|
Estate Planning Questions What is a "durable power of attorney" What is a "durable power of attorney"? Virtually everyone needs a durable power of attorney to safeguard their assets during periods of incapacity. This document allows you to authorize another individual to manage your property and finances when you cannot yourself. In this document, you are considered to be the "principal" and the individual to whom you assign the power is your "agent" or "attorney-in-fact." Your attorney-in-fact does not have to be a lawyer, but it should be someone you trust a great deal. (While a durable power of attorney enables your agent to take care of your responsibilities for you, it does not does not restrict you from doing these things on your own). The word "durable" means that your power of attorney remains valid even if you become incompetent or incapacitated. This is a very important point because without a durable power of attorney for finances, a court proceeding for guardianship or conservatorship is probably inescapable. A costly and largely unnecessary exercise. Extreme care should be taken when drafting a durable power of attorney. If it's not drafted right, you could end up in court or be subjected to financial exploitation. What is a "health care directive"?
Your health care directive can appoint anyone over 18 that you trust to make medical decisions for you and tell your physicians, family, and friends what kind of care you wish to receive. For example, it often states whether they should give you life-sustaining treatment if you are in an irreversible coma, persistent vegetative state, or have a terminal condition. Your health care directive guides your loved ones during difficult times. While it may seem as though you are placing a significant responsibility on the person you chose as your "agent," not having a health care directive can be much worse. Without your guidance, there may be dissention among your family members as to "who is in charge," and "what treatment you would want." **NOTE: You should have an attorney review any older health care documents to make sure they are still valid. Your "estate" is, quite simply, everything you own. Real estate, personal property, stocks, bonds, mutual funds, retirement accounts, and even life insurance death benefits comprise your estate. The size and nature of your estate will often dictate what type of planning is right for you. The "size" of your estate is important from a tax perspective. Prior to 2006, your estate could be subject to Minnesota estate taxes if the total value of all of your assets (including life insurance death benefits) is $850,000 or greater. Similarly, your estate could be subject to federal estate taxes if the total value of your assets is $1.5 Million or greater. The "nature" of the assets comprising your estate is also important to consider. This is because different types of assets will transfer on death in different ways. Some of your assets may pass by "beneficiary designation." In other words, certain types of accounts enable you to state who will receive the proceeds at your death. Typically, these would include assets like: life insurance death benefits; retirement accounts; and annuities. You may also hold certain assets jointly with another individual, with "rights of survivorship." In these cases, the jointly held assets would pass to the remaining joint owner of the asset. The most common example would be real estate held by spouses as "joint tenants." Finally, many of your assets may be held in your name individually, without beneficiary designations. If so, these assets will need to go through a process called "probate" in order to pass to the next generation. Probate is the essentially a lawsuit filed in court after you pass away. In Latin, the word "probate" means "proving the Will." Simply stated, it is the legal process of settling your estate under the jurisdiction of the Probate Court. Upon your death, your Will is admitted to the Probate Court, and becomes a public document. Your property is gathered and inventoried, your debts are paid, and everything left over is divided among your heirs. While your personal representative is responsible for "probating" your Will, the process is generally controlled by the court and probate attorneys. Certain delays are built into the probate process. It can be cumbersome, time-consuming, expensive, and distressing during a family's time of anguish and exposure. As a result, many individuals desire to avoid this process. Yes. Probate can be avoided with careful planning. There are several techniques available that enable your estate to avoid the time, expense, and public nature of a probate. Butthe most comprehensive and streamlined way to avoid probate is by placing your assets in a carefully drafted Revocable Living Trust, because trust assets, in most situations, can be distributed to beneficiaries almost immediately after the death of the trust-maker (i.e., grantor).
A majority of our clients utilize a Revocable Living Trust ("Living Trust") as the cornerstone of their estate plans. Properly drafted, a Living Trust offers complete asset control to clients during their lifetime; provides for them and their loved ones in the event of their incapacity; and on death allows them to pass their assets to their loved ones without the costs, delays, and publicity associated with probate. In order to understand the benefits of a Living Trust, we must contrast it with a Will. A Will is a "testamentary instrument." In other words, a Will takes effect only upon your death. A Living Trust, on the other hand, takes effect as soon as it is signed and assets are transferred to it. Both a Will and a Living Trust set forth your directions for the distribution of your assets upon your death. But unlike a Will, a Living Trust also directs the management of your assets during life. Consequently, if you have a properly funded Living Trust, your "successor trustee" can simply continue to manage the assets in your trust without court intervention or supervision. At death, assets held by you "inside" your Living Trust do not have to go through the probate process. All of your assets will simply pass according to the instructions you left in your Living Trust and, although an administration process is still necessary, it does not involve the time, expense, and publicity of probate court intervention. Simply put, by transferring your assets to your Living Trust, you maintain control of the assets during your life but have removed those assets from the probate process after your death. Upon your death, the trust may terminate or may continue for the benefit of your family, depending upon your instructions. Most often, the trust includes instructions specifying that upon your death or upon the death of your surviving spouse, your children or other loved ones will become the "remainder beneficiaries" -- the persons who enjoy the trust assets remaining after your death. A revocable living trust provides flexibility, enabling you to control how and when your assets will be distributed to loved ones or charity after your death. You may, for example, pass assets with "strings attached." Many practitioners believe that clients should never leave anything of any consequence to their loved ones outright, or "free of trust." They believe that everything should be left in trust for the heirs' benefit in order to protect the heirs in a way they cannot do for themselves. If you chose to follow this philosophy, you could, for example, specify in your trust that each of your children is to serve as his or her own trustee (or along with cotrustees) for his or her lifetime and that the trust provide for your children's needs as they arise. In this way, you have allowed each child to manage his or her own funds in the way he or she desires; yet, by retaining everything in trust, you have to some degree protected each child's assets from the claims of creditors, which could easily arise from a failed business venture, an overzealous litigant (e.g., as a result of an auto accident), or even an ex-spouse in a divorce. You may also avoid a possible second estate tax when your child dies and the assets pass to your grandchildren. By leaving assets in trust, you may be concerned that you will be overly controlling your children after your death. But you can provide as much latitude to your children as you like; your attorney drafts the terms of the trust in accordance with your wishes. Thus, the terms can be as restrictive or as nonrestrictive as you choose, on the basis of your knowledge of each child's situation. In limited circumstances, joint tenancy can be an acceptable form of title. The most obvious example of a proper use of joint tenancy is when a young married couple (with no federal or state estate tax exposure) jointly owns a home. This arrangement will avoid probate at the death of the first spouse. But probate would be required when the home needs to pass to the children at the surviving spouse's death. Some of the more common problems that arise when you own property/accounts as joint tenants with another individual are: (1) you lose some control over your property; (2) you subject your property to the creditors of the other joint tenant; (3) you may create unintentional gift tax problems; and (4) you could increase your exposure to unnecessary capital gain and estate tax liability.
In the simplest of terms, the "estate tax" is a tax on your ability to transfer wealth at your death. While many of us spend countless hours each year working with tax advisors to reduce our annual income taxes, few of us pay any attention whatsoever to our potential estate tax exposure. This is odd in light of the fact that the top federal estate tax rate is currently at 48% (2004), and will incrementally decrease to 45% (2009). Each individual Minnesotan is entitled at death to transfer, free of estate tax, assets worth $850,000 (2004) - the applicable estate tax exemption. On the federal level, the applicable estate tax exemption is currently $1.5 Million (2004). Once these threshold levels are exhausted, estate tax liability will be imposed - unless the individual has engaged in proper estate tax planning. Many people labor under the misconception that their estate is not "big enough" to consider estate tax planning. Most often, these people have forgotten just how much wealth will transfer at death. Consider the following person:
This individual would be subject to both Minnesota and Federal estate taxes at death. Even if this wealth was "split" between a husband and wife, estate taxes would be due at the death of the surviving spouse without proper planning. There are effective ways of reducing your estate tax liability. They vary in complexity and require advice from qualified legal and tax counsel. Below are some options that might have relevance in your particular situation:
Can protect my children's inheritance from "creditors and predators"? Yes, with proper planning. Instead of leaving your assets equally to your children, why not leave it to your children in "Lifetime Inheritance Protection Trusts" - sometimes called "Heritage Trusts." Lifetime Inheritance Protection Trusts are created by you, today, naming your child as a trustee and beneficiary when you die. These trusts, if properly drafted, can:
During your children's lifetimes, they have significant access to the income and the principal of their trusts -- so that you're not giving them a "gift with strings attached" or "ruling from the grave". When should I review my Estate Plan? Creating an estate plan is a process, and not just a single, isolated event. The only constant in life is change. So as your assets and family matures, your estate plan may need to adjust to those changed circumstances. It is important to maintain your estate plan to ensure it is keeping up with the changes going on in your life. Below are just a few circumstances that would necessitate a plan review:
You should initiate a review under any of these circumstances. And even if you perceive none of these circumstances have changed, it is generally advisable to review your plan with your estate planning attorney every 2-3 years. Elder law is a specialized field of law addressing the issues faced by the fastest growing segment of our society, the elderly. While it encompasses many of the general areas of practice like estate planning, trusts, and estate administration, it also deals with Medical Assistance issues; disability planning; guardianships and conservatorships; long-term care issues; nursing home issues; housing issues; elder abuse; retirement planning, and the like. Elder law is one of the few areas of the law that is defined by the clients we serve. This practice area requires a "holistic" approach - in which we provide advice and counsel covering a broad spectrum of substantive areas that affect older persons. We are often called upon to talk to our clients about long-term planning for health care; financial planning; preserving family relationships; end-of-life decisions; and methods to protect personal autonomy and values. Consequently, it is vitally important for us to maintain our connections with a network of community service providers, financial professionals, geriatric care managers, and nursing home, assisted living, and retirement community administrators. Call for a Complimentary Consultation 651-641-0741 |
St. Paul (Main)
Call: 651-641-0741
Baker Court Building
821 Raymond Ave.
Suite 315
St. Paul, MN 55114
» Email Us
» DIRECTIONS/MAP
Edina
Centennial Lakes Center
7701 France Ave. South
Suite 200
Edina, MN 55435
» Email Us
» DIRECTIONS/MAP
Minnetonka
Carlson Center
601 Carlson Parkway
Suite 1050
Minnetonka, MN 55305
» Email Us
» DIRECTIONS/MAP
Our law firm, attorneys and lawyers handle cases throughout Minnesota(MN) including, but not limited to St. Paul, Edina, Minnetonka, Twin Cities metro area, Minneapolis, Edina, Bloomington, St. Louis Park, Minnetonka, Plymouth, Wayzata, Maple Grove, Orono, Delano, Brooklyn Park, Brooklyn Center, Chaska, Shakopee, Chanhassen, Savage, Prior Lake, Elk River, Stillwater, Woodbury, Oak Park Heights, Lake Elmo, Anoka, Champlin, Coon Rapids, Blaine, Ham Lake, Andover, White Bear Lake, Shoreview, Arden Hills, New Brighton, Roseville, Little Canada, Dakota County, Eagan, Inver Grove Heights, Rosemount, Apple Valley, Lakeville, Cottage Grove, Hastings, Hennepin County, Western Hennepin County, Washington County, Ramsey County, Southern Anoka County, Carver County, Wright County, Scott County, Sherburne County and more.
© 2008 by Lennington Law Firm. All rights reserved. Disclaimer | Site Map FirmSite® by FindLaw, a Thomson Reuters business.