Estate Planning FAQ
Many have questions about estate planning and probate, but there are also many misconceptions. Here are answers to some of the more frequent client questions:
What is Probate?
Probate is a court process by which a deceased person’s assets are transferred to his beneficiaries. In Maryland, the personal representative files a petition with the register of wills or the orphans’ court to open the probate. After determining the estate’s assets, paying the deceased person’s debts, and paying other final expenses, the personal representative will then distribute the remaining assets. There are numerous reasons for wanting to avoid probate. First, your family’s assets and debts become public record. Second, there can be significant time delays between your death and when your beneficiary has access to the assets. In addition, there are costs for probate and your personal representative may be entitled to receive compensation. This can be avoided by using a living trust or other tools available to an estate planning attorney.
Who Needs An Estate Plan?
No matter what your situation, chances are you need some estate planning. How sophisticated your estate plan must be generally depends upon your assets, your family, and your health. For instance, an older person will generally be wealthier and not have dependent children. That person’s plan may focus on distributing those assets and minimizing taxes. In contrast, a younger person may have fewer assets but may have dependent children. The younger person may need a plan focused on ensuring their children have assets available and guardians appointed. But, regardless of your status, some aspects of estate planning are universally needed.
In addition, many mistakenly believe Maryland laws will be a satisfactory substitute for an estate plan. When planning your estate, people rarely deprive their spouse to give an inheritance to their children or parents. Yet, this may be exactly what happens if you pass away without a will in Maryland.
Who will care for your children?
You can designate through your estate planning documents who will be the guardian of your children. You can even divide the guardianship into who will care for the child and who will care for their property if you do not believe one person is best suited for both tasks. While a court will ultimately determine your child’s proper guardian, the court will give your opinion great respect. Without your designation, the court independently seeks a guardian for your child without your personal insight and your knowledge of your family and friends.
What Happens If I Do No Estate Planning?
A number of issues can arise. As part of an estate plan, most attorneys will provide documents that will assist your family both before and after your death. Estate planning documents generally include financial powers of attorney. The financial power of attorney allows your family to handle your financial affairs if while you become unable. It may be needed, for instance, to sell property, pay the mortgage, or deal with the government on your behalf. You may also receive a living will or medical power of attorney, which allows your loved ones to make medical decisions on your behalf if you become incapable. Of course, the Last Will and Testament is the document most think of when discussing estate planning. The laws governing what happens if you die without Will are likely not what most believe, and I have written an article discussing many of those misconceptions and common issues that can be avoided with a Will. Follow this link to my article, “Not Having a Will in Maryland”, for more information.
Does Estate Planning Only Consider What Happens If You Die?
Even if immortality runs in your family, there are still aspects of estate planning that apply to you. To plan for a situation by which you are incapable of making decisions for yourself or performing life’s necessities, your attorney often a Durable Power of Attorney and an Advance Directive with your estate planning package. The following is a basic description of either document:
Durable Power of Attorney – The durable power of attorney names a person to manage your affairs if you become incapable. You essentially name a person to pay your bills, write your children’s tuition check, contact your broker, etc. Without this document, your family may need to spend a large amount of money to have a court appoint a guardian to handle your money and other affairs while you cannot. With the durable power of attorney, you can also specifically direct how to handle certain situations, such as how your business will be run or how your investments will be managed.
Advanced Directive – The advanced directive is also known as a living will or health care directive depending upon the state. The advanced directive allows another to act on your behalf for health decisions. The advanced directive can direct specific actions be taken under certain health circumstances. The designated person cannot use the advanced directive’s powers if you are otherwise able to make decisions for yourself.
What If You Have Neither Family Nor Tons of Money?
One of the most vital benefits of estate planning is often overlooked. Without a basic estate plan, you have no control of who becomes your personal representative. The court will need to otherwise appoint the personal representative, and they could mistakenly appoint someone you know to be either incapable, irresponsible, dishonest, or all of the above. A poorly chosen personal representative could result in your final arrangements being handled haphazardly. You know your family and friends best, and you should make that decision. Another consideration applicable to everyone regards your final expenses. Most underestimate the cost of even a “cheap” funeral and burial, and incorrect planning may force a close friend or family member to pay for your final arrangements.
Can my estate go to my child/grandchild who is disabled?
Leaving a bequest or giving gifts to a person with special needs often requires planning. Many persons with special needs will at some time receive government assistance in the form of Medicaid or Social Security Income. But the person must meet certain financial requirements to receive assistance. The person may lose their benefits if given an amount directly. Fortunately, proper planning through the use of a special needs trust, also known as a supplemental needs trust, can allow you to provide the person with additional financial support without jeopardizing their government benefits.
How Much Does Estate Planning Cost?
The cost of an estate plan will vary depending upon your needs, but I can generally prepare all documents needed based upon a flat fee you will know in advance of making a commitment.
What Is a Living Trust?
A living trust is sometimes referred to as a revocable trust or as a revocable inter-vivos trust. A trust is a type of entity, similar to an LLC or a corporation, that because of its flexibility is commonly used for estate planning purposes. A revocable living trust holds your assets in the trust’s name and is administered for your benefit during your lifetime. You can name yourself trustee and can change provisions or even dissolve the trust during your lifetime if you deem it appropriate. The trust transfers your assets to your beneficiaries when you pass without the delay, costs, or privacy issues associated with probate. When using a trust, the estate plan generally still includes a “pour over” will to catch any assets that were not transferred to the trust.
Do I Need a Living Trust?
It depends. Some estates are large enough that using a living trust saves significant probate costs. Others may be interested in avoiding probate to preserve their family’s privacy, while others may prefer the smooth, seamless transition available by the use of a living trust. Others desire a living trust to avoid the time delays associated with probate.
Who Do You Contact When Someone Dies?
The deceased will usually name a family member to be the Personal Representative of their estate. While a Personal Representative does not necessarily need an attorney’s assistance, handling probate is not an easy task. The Register of Wills often expects the Personal Representative to file numerous accountings and meet the required deadlines, all while juggling their normal responsibilities. If the Personal Representative makes a mistake, then they can even find themselves personally liable. Mistake or not, Personal Representatives often find themselves under the unfair scrutiny of family members with accusations of every nature being hurled upon them. As such, the Personal Representative may prefer to be represented by a probate attorney to perform the calculations, make the required filings, ensure the matters are handled properly, and relieve the pressure family members may exert. The good news is that the Personal Representative usually has the ability to pay the attorney’s fees from the estate assets, thereby splitting the cost amongst the beneficiaries. It is highly suggested that you should secure all original signed copies of the last will and testament as well as all information on the decedent’s assets. Of note, the Register of Wills for the county in which the deceased last lived would be where the probate is opened. For your convenience, I have provided a link to the phone numbers and addresses of each county’s register of wills in Maryland. Fortunately, a Maryland probate attorney legally would be able to represent the Personal Representative no matter the county in which the probate estate was opened.
How Much Can You Save Through Estate Planning?
Probate costs and estate taxes both can be reduced through estate planning. Other expenses may not be as easily quantifiable and will depend upon your circumstances but they could be substantial. For instance, if your family owns a business, what is the cost of having the business tied up in probate with no person committing to preserve the business for an extended period? Many businesses fail because the family cannot quickly agree upon who, if anyone, will continue this business or if it should be sold. A well-planned business succession would eliminate your family’s guess work and possible conflicts and preserve a very valuable asset you worked very hard to build.
How Does Estate Planning Reduce My Estate Taxes?
There are numerous ways estate planning can reduce your estate taxes. An attorney will recommend different methods depending upon the types of property you own and the size of your estate. Some estates are small enough that only a simple bypass trust will be needed, while other estates will require the use of more sophisticated techniques. A reputable tax or estate planning attorney should be able to guide you to the right estate planning tools.
Words From Clients
Jeff was a great attorney to work with on the sale of our business. When problems popped up for the buyer to close, his manner kept everyone calm, both us and the buyer, and he came up with great solutions. Jeff's experience definitely shows, and we'll be happy to work with him again. - Elizabeth B.
Our CPA recommended Jeff to help us with our estate planning and transferring our business to our kids. Jeff was a friendly guy and understood the business and personal issues we were concerned about with giving the business to our kids. He came up with a great plan that reduced the taxes and made sure the business would stay open after we retired. We think our estate plan we made with Jeff will really help our family after we're gone. We are happy our CPA recommended him and with the work Jeff did for us. - Tom D.