Estate Planning Basics
This summary explains the difference between different legal terms with regard to Estate Planning and what the implications could be for your assets and children.
Testate and IntestateThere is some confusion regarding the meaning of terms when it comes to planning for your estate. Estate planning is preparing for when the inevitable happens: when you pass on and leave your property to others. I will try in a series of posts to explain in more detail what the various terms mean and how they could affect you and your family.
Q: What does "intestate" mean?
A: If you should die without having any will, trust, or other instrument to disburse your goods, this is called dying "intestate". In cases such as this the government will divide your property according to its default formula. Although this default formula often times coincides with what the individual would want anyways, it does not always. You will also leave the State in control of guardianship for your children (if they are minors) and personal affects, heirlooms, etc.
Q: What does "testate" mean, and what are the ways that I can control where my property ends up after my death?
A: "Testate" means that when you are deceased, a valid will or trust, or other instrument will control the disbursement of your property, not the State. There are certain restrictions imposed by the State even when you die testate (e.g. if you are married in the State of Minnesota, your spouse is entitled to a "spousal share"). Wills and Trusts are the most common devices used by individuals to determine the disbursement of their property after their death.
In my next post, I will go over what the differences are between Wills and Trusts. Contact me for more information and a free initial consultation so that I can help you arrange what is best for you and your loved ones. Competent and informed Estate Planning will help give you and your loved ones peace of mind.
Wills & TrustsQ: What's the Difference between a Will and a Trust?
A "Will" is a written document stipulating how a person's assets will be bequeathed upon their death. A will must be duly signed by the testator (the person creating the will) and co-signed by two witnesses. If a will is not validly created, the State will not accept it as legally binding. Therefore, it is important to seek legal counsel when creating a will. Probate court will determine the validity of a will and ensure its execution. The person who carries out the stipulations of the will is called a Personal Representative, and is selected by the testator.
Our firm charges a flat fee of $300.00 for simple wills. For more complex estate planning, we charge a competitive rate of $150.00 per hour.
A "Trust" is made up of several components: the Trustor (the one creating the Trust and endowing it with assets), the Trustee (the person who manages the Trust), and the Beneficiaries (the persons who the assets of the trust will ultimately go to). Trusts do not typically pass through probate, and can be created to take effect during the Trustor's lifetime or upon their death. Trusts are more complicated instruments for estate planning and are better used if a person's estate exceeds $500,000.00 (excluding the homestead). Trusts can also be effective mechanisms to reduce potential tax liabilities.
Guardianship for ChildrenQ: Can I plan for the guardianship of my minor children with a will?
A: Yes! A will is one of the best ways to prepare for the guardianship of your minor children should something happen to both you and your spouse. Absent a will, the state will likely decide who is the best guardian to raise your children, looking at family ties, stability for the children, etc. With a will, you can make such a decision yourself, so that you can be assured that your children will be raised in the environment you desire. It is also possible with a will to ensure that your property will be used for their education and maintenance while they are being raised.
Changing WillsQ: How do I change my Will?
A: The principal way to change certain terms in a Will is by means of a "codicil". A codicil is a separate amendment to a Will, usually placed at the end, and must follow the same guidelines and formalities of a Will - that is, it must be typed and witnessed by two witnesses. You can NOT change a will by crossing out and adding terms, or by whiting out certain clauses and adding your initials. Such acts will not be deemed valid and could invalidate the entire Will.
Sometimes a person executes a codicil because the beneficiary that they want to leave their property to has changed, or perhaps there is a large new asset that they would like to dispose of in a particular way. Because the formalities of executing a codicil are the same as a Will, it is preferable in many cases to create a new Will altogether.
Drafting Software for Creating WillsQ: I've used Will Drafting software for my Will to save on attorney fees. Isn't that good enough?
A: Using software to draft your own Will is a legitimate option. However, there can be some serious drawbacks in taking that approach, the most serious one being that if your Will fails to follow the proper formalities of your State, your entire Will will be rendered invalid.
In addition, many of the terms and techniques used in drafting a Will are highly technical, and without proper legal advice, one is likely to be overwhelmed and not have their full wishes reflected in their Will.
For these reasons, it is preferable to have an attorney draft a Will for you. An attorney can also answer tangential questions that software will be unable to address as you move forward with your estate planning. At the very least, if you have used software to draft your Will, you should hire a qualified attorney to review it to ensure that it is satisfactory and valid.
Do People with Trusts also need a Will?Q: If I already have a Trust, do I really need a Will?
A: Yes. Even if you have had a Trust established for your beneficiaries, it is important to have a Will created for two reasons. First of all, if you have minor children, the only way to provide for their guardianship is by creating a Will and stipulating who you want to care for them should you die. A trust is not able to establish this guardianship.
The second reason is that sometimes big events can occur after your create your Trust (such as obtaining an inheritance, a payment from a lawsuit, etc.) which was not mentioned in your Trust. Without a "pour-over" Will (a Will in which ALL your assets are poured over to your Trust regardless of what or when you obtain them) your assets Will need to go to probate and be treated as though you died intestate.
Therefore, any good estate planning includes a Will as a sort of "catch-all" device for unforeseen occurrences.