Wills, Estates, and Trusts
Frequently Asked Questions
- What happens if I die without a Will?
- What is a Personal Representative?
- What is "administration" of my estate?
- What is a Trustee?
- Is a handwritten Will legally effective?
- Why should my will be more than one page long?
- What is community property?
- What about life insurance?
- How will my estate be taxed at my death?
- Who will raise my minor children after my death?
- What is Power of Attorney?
- What is an Advance Directive?
- How frequently should I review my estate plan?
Q. What happens if I die without a Will?
If you fail to plan your estate and die without a will, the law will create an estate plan for you. The entire system of "intestate" succession or "descent and distribution" is set forth by statute and is too complex for a detailed discussion herein.
Briefly stated, however, adverse results can occur if you die without a will. The law prescribes both the persons to whom your property will pass and the division of your estate among those persons. The distributions provided by law are inflexible and may not satisfy your desires as to distribution of your estate.
In addition, the amount to be distributed to your children may require a cumbersome and costly legal guardianship if the children are minors at the time of your death.
The problems of dying without a will are aggravated if a married couple owns a family business as the children or their guardians may then be part owners.
If you die without a will and are survived by your spouse alone, leaving no children, not all of your estate will pass to your surviving spouse; part of your estate will pass to your parents. Again, such a division of your property may not accurately reflect your wishes.
If you die and are survived by your children only, leaving no surviving spouse, your entire estate will pass to your children. If they are minors, a guardianship may be necessary to manage their property.
Q. What is a Personal Representative?
Your personal representative is the person who will serve as the primary representative of your estate. You may be more familiar with the terms "executor" or "administrator" for such an individual.
Q. What is "administration" of my estate?
Administration of an estate involves the collection of assets, payment of liabilities, and distribution of properties to the beneficiaries or heirs. Administration of an estate is conducted under some degree of court authority and supervision.
Q. What is a Trustee?
A trustee is one to whom property is transferred for the benefit of someone else (the beneficiary).
Under present law, a trust that contains well-drafted trustee powers and which uses an appropriate trustee can solve most problems. A trust can be designed to produce almost any result desired by the client if the client gives the trustee sufficient funds with which to work. We usually recommend that trustees be given very broad and adaptable powers to provide flexibility for future events. The trustee should be empowered to do what is best for the beneficiary, without being curbed by inappropriate restrictions.
If a trust appears suitable for your estate plan, you will need to exercise care in the selection of a trustee. The family member who comes to mind as a logical first choice may prefer not to deal with the management of your properties. Often a bank's trust department is named, and in that case a Co-Trustee (an individual) is sometimes used to insure that a person with whom the beneficiary can deal is always available. Relatives, friends, or your attorney are all possible Co-Trustees.
Q.Is a handwritten Will legally effective?
A handwritten will may be valid only if signed by the person making in the presence of two (2) credible witnesses who attest and sign the will also. A handwritten will signed by the person making it without witnesses, is valid only if it is in their handwriting, they are in the Armed Services and are out of the United States. More often than not, handwritten wills are invalid.
Q. Why should my will be more than one page long?
Your will could be drafted to be no longer than one page. Indeed, any lawyer could produce an abbreviated will for a relatively small fee. The problem, however, is that such a will may not accomplish your objectives for your beneficiaries. We prefer to draft wills to cover all the various factual and legal situations that reasonably may be expected to arise.
Accordingly, the will that we draft for you may be a lengthy document. The burden to you of reviewing and approving a long will may be a blessing to your family when they later find that you have anticipated and resolved what might have been cumbersome problems.
Q. What is community property?
Louisiana, Texas, New Mexico, Arizona, California, Nevada, Washington, and Idaho are community property states. These eight states use a marital property law scheme that differs from the other states that use the common law scheme. Under the community property system, marital property generally is deemed to be owned one-half by each spouse, regardless of the legal title to the property. In common law jurisdictions, legal title generally controls the ownership interests for estate planning purposes. Maryland is a common law jurisdiction. In Maryland, property which is jointly owned with another, including your spouse, will probably not be in your estate, but will automatically belong to the other joint owner(s) at the instant of your death. Your will cannot control such jointly owned property. If you ever lived in a community property jurisdiction while married, we will review your estate plan to account for any community property consequences.
Q. What about life insurance?
The beneficiary designation and not your will controls where your life insurance proceeds go. Often, as part of estate planning, such designations are changed to allow the will to control the insurance.
Q. How will my estate be taxed at my death?
Your estate may be subject to at least two taxes: the federal estate tax and a state death tax.
The federal estate tax is based on the fair market value of your "gross estate" at the time of your death. At the option of your personal representative, an alternative valuation date can be used. Your gross estate will include the value of all the property in which you own an interest at the time of your death. This generally includes life insurance and pension death benefits. Additionally, your gross estate may include property that you do not own, but over which you have retained or received certain rights or powers.
The federal estate tax scheme provides you with a "marital deduction" for bequests of property to your surviving spouse. The marital deduction in effect allows interspousal transfers to pass tax free because they are deducted from the value of the gross estate. In order to qualify for the unlimited marital deduction, property must be transferred to the surviving spouse in a fashion that satisfies the technical requirements of the statute.
The federal estate tax and the federal gift tax have been combined ("unified") and one progressive set of rates apply. The rates increase as the cumulative total of taxable transfers increases. A unified credit against the gift or estate tax permits the tax-free transfer of up to 1 millon dollars of property.
The operation of this credit may shelter a sizable portion of your estate from the estate tax.
The availability of the unlimited marital deduction will allow many estates to pass tax-free to the decedent's surviving spouse. While the result seems desirable initially, in some instances there may be tax savings from incurring some tax on the death of the first spouse.
If your estate exceeds $675,000 (for 2000 and 2001), savings can be achieved by creating a "By-Pass Trust" to keep some (up to 1 million) of the estate from being taxed when the second spouse dies. The second to die will not have the marital deduction, and all of $1 million (for 2002 and 2003) and $1.5 million (2004) will be subject to Federal estate tax. By being the first to die, places up to $675,000 in a By-Pass Trust, which would pay income to the survivor for life. That trust would not be in the estate of the second. Thus, up to $1,350,000 can be sheltered from tax. Only 1 million would be sheltered if the surviving spouse receives all at the first death.
The State of Maryland imposes an inheritance on collateral heirs (aunts, cousins, non-family members).
Q. Who will raise my minor children after my death?
If you die leaving unmarried minor children, the other parent ordinarily will raise and support them. If the other parent is not living, however, your minor children will require a "guardian." A guardian is an individual who is appointed primarily to care for the person of a minor; the guardian's power over the minor's property is very restricted. You may appoint a guardian for your children in your will. If you fail to do so, the court will make the selection of a guardian. We recommend that you assume the responsibility for this important decision, rather than leaving it to a judge unfamiliar with your family situation.
If both parents die, your minor children may be left with substantial property interests that need management and protection. Because the guardian has only limited power over the minor's property, protective proceedings may be initiated in which the court will appoint a guardian to administer the children's property and affairs, and it may be different from the guardian of the children's person. A court appointed guardian can be a cumbersome and expensive manner of dealing with the property of the minors, and it should be avoided. The guardianship can be avoided by proper planning for the use of trusts or custodianships for minors.
If you have planned your estate properly, the guardian should not experience financial strain in raising your children. We usually suggest that upon the death of you and your spouse, a trust be established for your minor children, including their education. The trustee should be encouraged to make generous distributions to assist the guardian.
Q. What is Power of Attorney?
A power of attorney is an instrument in writing by which one person, as "principal," appoints another as his agent ("Attorney-in-Fact") and gives the appointed person the authority to perform specified acts or kinds of acts on behalf of the principal. The acts are generally the management of financial affairs. We recommend a power of attorney which takes effect upon your disability. This will avoid the cost and delay of the Court appointing your spouse or another as guardian.
Who should be the attorney-in-fact? In view of the significant authority and discretion conferred by a power of attorney, the attorney-in-fact must be someone in whom the principal has complete trust and confidence.
Q. What is an Advance Directive?
An Advance Directive is a document that provides instructions to attending physicians to withhold or withdraw life sustaining procedures in the event of a terminal condition, permanent coma or end-stage condition. It also contains a medical power of attorney.
Q. How frequently should I review my estate plan?
As a general rule, we suggest that you contact us every two years for a conference to review your estate plan and to update the information in your permanent file. We also recommend that you contact us in the event of dramatic change in your finances or in your family situation. For example, a substantial increase in your estate (through increased life insurance, inheritance, gifts, or successful investments) may create opportunities for tax savings, as well as necessitate further family financial planning. A divorce, of course, will re-open completely the matter of planning your estate. Likewise, do not hesitate to contact us any time you have a question as to whether or not changes in tax or other substantive laws may affect your estate plan.