Estate Planning Frequently Asked Questions

 

What is estate planning?

What will happen to my property if I die without a Will or Trust?

What is Probate?

Can Probate be avoid?

How large does an estate need to be to be subject to federal estate taxes?

What is the marital deduction?

What is joint tenancy with rights of survivorship?

What is a Power of Attorney?

What is the difference between a General and a Limited Power of Attorney?

How does an agent use a Power of Attorney?

How does a Power of Attorney terminate?

What is the annual Gift Tax Exclusion?

Must third-parties honor a Power of Attorney?

What are the disadvantages of a Power of Attorney?

How do you managing property when a person becomes incapacitated?

What makes a Durable Power of Attorney durable?<

Should I have a Durable Power of Attorney?

Should I have a Durable Power of Attorney for Health Care?

What is a Living Will?

What is a guardianship?

What are the disadvantages and advantages of a guardianship?

Why is a Living Trust better than a Power of Attorney?

Why should I have a Living Trust?

Will I have control over my property if I create a Living Trust?

Who is the Trustee of my Living Trust?

Will my income taxes change if I create a Trust?

Do property taxes change if I create a Trust?

What is the annual fee for a Trust?

How do I fund my Trust?

What assets are left outside of my Trust?

How is out-of-state property funded into my Trust?

If I transfer real estate to my Trust can the bank call my loan?

Does a Revocable Living Trust provide asset protection?

Why do I need a "Pour Over Will" if I have a Living Trust?

How do I change my Trust?

Will my Trust need to be changed when I buy or sell assets?

Do I have to come to your law firm to change the Trust?

What are the fees to change my Trust?s

When does a Trust end or terminate?

How do I revoke my Trust?

What happens to a Living Trust when a spouse dies?

What is the cost when one spouse dies?

What happens if I am single when I die?

What happens if the tax laws changes? Is my Trust still valid?

What is a step-up in basis?

Do my assets get a step-up in basis if they're in my Trust when I die?

When is an estate tax return due?

How long does it take to set up a Trust?

What is the Trust name?

Does your law firm do Wills?

What is a "C Trust" or "QTIP Trust"?

What is the Generation-Skipping Transfer Tax?

What is a QDOT Trust?

What is a Charitable Remainder Trust (CRT)?

What is a Family Limited Partnership (FLP)?

What is a Crummey Trust?

What is a Irrevocable Life Insurance Trusts (ILIT)?

What is a Grantor Retained Annuity Trust or GRAT?

What is a Qualified Personal Residence Trust (QPRT)?

 

What is estate planning?

Estate planning is the gathering, the conservation, and the distribution of assets. It is used to accomplish your short and long term goals, minimize taxes, and to ease the burden on your family of managing your affairs after death.

 

What will happen to my property if I die without a Will or Trust?

If you die without a Will or Trust, the state determines who receives your assets according to Ohio's Decent and Distribution statute.

 

What is Probate?

Probate is the court procedure used to supervise the administration of an estate and the transfer of estate assets to heirs. It is also where creditors of a decedent file claims.

 

Can Probate be avoid?

Probate can be avoided with careful planning, and by utilizing: 1) living trusts, 2) jointly owned with rights of survivorship (such as a real property), 3) assets that name beneficiaries (such as life insurance, annuities), and 4) payable on death (POD) and transfer on death (TOD) accounts.

 

How large does an estate need to be to be subject to federal estate taxes?

Every individual has an "Applicable Exclusion Amount" that allows $11.4 million to pass tax free in 2019. Thus, there are no federal estate taxes for individuals whose assets have a net value of $11.4 million or less. This means a husband and wife with proper planning could transfer $22.8 million estate and gift tax free to their children and grandchildren in 2019. The Ohio Estate Tax was repealed effective January 1, 2013.

 

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What is the marital deduction?

The Internal Revenue Service allows an individual to leave an unlimited amount of assets to their spouse without taxation. At the death of the surviving spouse, estate assets in excess of $11.4 million are subject to taxation.

 

What is joint tenancy with rights of survivorship?

This is a form of property ownership that transfers ownership immediately to the co-owner(s) of the property upon the death of one of the owners.

 

What is a Power of Attorney?

A Power of Attorney is a document authorizing an agent (Attorney in Fact) to act on your behalf. Any adult can create a Power of Attorney, and usually name as an agent a family member, spouse or child to act on their behalf. More than one person can be named as an agent, but this can lead to disputes. A better choice is to name one agent, and a backup agent.

 

What is the difference between a General and a Limited Power of Attorney?

A General Power of Attorney authorizes your agent to do almost everything you could do for yourself. A Limited Power of Attorney authorizes your agent to only perform the acts specifically itemized and listed in the document.

 

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How does an agent use a Power of Attorney?

The agent presents the Power of Attorney to the other party involved in the transaction and signs any necessary documents as if they were you by signing their own name and adding thereafter "Attorney in Fact for your name."

 

How does a Power of Attorney terminate?

Death or incapacity terminates a Power of Attorney. It may also be cancelled by executing a revocation, but the best method is to destroy all copies.

 

What is the annual Gift Tax Exclusion?

The Annual Gift Tax Exclusion is the amount that can be given away annually without incurring a gift tax. As of 2019, the exclusion amount is $15,000 per recipient. There is no limit on the number of recipients, and a married couple can make individual gifts to the same recipient.

 

Must third-parties honor a Power of Attorney?

Third-parties cannot be forced to accept the power. Many organizations require that their power of attorney form be used, so it is advisable to check with the institutions you do business with so you can execute their forms, if necessary. The IRS generally will only accept Form 2848.

 

What are the disadvantages of a Power of Attorney?

First, all third-parties may not honor the power. Second, it can be difficult and time consuming to revoke a power, as you need to notify all third-parties that have honored it. Finally, a power of attorney can be a dangerous document in the hands of the untrustworthy. It grants access to your assets without supervision. It is very important to select an agent in which you have great confidence.

 

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How do you managing property when a person becomes incapacitated?

There are several options. Traditionally, a court supervised guardianship is used. A more modern approach is a Durable Power of Attorney. A living trust can also be used, but a durable power of attorney should be used in conjunction, as there may be items or issues that fall outside of the trust, or arise after incapacity.

 

What makes a Durable Power of Attorney durable?

A Durable Power of Attorney is "durable" because is remains effective even if you become incapacitated. A simple power of attorney terminates upon the incapacity of the grantor. Unless the power specifically indicates it is durable, it is not durable and will terminate upon incapacity.

 

Should I have a Durable Power of Attorney?

Yes. The Durable Power of Attorney should be in place in the event you become disabled. It can contain a "springing" provision so that it only becomes effective upon your incapacity. A Durable Power of Attorney can be a better way to deal with incapacity than a guardianship. It avoids the time and expense of court proceedings for a guardianship.

 

Should I have a Durable Power of Attorney for Healthcare?

Yes, it is important to have a Durable Health Care Power of Attorney, also know as an Advanced Health Care Directive. It allows your agent to make health care decisions on your behalf when you are unable to do so.

 

What is a Living Will?

A Living Will expresses your desires regarding life sustaining treatment in the event you become unable to communicate your wishes.

 

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What is a guardianship?

A guardianship is a court-supervised process that names an individual to manage the affairs of an incapacitated person (a "Ward"). The court may name a person to manage the financial affairs of the Ward, i.e. "guardian of the estate" and a person to manage the personal affairs of the Ward, i.e. "guardian of the person."

 

What are the disadvantages and advantages of a guardianship?

A primary disadvantage to a guardianship is that it is an expensive and restrictive public proceeding, and exposes the incapacitated person to embarrassment. In addition, the incapacitated person will have no input in the naming of the guardian, and someone unacceptable to the incapacitated person could be named guardian. The advantage of a guardianship is that the courts supervised the activities of the guardian. Also, third parties must deal with the guardian due to the court's supervision.

 

Why is a Living Trust better than a Power of Attorney?

A Living Trust is often the key document in an estate plan, as it normally the best method for managing assets during incapacity. Since the Living Trust has actual title to the assets, third parties must deal with the Trustee as the owner. An agent does not have title, and third parties sometimes refuse to deal with the agent.

 

Why should I have a Living Trust?

A Living Trust provides for the disposition of your property upon your death just as a Will does, but it has benefits a Will does not, such as: 1) Immediate transfer of assets after death (if desired), or at specific future date; 2) Allows for management of your property upon incapacity or death; 3) Avoids probate proceedings; 4) It can be used for estate tax planning; 5) It provides security and flexibility for you and your loved ones.

 

Will I have control over my property if I create a Living Trust?

Yes. As long as you are alive and competent, you will have control over your property. You can manage your property just as you would without a Trust. Also, you can modify the trust if necessary or you can completely revoke it. Upon your death, the Trust becomes irrevocable, and no one can change your testamentary wishes. If you become incapacitated, your durable power of attorney takes effect for items owned outside of the trust. Further, your trust may name a successor trustee in the event of your incapacity.

 

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Who is the Trustee of my Living Trust?

While you are alive, you may act as Trustee. If you are married, you or your spouse may act as the sole Trustee, or you both may act as co-Trustees. One or more successor Trustee(s) is named take over management of the Trust in the event of disability or upon death. The successor Trustee can be any individual you are comfortable with, such as a family member, trusted friend, professional, or institution. Individual Trustees have the benefit of experienced money management and Trust administration, but family members and friends have first-hand knowledge of your desires. Whomever you name as a successor should have some business sense.

 

Will my income taxes change if I create a Trust?

No. A revocable Living Trust has no effect on your income tax liability. There are no IRS filings as long as a married couple files a joint return, and the Trust owns no foreign property.

 

Do property taxes change if I create a Trust?

No. Property taxes remain the same when real estate is transferred into a Living Trust.

 

What is the annual fee for a Trust?

There are no annual fees associated with a Living Trust. If you amend the Trust terms, you will incur attorney fees. When you pass away, there will be fees for the Trust Administration.

 

How do I fund my Trust?

You fund a Trust by transferring assets you own as an individual into the Trust. For some assets, such as real estate, you should have an attorney prepare the necessary documents for the transfer. For other assets, such as your bank accounts, you will need to go to your bank and change the account information, and sign a new signature card as Trustee.

 

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What assets are left outside of my Trust?

Generally, IRAs and pension plans are not transferred into a Trust. However, it is important to ensure the appropriate beneficiary designation is made in conjunction with your overall estate plan.

 

How is out-of-state property funded into my Trust?

Out-of-state property is transferred into the Trust in the same manner as local property. It may be necessary to hire an attorney in the state where the property is located.

 

If I transfer real estate to my Trust can the bank call my loan?

No. The Garn-St. Germain Depository Institutions Act of 1982 prevents a "due-on-sale" clause from being enforced on a "transfer into an inter vivos Trust on which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property." This exemption only applies to residential real property with less than five dwelling units, and requires that the borrower remain the beneficiary of the Trust and an occupant of the property. The best practice is to notifying the lending institution in advance of the transfer.

 

Does a Revocable Living Trust provide asset protection?

There is no asset protection provided by a revocable Living Trust while you are alive. The Trust can be drafted to provide some creditor protection for the beneficiaries of the Trust.

 

Why do I need a "Pour Over Will" if I have a Living Trust?

A "Pour Over Will" is used first to name a guardian for minor children, and protects against intestacy if any assets have not been transferred to the Trust at the time of your death. Its purpose is to distribute any assets not in the Trust according to the terms of the Trust.

 

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How do I change my Trust?

A change to the terms of a Trust is accomplished by a written amendment to the Trust.

 

Will my Trust need to be changed when I buy or sell assets?

No. Buying or selling assets does not affect the Trust. You simple buy and sell assets in the name of the Trust.

 

Do I have to come to your law firm to change the Trust?

No. Any qualified attorney can amend your Trust. I, of course, hope to develop an enduring relationship with you, and hope you that will return to me in the future.

 

What are the fees to change my Trust?

After our consultation meeting and I have an understanding of the scope of the work, I charge a flat fee for the preparation of estate documents. I charge a flat fee so you know in advance exactly what the service will cost. The fee for amending your Trust will depend on extent of the work to be done.

 

When does a Trust end or terminate?

A Trust will end or terminate when all the assets have been distributed according to the terms of the Trust document.

 

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How do I revoke my Trust?

The assets in the Trust are transferred back into your name, and a brief written agreement is prepared, indicating that the Trust is revoked.

 

What happens to a Living Trust when a spouse dies?

When a spouse passes away, the surviving spouse should contact my office so we can schedule a meeting. The terms of the Trust will be examined, and explained, as necessary. An inventory will be prepared of the Trust assets, and decisions are made for the most advantageous apportionment of the assets into the A Trust and the B Trust, if applicable. There are tax and asset preservation benefits associated with the A/B Trust, also know as a "Credit Shelter Trust". This trust allows the "Applicable Exclusion Amount" to be maximized for both spouses, and preserves assets for childern of a prior marriage.

 

What is the cost when one spouse dies?

An hourly fee is charged based upon the time expended during the administration of an estate. The rate varies from client to client depending upon the nature of the assets and the complexity of the financial situation. I generally charge $150.00 per hour for estate planning services.

 

What happens if I am single when I die?

The successor Trustee collects the trust assets, pays any debts, and then distributes the remaining assets pursuant to the terms of the Trust.

 

What happens if the tax laws changes? Is my Trust still valid?

If the tax laws change, the Trust remains valid, but amendments may be necessary to comply with and/or take advantage of the new law.

 

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What is a step-up in basis?

A step-up or step-down in basis is an adjustment to the basis (i.e. purchase price) of an asset to the asset's fair market value on the date of the death of the owner. For example, if you bought a piece property for $10,000.00 that increased in value to $50,000.00, if you sell the property, you would realize a $40,000.00 taxable again. If you continue to own the property until your death, your tax basis was $10,000.00, but it increases to $50,000.00 for your heir at the time of death. So, if your heir sells the property for $50,000.00, they will not realize a taxable gain. This is a step-up in basis. With high value joint assets, such as real estate, a business or a farm, it is important to have the property appraised at the death of one of the joint owners, even if the property is passing tax free to a spouse. The step-up in basis for even a portion of the value will be benefitial if the spouse has to eventually sell the property. If the property lost value, there would be a step-down in basis.

 

Do my assets get a step-up in basis if they're in my Trust when I die?

Yes. Assets held in the Trust get a step-up or step-down in basis upon your death. If the property is jointly owned with your spouse, your portion of the asset will receive a step-up in basis. There will be another step up in basis when your spouse passes away. The step-up in basis allows the person inheriting the asset to sell it without realizing a capital gain.

 

When is an estate tax return due?

Estate tax returns are generally due nine months after the date of death on estates with assets in excess of $11.4 million (in the year 2019). At times, filing an estate tax return is prudent even if a return is not technically required in order to start the statute of limitations.

 

How long does it take to set up a Trust?

The goal is to complete the work within a month from obtaining your approval of the fee and authorization to start the work.

 

What is the Trust name?

The Trust will be named "[your name] as Trustee of the [your last name] Living Trust dated [date], and any amendments thereto". For example would be "John Doe as Trustee of the Doe Living Trust dated January 1, 2009, and any amendments thereto".

 

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Does your law firm do Wills?

Yes. It is my philosophy that there are four Fundamental Estate Planning Documents that form the foundation of any estate plan. A Will is a fundamental document, and I prepare Wills for a flat fee of $100.00.

 

What is a "C Trust" or "QTIP Trust"?

A "C Trust" or "QTIP Trust" (Qualified Terminable Interest Property) is a control Trust. A QTIP is used when one spouse owns more than $11.4 million is assets and wants to control those additional assets after death, but wants to defer the estate tax on the amount in excess of $11.4 million. Putting the amount in excess of $11.5 million in a QTIP Trust defers the estate taxes until the surviving spouse dies. The surviving spouse pays the estate tax on the QTIP assets. A QTIP also maximizes the Generation-Skipping Transfer Tax exclusion.

 

What is the Generation-Skipping Transfer Tax?

Generation-Skipping Transfer Tax is a tax on assets given to individuals who are more than one generation away from the person making the gift. For example, a grandparent giving an asset to a grandchild, either during the grandparent's life or at death, would be a generation skipping gift.

 

What is a QDOT Trust?

A QDOT Trust (Qualified Domestic Trust) is a special Trust for a surviving non-citizen spouse. The tax law generally does not allow an individual to obtain the marital deduction when leaving assets to a non-citizen spouse. The idea is that the surviving non-citizen spouse could return to their country of origin and take the assets with them, and thus avoid estate taxes on the assets. The marital deduction is available if the property is held in a QDOT Trust.

 

What is a Charitable Remainder Trust (CRT)?

A Charitable Remainder Trust permits a grantor to defer the income tax consequences on the sale of a capital gain property and make a charitable gift. With a CRT, you irrevocably put assets (cash, securities, etc.) in a trust. The trust then provides income payments annually to you or a named beneficiary. Depending on how you set up the trust, the payments will continue for a fixed period of time, or until the death of the beneficiary. At that time, the remaining assets are transferred from the trust to the charity. Two common types are Charitable Remainder Annuity Trusts (a "CRAT") and Charitable Remainder UniTrusts.

 

A Charitable Remainder Annuity trust provides a fixed dollar amount with each payment to the beneficiary. This amount corresponds to a percentage of the original investment paid out annually. For example, a $100,000 charitable remainder annuity trust might pay out 7.5% annually. In this situation, the beneficiary would receive $7,500 each year for the lifetime of the beneficiary or a fixed period of years. The $7,500 may be paid in one sum each year, or in several installments throughout the year.

 

The amount paid annually to the beneficiary of a Charitable Remainder UniTrust is a fixed percentage of the fair market value of the assets, as determined each year. For example, a charitable remainder unitrust might pay out 5.5% annually. If the assets were valued at $100,000, the beneficiary would receive $5,500 that year (5.5% of $100,000). If the assets were valued at $125,000 the next year, the beneficiary would receive $6,875 (5.5% of $125,000). As with a charitable remainder annuity trust, the payments may be made in one lump sum each year, or in several installments throughout the year.

 

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What is a Family Limited Partnership (FLP)?

A Family Limited Partnership is a partnership between family members, and is used to facilitate asset management, asset protection, tax planning and gifting. Usually, the parents are the general partners and control the partnership. The children or grandchildren are the limited partners who receive gifts of partnership interests. This is a very popular and effective estate planning tool that allows the parent to reduce the estate tax value of an asset, while maintaining control of the asset and protecting the asset from the potential creditors of the children.

 

What is a Crummey Trust?

A Crummey Trust is a trust with a special power of withdrawal for the trust beneficiary. In order for a gift in a trust to qualify for the annual gift tax exclusion, the individual receiving the gift must have the right to withdraw the money for a certain period of time.

 

What is a Irrevocable Life Insurance Trusts (ILIT)?

An ILIT (Irrevocable Life Insurance Trust) is an estate planning technique, used to ensure that life insurance proceeds will not be subject to federal estate tax. It is used to reduce the size of the taxable estate and to provide a source of tax-free funds that can be used to pay any estate death taxes that are due at the death of the insured.

 

What is a Grantor Retained Annuity Trust or GRAT?

A GRAT is a tax planning technique used to reduce the size of an estate and the amount of the resulting estate tax, but retains to the grantor the right to receive annual payments from the Trust for a term of years.

 

What is a Qualified Personal Residence Trust (QPRT)?

A QPRT is an irrevocable trust that a personal residence is transferred into. The creator of the Trust retains the right to use the property for the term of the Trust, but the value of the property is removed from the estate.

 

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If you have questions about the estate planning process, and your options, are considering a divorce, please call 216.225.9181, Email, or use the contact form to schedule an initial consultation.