Law Office of Michael A. Mays
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On June 12, 2016 Michael A. Mays celebrated his 9th year of living and working in Warrenton, Virginia. Michael moved from Fairfax, Virginia which he says had become to overcrowded with people and traffic. It became stressful to even drive around and get things done. Fauquier County has more open space including horse farms, agricultural farms, wineries and civil war battlefields. It's a great place to live and work.
An Introduction to Estate Planning
By Michael A. Mays, J.D.
Warrenton, VA 20187
This article will discuss some of the basic principles of estate planning. It is intended to give the reader an introduction to the subject in easy to understand terms. For those of you who wish to learn more about the subject, hopefully, it will be a make your further reading and study more meaningful. In the area of estate planning, its best to start at the beginning with fundamentals and then build your knowledge and your future as you go. What is estate planning? Estate planning is the process of planning for the transfer of your assets to persons and or entities upon your death. Estate Administration is the process of settling your estate by your personal representative after you die. Good estate planning makes for faster, easier and less costly estate administration. The primary documents that are commonly used in estate planning are as follows. Will - A Will is a legal document that directs how your property will be distributed upon your death. A will should designate an Executor. An Executor is a person who is named in a will who, upon the death of the person making the will, has the responsibility of estate administration. That is, he or she must collect all the assets, pay all debts of the deceased, and distribute the net estate to the beneficiaries named in the will. A will may also designate a guardian for your children. A will does not take effect until death. A will has to go through the probate system before any distributions can be made of the probate estate. Living Trust - A living trust is an estate planning document which transfers your assets to your designated beneficiaries upon your death. It serves the same function as a will. After the trust is created, it must be funded. Funding a trust means the process of transferring your assets into your trust during your lifetime. When you die, the property automatically goes to your designated beneficiaries without going through probate court which can be very expensive and time consuming. You can be the trustee of your living trust during your lifetime which allows you to maintain complete control of your property. You can revoke or amend a living trust at any time if you change your mind. Avoidance of probate is the primary benefit of a living trust. The second benefit of a living trust is having a single entity to manage your assets during your lifetime and to transfer those assets to your beneficiaries upon your death. Estate tax planning is also available with a trust. If you and your spouse's gross estate is $10 million or less, estate taxes can be avoided all together. For married couples whose estates are larger, a living trust makes an excellent estate planning device allowing substantial estate tax savings. Living Will - A living will is a legally binding document that expresses one’s wish not to be kept alive by artificial life support in the event of a terminal illness or injury. Actually, the document is not a will. It is called an “advance medical directive”. The advance directive will avoid or minimize hospital bills which could drain or even wipe out your assets so that there would be nothing left for your heirs. Power of Attorney - A power of attorney is a legal document which authorizes another person (your agent) to act for you if you should become incapacitated. This document permits your agent to sign documents such as checks, contracts etc. and take all actions necessary to manage your property and financial affairs during the time that you are physically or mentally incapable of doing so. All of these documents can be utilized together for efficient estate planning. All of these documents have technical requirements and important legal consequences. Therefore, it is recommended that you seek professional assistance with the preparation of any of them. What happens when someone dies with a will. When there is a will, the deceased is said to have died Testate. In this situation, the estate has to go through probate. What is probate? Probate is a court supervised process of transferring title to one’s assets upon one’s death. Probate is the administration of an estate. When a person dies, if there are personal assets such as stocks, bonds, mutual funds etc. in the sole name of the deceased, probate is necessary to transfer title to the assets to the deceased’s beneficiaries. Probate serves two basic functions. First, it creates a record of the title transfer process so that there is no question about who the owner of the asset is after the probate process is competed. Second, the court makes sure the Executor or other personal representative does his or her job correctly. Unless waived in a will, all receipts and disbursements of assets have to be accounted for in writing and approved by the Commissioner of Accounts. The Commissioner of Accounts is a person who the Court appoints to perform this supervisory function. Probate begins when the Executor of the will takes the original will to the probate office of the Circuit Court and requests that the will be accepted for probate. If the will is a properly executed self proved will, the Probate clerk will accept the will and open a file. A probate tax is assessed and must be paid at this time. The Clerk will give the Executor an oath and document showing the world that the Executor has the legal authority to administer the estate and to transfer title of assets to beneficiaries. Unless waived in the will, the Executor will have to post a bond with surety to ensure faithful performance of his or her duties. An inventory of all the estate assets has to be filed and a list of heirs. An accounting showing what assets were received by the Executor and what was done with those assets has to filed. The estate has to pay separate fees to the Court for filing the inventory and for the accountings. The probate process can expensive and is frequently time consuming and burdensome. It is always inconvenient. When someone dies without a will, it is said that the person dies Intestate. In this situation, someone has to petition the court to be appointed as the personal representative of the estate. Once appointed, this person has the same duties as an Executor of a will. The main difference is that the estate has to be distributed pursuant to a plan set out in the Virginia Code. This is called Intestate succession. By statute, if there is a surviving spouse, he or she gets everything. (Unless the deceased had children from a previous marriage, in which case the surviving spouse gets 1/3). If there is no surviving spouse, the estate goes to children, if any. If not, then to the father and mother, then to brothers and sisters, then grandparents and so on. Intestate succession is to be avoided for several reasons. First, with a will or trust, you control how your estate is to be distributed, not the state. Second, a personal representative will have to be appointed. Someone will have to petition the court for this job, and then the estate still has to go through probate. That is, an inventory has to be filed, accountings have to be filed and fees have to be paid. This occurs after death which means you will not know who the personal representative will be. With estate planning, you choose your personal representative. Third, it is the law in effect at the time of your death that will determine how and when your estate is distributed. So, even if the intestate succession plan is the way you want your estate to be distributed now, that plan may well change by the time of your death. Is there any way to avoid probate? Yes. Probate can also be avoided for certain assets that are titled jointly with the right of survivorship. For example, a husband and wife can title their home jointly as tenants by the entirety with the right of survivorship. When this is done, upon the death of one spouse, the surviving spouse automatically owns the whole house, and probate is not necessary. However, using joint ownership as the only form of estate planning is not advisable. It simply does not give the planner enough flexibility in the planning process. Life insurance is another common type of asset that is transferred upon death without probate. The insurance proceeds are paid directly to the beneficiaries pursuant to the life insurance contract. By far the most efficient and flexible way to transfer an estate without probate is with a living trust. With a living trust, probate is avoided because all assets are transferred to the trust during your lifetime. When you die, you don't own anything. Your trust does. Thus, there is nothing to probate. There are three basic parties involved with a trust. 1. The Grantor is the party or parties who creates the trust. The Grantor is also sometimes called the Creator, Settlor or Trustor. A Husband & Wife can be Co-Grantors. 2. The Trustee is the party who holds legal title to trust assets and has the power and authority to manage the trust assets. A Grantor can also be the Trustee. A Husband & Wife can be Co-Trustees. If one becomes incapacitated, the other has control of all trust assets without court involvement. The Trustee can also be an entity such as a trust department of a bank. A Successor Trustee is the person who will step in and manage the trust if the Trustee becomes incapacitated, dies or no longer wants to be a trustee. A Successor Trustee acts like the Executor of a will. When you die, your Successor Trustee collects the assets, pays the bills, and distributes assets to the beneficiaries who have been designated in the trust. 3. Beneficiaries- are the people or entities who will receive your property when you die. A living trust is a revocable trust. Owners maintain control because it can be changed or canceled at anytime. To be effective, all assets must be transferred to the trust after the trust document is prepared. This is called funding the trust. By funding the trust, you are probating your estate now. This is the key to the living trust and is the process by which probate is avoided. There are many details involved with trusts including estate tax planning that are beyond the scope of this article. If anyone is considering a living trust as part of an estate plan, call Michael A. Mays, 540-351-0211.