3 Core Estate Planning Techniques and Documents

Estate planning is a complex process that entails a detailed evaluation of your goals, desires, potential income, taxes, asset protection and charitable planning, among many other considerations. It starts, however with three basic core techniques: your Last Will and Testament (Will), a Revocable Trust and an Irrevocable Trust.

A Will is the legal document where you can express your final wishes for the management of your estate. This includes the distribution of assets, guardianship for minor children and burial instructions. Without a properly executed Will, a person is deemed to die “intestate,” and his or her assets will be distributed according to the state’s intestacy laws. Although a Will can adequately provide for the distribution of assets upon your death, it does not sufficiently provide for your necessary care in the event you become incapacitated. It also must proceed through the costly and very public probate process after you pass. Once a Will is probated, it becomes a public record and can be viewed by any member of the public.

Trusts, on the other hand, would not be subject to probate and public recording. There are two main types of trusts: Revocable and Irrevocable trusts. They work as the names suggest, in that Revocable Trusts can be modified during your lifetime, and Irrevocable Trusts typically cannot be modified without the consent of the beneficiaries. This makes Irrevocable Trusts sound like an unwise choice, when in actuality, they are extremely useful for tax and estate planning purposes.

There are two basic types of Irrevocable Trusts: Inter Vivos and Testamentary. Inter Vivos Trusts are created when the Grantor is still alive, and Testamentary Trusts are created from the Grantor’s Will after he or she passes. While all Testamentary Trusts are Irrevocable, not all Inter Vivos Trusts are; the status of an Inter Vivos Trust is up to the Grantor.

Due to the fact that Irrevocable Trusts cannot be modified, anything in them is removed from the Grantor’s estate and therefore will not be subject to the estate tax. Therefore, it is important that they are set up correctly.

A classic example of a commonly used Irrevocable Trust is an Irrevocable Life Insurance Trust (ILIT). An ILIT is used to keep the value of a life insurance policy out of the owner’s estate. The policy is sold to the owner’s ILIT and the ILIT is the owner of the policy, safely removing it from the Grantor’s estate. It also makes the distribution of the policy upon the insured’s death go more quickly and smoothly. An ILIT also provides more creditor protection than merely distributing the proceeds of the policy directly. Additionally, it helps to prevent wealth transfer problems for the recipient of the proceeds.

Inter Vivos Irrevocable Trusts may also be used to give gifts to grandchildren with the proper tax planning. Giving a gift to someone two generations under you triggers the Generation Skipping Transfer Tax (GST Tax), which is currently 40 percent. The GST Tax has an exemption equal to the estate tax exemption. It is a complicated tax, making it imperative to set up this kind of trust properly. This will ensure the recipient of the gift receives the amount you actually want them to receive without them having a pay a high tax.

Revocable Trusts also have many uses in estate planning. They are commonly used as a way to avoid probate administration after death. Probate can be costly and takes time to sort out the affairs of the deceased person. A Revocable Trust sets out what the Grantor would like done with his or her property before death, ensuring a smoother administration. Another key advantage of using a Revocable Trust in the place of a Will is that Wills become public record after a person dies, whereas the provisions of a trust stay private. In order to make sure all of the Grantor’s bases are covered, a Revocable Trust should be accompanied by a Pourover Will. This type of Will states that any property not titled to the trust should be retitled to the trust. People often forget to retitle all of their assets to the trust or acquire new assets and do not think about it. 

Revocable Trusts also remove the need for ancillary probate. This is required probate when the deceased person has real property in another state. By putting the real property into a Revocable Trust, there is no need for ancillary probate.

It is also a creative way to plan financially for incapacity. A Revocable Trust operates free from court interference, and, if set up while the Grantor still has “capacity,” the Grantor may choose Trustees who will serve in the event of incapacity. This is much more advantageous than the court appointing a guardian or conservator. Both are extremely expensive and, in the event that capacity returns, incredibly difficult to remove.

Morris Law Group’s experienced attorneys can help you plan for your future with the most effective estate planning techniques for you and your situation. It’s imperative not to postpone your estate planning. Without any form of estate plan in place, you are subject to the state’s intestacy laws that will dictate how your assets will be divided upon your death. In addition to the possibility of your assets being distributed to a relative you may dislike or hardly know, your family could be faced with significant tax and fiduciary issues.

Contact us today at (561) 750-3850 for more information about estate planning and to set up a consultation with one our attorneys.