What is Estate Planning?
WHAT IS ESTATE PLANNING?
What is Involved in Estate Planning?
What is Included in My Estate?
Who Needs Estate Planning?
Who Should Help With My Estate Planning Documents?
What is the Cost of Estate Planning?
What is a Will?
What is a Revocable Inter Vivos Trust?
What is Probate?
To Whom Should I Leave My Property?
Who Should I Name as My Executor or Trustee?
Does Estate Planning Involve Tax Planning?
How Should I Provide for My Child?
What Other Kinds of Trusts are Used in Estate Planning?
Can the Way in Which I Hold Title Make a Difference?
What are Other Methods of Leaving Property?
What If I Become Unable to Care for Myself?
Estate planning is a process. The process generally has two parts. One
part involves planning for the management and disposition of your
property both during your lifetime and after your death. The second
part is planning for your own personal and health care in the event
that you are no longer able to provide for such care. This second part
involves the preparation of durable general
powers of attorney and durable health care powers of attorney.
Estate planning encompasses much
more than the preparation of a Will. Estate planning involves
financial, tax, medical and business planning, as well as the
preparation of a Will.
WHAT IS INVOLVED IN ESTATE PLANNING?
The form of your estate plan will
depend upon your particular circumstances. In planning your
estate, your goals and wishes should be given the highest
priority. In addition to your goals and wishes, you should
consider your family and its needs and the nature and extent of your
property. During the estate planning process, you will need to answer a
number of important questions. Major questions concern who will receive
your property upon your death and the manner in which your property will be
distributed. Depending upon your circumstances, you should determine:
WHAT IS INCLUDED IN MY ESTATE?
- Who should administer your estate after your death?
- Who should be the guardian of your children?
- How can federal estate and other taxes be minimized?
- How will your executor (personal representative) or trustee pay for estate taxes if any are due?
- How should you and your spouse hold title to your assets?
- If you cannot care for yourself, whom do you want to take care of you?
- If you cannot manage your estate, whom do you want to do so?
- Who should receive the proceeds of your life insurance or your retirement benefits?
Your estate consists of all
property or interests in property which you own. This means that the
furniture which you own (regardless of whether or not you own your home
or rent an apartment) is part of your estate. Your estate also may
consist of money held in bank accounts, stocks or bonds, real property
(including your home), life insurance or retirement benefits.
The value of your estate is equal
to the “fair market value” of each asset that you own, minus your debts
which include a mortgage on a home. In general, “fair market value” may
be thought of as the present value of an asset or the cost of currently
purchasing or otherwise acquiring an asset. In assisting you with your
estate plan, our office will need to know about the property which you
own and its value. The value of your estate is important in determining
whether, and to what extent, your estate will be taxed after your death
and the resources which you will have available in the event of your
To help you with your estate
planning, we also will need to know about your current financial
situation and how your financial status might change in the future,
particularly after you retire. We will review your important personal
papers and records, including any existing Will, deed to real property,
pre-or post marital agreements and federal and state income tax
returns. We also will need to know about any pension and profit-sharing
plans in which you participate, any business or insurance you own, and
the mortgages and other debts which you may owe.
WHO NEEDS ESTATE PLANNING?
Almost every individual,
regardless of the value of his or her estate, needs estate
planning. If your estate has a small value, your estate planning
will focus upon who is to receive your property after your death and a
streamlined process of administration. If your estate is
larger, we will discuss with you not only who is to receive your
property upon your death, but also different ways to preserve your
property for your heirs. For example, estate planning often involves
planning to reduce or defer the amount of federal estate taxes which
otherwise might be payable on your death.
However, regardless of the size
of your estate, you will want to designate who, in the event of your
incapacity, is to manage your affairs, to care for you and to make
health care decisions. You also will want to consider such
alternatives as durable powers of attorney for healthcare and property.
WHO SHOULD HELP ME WITH MY ESTATE PLANNING DOCUMENTS?
Wills and trusts are legal
documents which should be prepared by a qualified attorney. However,
many other professionals and business representatives may become
involved in the estate planning process. For example, certified public
accountants, pension consultants, life insurance professionals and bank
officers often participate in the estate planning process. Within their
area of expertise, these professionals can assist you in planning your
You should seek advice only from
professionals who are qualified to give estate planning advice.
WHAT IS THE COST OF ESTATE PLANNING?
The cost of estate planning
depends upon your individual circumstances and the type of estate
planning which you want to do. The cost generally will include the
attorney’s charges for discussing your estate plan with you and
preparing any Will, Trust Agreement or other legal document which you
WHAT IS A WILL?
A Will is a traditional legal
document in which you identify those individuals (or institutions) who
(or which) will receive your property and possessions on your
death. These individuals and institutions are commonly referred
to as beneficiaries. In a Will, you appoint or name an executor,
who may be an individual or an institution. After your death, your
executor will manage your affairs and will insure that your property is
distributed in accordance with the provisions of your Will. In a
Will, you also may name the guardians(s) of the person or estate of
your minor children, make specific gifts to individuals or charities or
even include burial instructions.
Our book on estate planning has
many chapters which contain more detailed information about Wills. We
will be happy to share this information when we meet.
WHAT IS A REVOCABLE INTER VIVOS TRUST?
A Revocable Inter Vivos Trust is also commonly referred to as a “living
trust” or a “family trust.” A Revocable Inter Vivos Trust may be
amended or totally
revoked at any time during your lifetime, as long as you remain
A trust is a written agreement
between the individual creating the trust (commonly known as a
“trustor,” grantor” or “settlor”) and the person or institution who is
to manage the assets held in the trust (commonly known as the
“trustee”). The trustee may be either an individual or a bank or trust
You create a trust by executing a
written agreement. In the written agreement, you give the trustee the
legal right to manage or control your property; identify the persons or
institutions (“beneficiaries”) who are to receive income or principal;
and set forth the provisions which will guide the trustee in the
management and distribution of the trust property.
The trustee is a fiduciary, a
person who occupies a position of trust and confidence, and is subject
to strict fiduciary responsibilities. Usually, a fiduciary is held to
higher standards of performance than is a person or institution who or
which is not a fiduciary. Without the settlor’s express written
permission, the trustee cannot use trust property for his/her own
personal use, benefit or self-interest, but must hold the trust
property solely for the benefit of the beneficiaries of the trust.
Often the major purpose of a
Revocable Inter Vivos Trust is to avoid probate. With only a few
exceptions, title to all of a settlor’s assets must be transferred to
the trustee of the Revocable Inter Vivos Trust to avoid probate. For
example, a deed is used to transfer title to real property from the
settlor to the trustee. Other assets, such as those that are held in
joint tenancy or which could pass by beneficiary designation, do not
have to be transferred to the trustee to avoid probate.
Another advantage of a Revocable
Inter Vivos Trust as a Will substitute is that it enables you to have
your assets managed during your lifetime, if such management is
necessary or desirable, and may enable you to avoid a conservatorship,
a court-supervised proceeding in which the court appoints an individual
to take care of you and your property if you are unable to do so for
A number of other differences
exist between a Will and a fully-funded Revocable Inter Vivos Trust.
These differences, and whether or not they represent advantages or
disadvantages for you, should be discussed thoroughly with your estate
WHAT IS PROBATE?
Probate is a court-supervised process
which has as its ultimate goal the transfer of property from an
individual who has died (the “decedent”) to that individual’s
beneficiaries who are identified in a Will.
Probate has advantages and
disadvantages. For example, if a dispute arises about the distribution
of a decedent’s property, the probate court is accustomed to resolving
such disputes expeditiously and in accordance with well-defined
rules. There are also significant benefit in limiting the time
period for those filing claims against the probate estate.
Disadvantages of probate include its public nature and, sometimes, the
expense. Also, some probates may be lengthy, particularly when compared
to the time required to administer the estate of a person who has
created and funded a Revocable Inter Vivos Trust.
The literal interpretation of
probate means to prove, as in proving one's will. It can be done
administratively in the Register of Wills Office or judicially by the
Orphans' Court when necessary. It is the payment of all creditors and
the transference of all property in the decedent's name to the
beneficiaries either named in the will or who would inherit under the
laws of intestacy (dying without a will).
A probate estate is administered
in the county where the decedent had his or her legal residence
(domicile). Each county and Baltimore City has an Office of the
Register of Wills. The Register of Wills is a public office established
under the Constitution of Maryland.
The purpose of opening the estate
is to report all assets the decedent owned to the Register of Wills.
The Register of Wills appoints a personal representative to administer
the estate and distribute the decedent’s property. As personal
representative, you must pay the debts, death taxes, if applicable,
income taxes, and costs of administration out of the estate’s assets.
The two types of estates in
Maryland are the regular estate and the small estate. A regular estate
is opened when the decedent’s assets in his or her name alone or as
tenants in common exceed $30,000 ($50,000 if the spouse is the sole
heir or legatee). A small estate is opened when the assets in the
decedent’s name alone or as tenants in common have a value of $30,000
or less ($50,000 or less if the sole heir or legatee is the surviving
It is our experience that
probate, when handled efficiently and with sound legal advice, can be
streamlined significantly with attendant benefits and advantages.
Through a process in Maryland call “Modified Administration,” the
probate process can be simplified even further.
TO WHOM SHOULD I LEAVE MY PROPERTY?
Regardless of whether you have a
Will or create a Revocable Inter Vivos Trust, the primary purpose of
the estate planning document is to identify those persons or
institutions who are to receive your property upon your death and to
determine how the property is to be distributed. The beneficiaries who
are to receive property must be clearly and accurately identified.
Often disputes arise after an individual dies because the identities of
the beneficiaries or the terms and conditions under which beneficiaries
are to receive property are unclear.
WHOM SHOULD I NAME AS MY EXECUTOR OR TRUSTEE?
After an individual’s death, the
executor of a Will (in Maryland, known as the “personal
representative”) and the trustee of a Revocable Inter Vivos Trust serve
almost identical functions. Both the executor and the trustee are
responsible for insuring that the decedent’s wishes, as expressed in
the Will or Revocable Inter Vivos Trust, are fully implemented.
Although the executor is generally subject to direct court supervision,
both the executor and the trustee have similar fiduciary
responsibilities (see What is a Revocable Inter Vivos Trust?). For
example, both a trustee and an executor must act solely for the benefit
of the beneficiaries named in the trust or Will.
In most instances, the settlor
acts as trustee for as long as he or she is capable. Thus, the
settlor continues to manage and distribute trust assets for his or her
own benefit. Whether or not you should act as your own trustee is
a decision which you should discuss with your attorney. If a settlor
becomes incapable of functioning as a trustee, however, the designated
successor trustee will act as trustee.
Persons often named as an
executor or a successor trustee include a spouse, adult children, other
relatives, family friends, business associates or an institution. In
determining who should act as an executor or a trustee, you should
select someone who is responsible, well-organized and experienced in
maintaining books and records. In addition, it is useful if an executor
or successor trustee has had business experience and is knowledgeable
about making investments.
DOES ESTATE PLANNING INVOLVE TAX PLANNING?
Often the creation of a Will or a
Revocable Inter Vivos Trust will involve substantial tax planning,
particularly for larger estates. Estate planning generally
focuses upon federal estate (death) taxes, but also may encompass
income, gift, real property or qualified retirement plan taxes.
Federal estate taxes are imposed
upon an estate which has a value of $1,500,000 or more (in 2005,
although this amount is scheduled to increase to $2,000,000 in
2006). Maryland (as well as New York and other states) also
have enacted its own estate tax with an exemption capped at
$1,000,000. This, your Wills or Revocable Trusts must be structured in
a manner that would effectively save the most taxes, and needs to be
tailored to your specific situation. Although significant federal
estate taxes can be saved by proper estate planning, the planning
usually must occur before death. Qualified legal advice about federal
estate and other taxes should be obtained during the estate planning
HOW SHOULD I PROVIDE FOR MY CHILD?
In the event of the death of both
parents, a minor child is not legally qualified under Maryland law to
care for himself or herself or to manage property. A minor child
is a child under 18 years of age. In planning your estate, you should
consider what would happen to your child if both you and your spouse
died. To plan for such an occurrence, you should name a guardian to
supervise your child and his or her property until the child attains 18
years of age. To provide for the management of the child’s property,
you also might want to consider such alternatives to a guardianship as
a trust or a transfer under the Uniform Transfer to Minors Act. Or, you
may wish to consider setting up a “Section 529 Plan” which can have
extraordinary tax advantages in funding your child’s higher education
WHAT OTHER KINDS OF TRUSTS ARE USED IN ESTATE PLANNING?
Trusts serve a wide variety of
needs in estate planning; they may be established for the benefit of a
child, a disabled or incapacitated individual or a charity. In
addition to the popular Revocable Inter Vivos Trust (see What is a
Revocable Inter Vivos Trust?), one other common type of trust is a Life
Insurance Trust. The trustee of a Life Insurance Trust holds title to a
life insurance policy, and on the death of the insured, receives,
manages and distributes the proceeds of the life insurance policy.
A Life Insurance Trust allows for
the organized management of the proceeds of a life insurance policy on
the death of the insured. In addition, if a Life Insurance Trust is
properly created and operated, the proceeds of a life insurance policy
held in the trust will not be subject to any federal taxes. To avoid
federal estate taxes, an insurance trust must be irrevocable; that is,
once the trust is signed, it cannot be amended or revoked.
CAN THE WAY IN WHICH I HOLD TITLE MAKE A DIFFERENCE?
If you are married, you and your
spouse most likely hold title to your assets in joint tenancy. (Persons
other than husband and wife also may hold title to property as
joint tenants.) The distinguishing characteristic of a joint
tenancy is that title to the property automatically passes to the
surviving joint tenant upon the death of the first joint tenant and
therefore is not subject to any post-death administration. The
surviving joint tenant has the immediate use and enjoyment of the joint
A married individual may own
separate property as a result of owning property prior to marriage or
of receiving property by gift or inheritance. When a married
person owns separate property, additional estate planning issues must
be considered. For example, one such issue may be how to maintain
the separate property character of the property.
Regardless of whether you are
married or whether you have separate or community property, it is
important to seek competent legal advice when determining how
title to your property should be held.
WHAT ARE OTHER METHODS OF LEAVING PROPERTY?
Your estate may include life
insurance or qualified or non-qualified retirement benefits. A
beneficiary designation is used to identify who should receive life
insurance or qualified retirement plan proceeds upon your death. A
beneficiary designation is usually a document other than a Will or a
trust. You should coordinate your beneficiary designations(s) for such
asset(s) with your entire estate plan.
WHAT IF I BECOME UNABLE TO CARE FOR MYSELF?
If you become incapable of
managing your estate or of providing for your own care, you should
determine, in advance of any such incapacity who you want to care for
you and your estate.
court-supervised proceedings which allow the court to appoint who is to
care for you and to manage your estate if you are incapacitated.
Alternatives to a Guardianship
are a durable power of attorney for property and a durable power of
attorney for health care. A durable power of attorney does not involve
a court proceeding and may be effective immediately or upon the
occurrence of some future event. In a durable power of attorney,
you (the “principal”) appoint another individual (the
“attorney-in-fact”) to make health care or property management
decisions on your behalf. Under a durable power of attorney for
property, the attorney-in-fact manages your assets and functions much
as a conservator, but without court supervision. Under a durable power
of attorney for health care, the attorney-in-fact makes health care
decisions when you can no longer make such decisions.
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