their services and have no personal involvement with the individuals who would be beneficiaries. As for an individual, the complexities of the legal and tax matters may be too great, a conflict of interest mat exist and there is always the possibility of creating intrafamily conflicts. Sometimes an combination of an individual with a bank is appropriate.
What Does a Trustee Do?
The Trustee holds legal title to all trust assets and manages/administers them according to the directions in the trust. These directions may involve discretion in the use of principal or interest, investment advice or simply formulas for the control of division and distribution.
Can I Be Trustee of My Own Trust?
With certain limitations and tax considerations, yes.
What is the Difference Between a Testamentary Trust and a Living Trust?
Each can do the same thing. The Testamentary Trust is established as a part of a Will and therefore does not avoid probate.
I Have One Child Who Cannot Manage Money; What Can I Do?
The share for that child can be placed into a separate trust or share of a trust called a Spendthrift Trust. It can be set up to pay income periodically and principal in the discretion of a Trustee (with guidelines specified in the trust instrument).
What About Lifetime Gifts?
Some states, like Massachusetts, have no gift tax. Under federal law, a person may give away $10,000 per year per person without the need to file a gift tax return. Any gifts beyond this level require that a gift tax return be filed but not necessarily a tax payment. There are no reporting requirements for gifts to a spouse.
How Frequently Should an Estate Plan Be Reviewed?
A plan should be examined whenever there is a significant family change: death, divorce, birth, increase or decrease in assets, change in the nature of assets, etc. As a general rule, every four years is advisable.
What Estate Taxes Should Be Anticipated?
There is no federal estate tax for estates under $600,000 and the rates are graduated thereafter from 37% to 55%. Of course, there are deductions which must be considered before arriving at the taxable estate figure. Massachusetts has an estate tax as well. The threshold for 1995 is $500,000. Starting in 1996, the Massachusetts estate tax will be a percentage of the federal tax.
What About Costs of Administration?
Costs of administration depend upon the nature of the estate and the time spent by the executor and the attorney. A $1,000,000 in cash is far easier to administer than a small business worth a fraction of that figure. As a general rule, 5% of the value of the estate can be used as a guide.
Should I Consider a Power of Attorney?
A power of attorney is a grant of authority to someone, enabling that person to act on your behalf. The power can be structured to arise only in the event of disability, to last for a specific period of time or be limited in scope or authority. For elderly persons a power of attorney granted to a close relative can allow finances to be handled in the event of incapacity.
What is a Pre-Marital Agreement?
A pre-marital or pre-nuptial agreement is a contract executed before marriage and generally provides for the distribution of assets (as between the parties only) in the event of the death of either party or a divorce.
Can My Will be Contested?
Yes, but the bases for a challenge are limited: incapacity, undue influence, inability to comprehend the nature of one's estate, or the inability to realize the natural objects of owns assets. Will contests are rare but, if anticipated, there are several steps that an attorney can take to protect the wishes of the individual.
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