One way of introducing the potentially complex and confusing subject of estate planning is to provide you in advance with answers to questions that are frequently asked. I believe this information is important, and I hope you find it helpful.
Q. What happens if I die without a Last Will?
A. If you die without a Will (i.e., “intestate”), Massachusetts law creates an estate plan for you, with some surprising and often undesirable results. The law identifies the people to whom your estate passes and the percentage of property each person receives. These laws are inflexible, even if they conflict with your desires for the distribution of assets.
Q. What is a Personal Representative?
A. Your Personal Representative is a court-appointed fiduciary who serves as the primary legal representative of your estate, whether or not you passed away with a Last Will and Testament.
Q. What property will not pass under my Will?
A. Life insurance proceeds and retirement benefits pass outside of probate in accordance with beneficiary designations; if no beneficiary is named, the proceeds pass under your Will. In addition, property held jointly with a right of survivorship (e.g. joint homes or bank or brokerage accounts) passes automatically to the surviving joint owner. Property held in trusts at death does not pass through probate, but instead passes where the trust dictates.
Q. What is “probate administration” of an estate?
A. Probate administration of an estate simply involves the collection of assets, payment of debts and liabilities, and distribution of properties to beneficiaries or heirs. These chores are conducted under some degree of court authority and supervision; different probate procedures are available. For instance, if you own less than $25,000 in probate assets (essentially assets that are in your name alone at your death), plus an automobile (regardless of value), then a simplified procedure known as “voluntary administration” is available. In such a case, the entire probate process consists of filing a probate statement, the Will (if there is one), a death certificate and a filing fee. If you own more than that amount of probate property, the process is more formal and extensive. In most instances it takes less than one year to fully complete a full probate proceeding.
Q. What is a trustee?
A. A trustee is a person to whom property is transferred by someone (the trustor) for the benefit of a third person (the beneficiary).
The most common estate planning reasons for creating a trust are to reduce estate taxes or to avoid probate administration. A trust can produce almost any desired result if the trustor gives the trustee sufficient instructions and funds with which to work. Trustees should be given broad and adaptable powers to provide flexibility for unforeseen future events.
If a trust is suitable for your estate plan, you will need to exercise care in the selection of a trustee. The family member who first comes to mind as a logical choice may prefer not to manage your properties. If a corporate trustee appears appropriate, have a conference with a representative of your bank’s trust department.
Q. What is a durable power of attorney?
A. A durable power of attorney is a written document in which you, as the principal, designate someone you trust, such as a family member, friend or a professional, as “your attorney in fact” or “agent”. You may give as much or as little power to your attorney in fact as you desire. For instance, you may authorize your agent to only have power to transfer assets to a trust created for your benefit or to sell a piece of real estate for you. Or you could authorize the attorney in fact to do anything with respect to your assets, including, for example, manage your investments or run your business. The powers you give your agent can become effective either when the document is signed or at some later designated time.
Q. How will my estate be taxed at my death?
A. Your estate, if large enough, will be subject to both a Massachusetts and a federal estate tax. In addition, if you own real estate (or tangible personal property) in a state other than Massachusetts, there may be an additional estate tax due in that jurisdiction.
All estate taxes are based on the fair market value of your “gross estate” at the time of your death. Your gross estate will include the total value of all property in which you held any interest at the time of your death. Additionally, your gross estate may include property that you do not own, but over which you retained or received certain rights or powers.
The estate tax schemes provide you with an unlimited tax deduction from your gross estate for bequests of property made to a surviving spouse. In order to qualify for this important deduction, property must transfer to the surviving spouse in a fashion that satisfies the technical requirements of the Internal Revenue Code, such as an outright transfer or in certain types of trusts. The unlimited marital deduction allows many estates to pass entirely free of estate tax to the decedent’s surviving spouse. The tax, though, is in reality merely deferred until the second spouse dies.
Q. Who will raise my minor children after my death?
If you die leaving minor children, the surviving parent ordinarily will raise and support them. If the other parent is not living, however, your minor children will require a “guardian”. A guardian is an individual who is appointed by the Court primarily to care for the person of a minor; the guardian’s power over the minor’s property is very restricted. You may nominate a guardian for your children in your Will; if you fail to do so, the court will make the selection of a guardian. You should consult with the proposed guardian to ensure that the person is agreeable to assuming the significant responsibility.
If both parents die, minor children may be left with substantial property interests that need management and protection. Because the guardian has only limited power over the minor’s property, protective proceedings may be initiated in which the court appoints an a conservator to administer the children’s property and affairs. A court-appointed guardianship can be a cumbersome and expensive manner of dealing with the property of the minors, however, and it should be avoided. Financial affairs can best be addressed by proper planning, through the use of trusts or custodianships.
Q. What is a Health Care Proxy?
A health care proxy is a document in which you designate an individual to make and communicate your desires and decisions concerning your health care and treatment. While you are competent you of course remain in charge of decisions which pertain to your health care. Proxy forms are available in every doctor’s office, hospital, clinic and nursing home.
Q. How frequently should I review my estate plan?
A. We contact our clients every year for a review of their estate plans and to update the information in their permanent files. I also recommend that clients contact our office in the event of any significant change in finances or in their family situation. For example, a substantial increase in your estate (through increased life insurance, inheritance, appreciation, or successful investments) may necessitate further family estate planning. A substantial decrease in net worth may also necessitate a revision in your plan. A divorce, marriage, or second marriage, of course, will re-open completely the matter of planning your estate.
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