FAQs

General

• • Do I have to come to your law firm to change the trust?

• • There is nothing that requires you to work with the attorney or the law firm that originally prepared your estate planning documents. Any qualified attorney can amend the trust. We, of course, hope that you will return to our firm to do any work in the estate planning area, based upon our philosophy of being of service to our clients and being there when we are needed.

• • Do I work with you or a paralegal?

• • The first step in the estate planning process is for you to come in for your initial consultation. At that time, you will meet with one of attorneys at the firm. We will work with you and, of course, draft all of the documentation to implement your estate plan. We do also have specially trained paralegals in our law firm, who do specific jobs such as asset collection and funding and things of that nature, as well as the notarization of the appropriate documents. You will meet them as your estate plan takes shape.

• • What happens to my trust if you or your firm is gone?

• • The benefit of working with our firm is that we have several attorneys who do estate planning. Therefore, in the unlikely event that the firm is not around, I am sure that we will have joined with another firm in order to carry on the business and to be able to serve our clients. If there are changes in the firm, we will in all likelihood contact you to let you know about them and how to contact us in the future.

Estate Planning/Wills/Trusts

• • Can any attorney create a Living Trust?

• • NO. You should choose an attorney whose practice is focused on estate planning. Members of the American Academy of Estate Planning Attorneys receive continuing legal education on the latest changes in any law affecting estate planning, allowing them to provide you with the highest quality estate planning service anywhere.

• • Can I transfer real estate into a Living Trust?

• • YES. In fact, all real estate should be transferred into your Living Trust. Otherwise, upon your death, depending on how you hold the title, there will be a death probate in every state in which you hold real property. When your real property is owned by your Living Trust, there is no probate anywhere.
    

• • Can someone contest a trust like breaking or contesting a will?

• • Anyone can hire an attorney to question how legal affairs have been arranged. So, in theory, anyone can attempt to contest a trust. In practice, however, it is much more difficult than contesting a will. As all wills must be probated, any interested party can easily join the routine probate court proceedings and contest the will at that time. In contrast, someone who wants to contest a trust must take the initiative to begin his or her own lawsuit, complete with court and attorney fees.

• • Can you be the trustee of my living trust?

• • A law firm or an attorney at a law firm is permitted to be the trustee.
    
    

• • Do property taxes change if I create a trust?

• • Property taxes remain the same when real estate is transferred into a Living Trust.

• • Does a Revocable Living Trust provide asset protection?

• • During the lifetime of both spouses there is no asset protection provided by a revocable living trust. However, there may be some protection for the survivor after the first spouse dies. The trust can also be created to provide creditor protection for other beneficiaries of the trust.

• • Does your law firm prepare wills?

• • At our firm our main goal is to educate clients about their options in estate planning. We then give our clients our judgment as to what is best for them. If it is appropriate a will may be prepared.
    

• • How are time-shares funded into a trust?

• • Time-shares are transferred based upon the type of ownership you have. Some time-shares are a contract and are transferred to the trust by an assignment of the contract. Other time shares are a fee-simple, which means you have absolute ownership. Therefore, it is transferred by deeding it to the trust.
    

• • How can I leave my estate to my spouse tax-free?

• • An outright gift at death qualifies for the unlimited marital deduction for estate taxes and, therefore, there will be no tax paid on the amount left to the surviving spouse. However, the $1.5 million exemption on the estate of the first deceased spouse is lost when the second spouse dies.

• • How do I change my trust?

• • An actual change to the terms of a trust is called an amendment to the trust. An example would be changing the distribution from two children to just one child. A trust can also be changed by a total restatement of the trust if multiple changes are involved.
    

• • How do I fund my trust?

• • Funding a trust entails transferring assets you own as an individual into the name of your trust. For some assets, our law firm makes the transfers and prepares the documents for you to sign, for example, real estate. For other assets that our law firm is unable to change for you, we will give you instructions as to how title is changed, and will provide you with the necessary paperwork. For example, to fund your trust with bank accounts, a letter is prepared for you to take to the bank to change title of your accounts. You will have to go to the bank in person to sign a new signature card as trustee of your trust.
    

• • How do I know if my estate has enough liquidity?

• • Liquidity planning is part of estate planning. Generally, it is necessary to look at the estate and see if there is enough cash to pay taxes, administrative expenses, and support dependent family members. There are generally two ways to deal with the liquidity issue, either by reducing taxes and expenses which require cash, or by increasing the cash and liquidity of the estate. Techniques which reduce taxes include fully using the $2 million exemption at death (for the year 2006), making annual gifts, and using planning techniques such as GRITs and QPRTs. Other techniques which reduce expenses include avoiding probate and using a Living Trust. Of course, increasing the liquidity of the estate can be done through conversion of assets as well as life insurance.

• • How do I revoke my trust?

• • Trusts are rarely revoked. Most of the time, once a trust is set up, no one wants to revoke it. However, there are situations where it does occur, primarily in the case of divorce. A brief written agreement is prepared, indicating that the trust is now revoked. The assets are removed and put in the name of the individuals, who are free to establish new trusts if they so desire.

• • How does a power of attorney terminate?

• • Death revokes a power of attorney. You may also cancel your power of attorney by signing a revocation. The best way to revoke a power of attorney is to destroy all copies. If the power is a non-durable power of attorney it will terminate upon your incapacity, while a durable power of attorney survives your incapacity.
    

• • How does an agent use a power of attorney?

• • Your agent presents the power to the other party involved in the transaction and signs any necessary documents needed for such transactions on your behalf. Your agent normally signs his or her own name, adding thereafter “Attorney in Fact for Mary Smith”.
    

• • How is out-of-state property funded into my trust?

• • Out-of-state property is transferred into the trust by using a local attorney in that state working with our law firm. We are a member of the American Academy of Estate Planning Attorneys, a national organization with members in all 50 states. Therefore, we can contact another member attorney in the state where your property is located to have it transferred to your trust with a minimum of delay.
    

• • How large of an estate can pass federal estate tax free?

• • The government allows every individual a credit against estate taxes. In the year 2006, the Unified Credit is equal to $345,800, which equals an exemption from estate taxes of $2 million in assets. This means that estate taxes will not be owed at the time of an individual’s death unless the net value of the estate exceeds $2 million.

• • How long does it take to set up a trust?

• • In our firm, we like to complete the work within four weeks of our first client meeting.
    

• • If I don’t create an estate plan, won’t the government provide one for me?

• • YES. But your family may not like it. The government’s estate plan is called “Intestate Probate” and guarantees government interference in the disposition of your estate. Documents must be filed and approval must be received from a court to pay your bills, pay your spouse an allowance, and account for your property–and it all takes place in the public’s view. If you fail to plan your estate, you lose the opportunity to protect your family from an impersonal, complex governmental process that can become a nightmare. Then there is the matter of the federal government’s death taxes. There is much you can do in planning your estate that will reduce and even eliminate death taxes, but you don’t suppose the government’s estate plan is designed to save your estate from taxes, do you? While some estate planners favor wills and others prefer a Living Trust as the Estate Plan of Choice, all estate planners agree that dying without an estate plan should be avoided at all costs.

• • If I set up a Living Trust, can I be my own trustee?

• • YES. In fact, people who create most Living Trusts act as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your hand-picked successor trustee assumes control over your affairs, not the court’s appointee.

Estate Administration/Probate

• • Are there alternatives for managing property when a person becomes incapacitated?

• • There are several. One is using a durable power of attorney. Another is a court-supervised proceeding referred to as a guardianship or conservatorship. Another alternative is the use of a living trust where assets are funded into the living trust.

• • Can a married couple use joint tenancy until one spouse dies, then set up a trust for the survivor?

• • Yes, but this unfortunately has several problems associated with it. There is no guarantee that the surviving spouse will have time to set up a trust after the first spouse dies, or, more to the point, will actually get around to setting up a trust, regardless of the amount of time available. This method also loses the $1.5 million exemption tax advantage, because, like an outright gift, joint tenancy lumps all the assets in one spouse’s estate. In addition, the survivor will not see the increase in basis for the survivor’s interest as would happen in a community property state.

• • Can probate be avoided?

• • Probate can be avoided with careful planning. There are a number of different techniques for doing so which can be used alone or in combination.

• • Do my assets get a step-up in basis if they’re in my trust when I die?

• • Your share of the assets held in the trust does get a step-up — or step-down — in basis upon your death. Your spouse’s share of community property assets held in trust also receives a step up– or step-down — in basis at your death. There will be another step up– or step-down — in basis of your spouse’s share of the trust assets at the death of your spouse.

• • Does your law firm do probates?

• • Yes, but ultimately, we want to help people avoid probate because of the fees involved. Unfortunately, not everyone will create a trust. Many people will procrastinate and never do proper estate planning. We want to help in any way that we can, so if you know anyone who needs help with a probate, we are happy to meet with him or her, but our firm does not contest probates.

• • How is my property transferred if I die intestate?

• • If you die intestate, the transfer of your property is accomplished through a court-supervised proceeding called probate that frequently takes a minimum of six months, typically a year or more. These proceedings generally are expensive and time-consuming and tie up your property for several months. Probate can be avoided with proper estate planning.

• • The possibility of a disabling injury or illness scares me. What would happen if I were mentally disabled and had no estate plan or just a will?

• • Unfortunately, you would be subject to “living probate,” also known as a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. These “court-appointed agents” must file a strict accounting of your finances with the court. The process is often expensive, time-consuming and humiliating.

• • What are the disadvantages and advantages of a guardianship?

• • A primary disadvantage to a guardianship is that it is a public proceeding, thereby exposing the incapacitated individual to embarrassment as the details of their incapacity are discussed at length. It is also expensive, and is a restrictive procedure. In addition, there is no guarantee that the end result will be in accordance with the incapacitated person’s wishes, and someone unacceptable to the incapacitated person could be placed in charge of his or her affairs. A major advantage to a guardianship is that the courts watch every move the guardian makes in relation to the assets. Some feel this provides increased protection as well as establishing the authority of a guardian as third parties must deal with the guardian due to the court’s supervision.

• • What happens if I am single when I die?

• • When a single individual passes away, whoever is named as successor trustee usually contacts our office. In most cases, the trustee is instructed that assets need to be collected, debts need to be paid and then ultimately the distribution of assets will be made pursuant to the terms of the trust. In essence, the terms of the trust are carried out.

• • What happens to a living trust when one spouse dies?

• • When one spouse passes away, at that time, the surviving spouse should contact our office so that we can set up a meeting. At that meeting we explain what needs to be done in order to follow the terms of the trust. We need to inventory all assets so that we know what is in the trust in order to divide the assets into the A trust and the B trust — the survivor’s trust and the family trust, if applicable. There are tremendous tax benefits associated with the A/B type of trust, which is why a snapshot is taken of the assets at the date of death of the spouse.

• • What is a guardianship or conservatorship?

• • This is a court-supervised proceeding which names an individual or entity to manage the affairs of an incapacitated person. A guardianship may also include the duty to care for the incapacitated person.

• • What is a step-up in basis?

• • A step-up — or step-down — in basis is an adjustment for tax purposes to an asset’s fair market value at the date of the death of the owner of the asset. For example, if you bought a share of stock for $100 that increased in value to $500 at the time of your death, your tax basis was $100 but increases to $500 at the time of death. This increase is known as a step-up in basis. If you bought the stock for $500 and it was worth $100 at the time of your death, it would be a step-down in basis. In community property states, each spouse’s share of community property receives the adjustment.

• • What is probate?

• • Probate is the court procedure used to change title to assets from the name of an individual who has passed away into the name of the living beneficiaries. It is also where all creditors of a decedent file claims to collect their debts and where interested parties who have a complaint regarding the deceased can file their complaint (a will contest). Even without a contest, probate can be costly and time-consuming. Probate is a public proceeding.

• • What is the cost when one spouse dies?

• • We charge an hourly fee based upon the time we work on the matter. It varies from client to client depending upon the nature of the assets and the complexity of the financial situation. Our fees range anywhere from in a simple situation to several thousand for a larger estate and more complicated financial picture.

• • 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 will be in charge of administering your estate as well as who will receive your estate assets. This distribution plan can be found in the intestacy statues of each state.

    In Arizona, for example, without a valid will or trust, the intestate estate passes to the surviving spouse. HOWEVER, if you pass away and you have separate children that are not the children of your surviving spouse, your children are entitled to your interest in the community property subject to probate and your spouse is entitled to your separate property subject to probate. Imagine your surviving spouse having to share your community property home with his/her step children?

    any part of a decedent’s estate not disposed of by will or trust, the surviving spouse is entitled to the community property of the decedent and the decedent’s separate property IF there are no separate children who are not the children of the surviving spouse and the decedent. If there are separate children, the children of the deceased spouse are entitled to one-fourth of the decedent’s separate property.

Advanced Planning/ILITS, LLCs

• • What is a “C Trust” or “QTIP Trust”?

• • A “C Trust” or “QTIP Trust” (QTIP stands for Qualified Terminable Interest Property) is a control trust. This is where one spouse owns more than $1.5 worth of assets and wants to control that additional amount of money after he or she passes away, yet also defer the tax on the amount above $1.5. By putting the amount above $1.5 into a QTIP trust, estate taxes are deferred until the surviving spouse passes away. An important issue, often overlooked, is who pays the estate tax on the QTIP assets (the surviving spouse). A QTIP trust is also used in connection with maximizing what is called the generation-skipping transfer tax exclusion amount.

• • What is a Charitable Remainder Trust?

• • A Charitable Remainder Trust permits a donor to defer the income tax consequences on the sale of a capital gain property and make a charitable gift. The donor transfers property to the trust, retaining the right to receive a stream of annual payments for a term chosen by the donor. At the donor’s death the remaining assets go to the charity. Two common types are Charitable Remainder Annuity Trusts and Charitable Remainder Unitrusts.

• • What is a Crummey power?

• • A Crummey power is a special power regarding gifts in trust. It was named for a court case of some years ago. In order for a gift in trust to qualify for the annual gift tax exclusion, the individual recipient must have a right to withdraw the money for some certain period of time. The right to take the gift from the trust during the period of time indicated is known as the Crummey power.

• • What is a Family Limited Partnership?

• • A Family Limited Partnership is a partnership made up of family members and is used in many cases to facilitate asset management, tax planning and gifting. Generally, the parents are the general partners, controlling the partnership and making all decisions. The limited partners are often children or grandchildren who receive gifts of partnership interests. This is a very popular and effective estate planning tool.

• • What is a Grantor Retained Annuity Trust or GRAT?

• • This is a trust into which an individual transfers property and retains the right to receive annual payments from the trust for a term of years. This is a tax planning technique to reduce the size of an estate and the amount of the resulting estate tax.

• • What is a QDOT trust?

• • A QDOT trust (QDOT stands for Qualified Domestic Trust) is a special trust set up when a non-citizen spouse is the surviving spouse. The tax law generally does not allow an individual to obtain the marital deduction when leaving assets to a non-citizen spouse. The marital deduction is obtained if the property is held in a QDOT trust.

• • What is a Qualified Personal Residence Trust?

• • This is an irrevocable trust into which a personal residence is transferred. The individual or couple who created the trust retains the right to use the property for the term of the trust. This is a tax planning technique to remove the asset from the estate of the individual making the trust. If the grantor survives the term of the trust, then the asset is not part of the estate.

• • What is an ILIT?

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

• • What is the annual gift tax exclusion?

• • The annual gift tax exclusion is an amount that can be given away annually without resulting in gift tax on the transfer. In the year 2005, the annual gift tax exclusion amount is $11,000 per recipient. There is no limit on the number of recipients to which qualifying gifts can be made.

Medicaid

• • What is Medicaid?

• • Medicaid is a needs based assistance program that can help individuals pay for long term care if they meet both the financial and medical eligibility requirements.

• • Do I need to plan for Medicaid now?

• • Maybe. It depends on your individual circumstances; however the sooner you plan the more assets that can be protected.

• • Am I eligible for Medicaid?

• • Individuals are eligible for Medicaid if they meet both the financial and medical eligibility requirements.

• • How does Medicaid impact veterans?

• • If you are a Veteran, you may be eligible for VA Aid and Attendance benefits in addition to Medicaid.

• • Can I qualify for Medicaid by giving my assets to my children?

• • Maybe, but gifting all your assets may not be the best Medicaid planning strategy. By gifting away all your assets you may be able to meet the financial eligibility requirement but depending on when you need care and when you gifted your assets away you may be imposed a penalty period and if you don’t have any assets you won’t be able to pay for your care during the penalty period.

• • Do I need a lawyer to apply for Medicaid?

• • No, but a lawyer who is familiar with Medicaid can help craft a plan to protect more of your assets and potentially help you qualify for benefits sooner.

• • Can I use Medicaid benefits to pay for assisted living?

• • Yes, but you should always confirm that the facility accepts Medicaid benefits as some facilities and providers are private pay only.

• • What if my parents need long-term care?

• • We recommend scheduling an appointment with one of our attorneys to discuss the planning options. If your parents may need care in the future but not yet, there are flexible planning options that may be available to help your parents qualify if/when they need care. If your parents need long-term care today, this is what is known as emergency planning and an attorney will be able to assist you with the application and qualifications process.