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Wills and Trusts

No one likes to contemplate death or the possibility of years of illness or disability. But the thoughtful creation of estate planning documents is the best way to control your future and make sure your wishes regarding the distribution of assets, care of minor children, and health care are followed.

Whether you heed help with planning your will, selecting powers of attorney, or wish to establish a trust, we will help you create an estate plan tailored to your unique circumstances.

Planning for “what happens if…” is not fun, but it will bring the peace of mind to you and those you care about.

Estate administration and probate refer to the process that helps you transfer your estate in an orderly and supervised manner. We provide council on how to handle the administration of the estate as well as the distribution of property and resolution of any claims made against the property, which generally includes collecting, inventorying and appraising assets; paying and collecting debts; filing and paying estate taxes; and distributing any remaining assets to beneficiaries. An attorney experienced in probate and estate administration can help simplify this complicated process.

Will Substitutes

Many people mistakenly believe that having a will requires their heirs to go through the expense of probate and therefore do not make a will hoping to avoid probate and estate taxes. Some individuals also believe they can avoid probate and estate taxes by using will substitutes. Common will substitutes include the following:

Gift of assets, property or cash;
IRA or other pension plans with a designated beneficiary;
Life insurance;
Joint checking/savings;
Jointly owned house;
Property assignments.
Using will substitutes may allow you to reduce the size of your probate estate. However, these substitutes will not reduce the size of your taxable estate. For example, if you own your house jointly with right of survivor to your cousin, your cousin will take control of the house upon your death but will not necessarily avoid probate and all estate taxes on your house.

In fact, assets controlled by other will substitutes may be frozen by the state to ensure payment of state, death, or other taxes. Moreover, property or bank accounts owned jointly with the right of survivorship are wholly owned by the survivor upon your death. Once you die, the survivor has the absolute right to do what he/she wants with the property. Regardless of any “understanding” you had prior to your death, your cousin does not have to sell your jointly owned house and give your portion of the proceeds to your Aunt as you requested.

There are no real substitutes for a will drafted as the cornerstone of an estate plan. A will created by an experienced wills and trusts attorney will help you make sure that you, and not the state, controls the distribution of your assets and the care and maintenance of those you love upon your death.

Wills

Wills are the most basic element of estate planning. A will is a written or oral communication by a person stating how they want their property disposed of at death. A written will, prepared by an experienced attorney, allows you to:

Select the person responsible for carrying out the wishes you set forth in the will. This individual is known as the executor or personal representative;
Direct the payment of debts and taxes;
Make specific bequests or gifts of tangible property like family heirlooms or sentimental items. It is useful to include the language, “If owned by me at the time of my death” in case the item has been sold or lost, in your estate planning document;
Control the distribution of the remainder (residue) of your other property;
Name a guardian or guardians for your minor children and their property;
Specify your preferred burial arrangements.
A court will consider a document to be a valid will if, looking only at the document itself, it finds that it was intended to be the final expression of the person’s wishes. Additionally, the person creating the will must be of “sound mind.” While each state varies in its specific requirements, sound mind is usually established in court by showing that the person making the will:

Was legally old enough to understand what they were doing, usually 18 years old;
Knew what assets they owned;
Directed the disposition of those assets to people or institutions generally expected to receive them;
Understood that, by signing it, the will made a final disposition of property.
Generally,it is only required that the person understands the will and its contents at the time of signing. That means, a person who is failing mentally but still has “good” days can make a will during lucid periods as long as the person understands what they are signing.

Usually, a letter stating one’s desires or a list of property is not a valid will. There are many types of wills, including holographic wills, video wills, and self-proving wills, and each has its own requirements in order to make it valid. While each state law varies, a will must generally have witnesses in order to be valid.

What if there is no will?

When a person dies without a will, he or she dies intestate. If you die intestate the laws in the state where you live control distribution of your assets. The state may appoint a lawyer to oversee the distribution of your estate and that lawyer will be paid out your estate’s assets. The state may even claim your property if you have no apparent heirs. If you do have heirs, they may be forced to pay sizable taxes in order to keep the property you have left behind. The state will also appoint a guardian for your children without any input from you.

Usually, estate matters are handled in state probate court. When you die intestate, the first thing the state will do is appoint an administrator. This administrator is often required to pay certain fees and post a bond. These costs are charged back to your estate. If your family cannot decide who should be appointed as the administrator, the court may appoint an attorney who will charge your estate for their time. Once the administrator is appointed, they will look to the state laws for guidance on the distribution of your assets. Because you have not expressed your wishes, the state will substitute its own judgment about distribution of assets to the following people:

Your spouse: Most states provide that a certain sum be set-aside for the surviving spouse and/or children. This amount is usually taken “off the top” before any claims by creditors, beneficiaries and other heirs are paid, but it is generally a modest amount. Many states also give the surviving spouse an interest in any real estate owned by the decedent.
Your children: If you have children, many states will award them the remaining portion of the estate. If you were a single parent, your children will inherit your entire estate. Your children could end up with a large sum of money even if they are infants. A court appointed guardian usually supervises this money until your children reach the age of eighteen. Thus, at age eighteen your child might suddenly have a large sum of money at their disposal to spend however they like.
Your parents and siblings: If you are unmarried and have no children, your estate will go to your parent(s) or, if they have both died, to your brothers and sisters. Similarly, if you are married but have no children, the portion of your estate remaining after your spouse receives his/her share will go to your parents, or if they have both died, to your brothers and sisters.

Trusts

Many people think that trusts are only useful for the very wealthy. However, trusts are a great estate planning tool for anyone who wants to avoid the costs associated with probate, avoid paying some death taxes, and provide limitations on their young children’s ability to access money left to them. Attorneys experienced in probate law can explain trusts and other estate planning tools and help you plan for the financial future.

A trust is a legal arrangement that allows one person to hold a legal interest or right for the benefit of another person. The person who holds the legal property interest is called the trustee. The person for whom the property is being held is called the beneficiary. The person establishing the trust is called the grantor.

Trusts allow the trustee to direct or control the property or other legal rights that are in the trust. Trustees have a legal duty to make decisions regarding the trust property in the best interests of the beneficiary.

A trust can be revocable or irrevocable.

Revocable trust: A revocable trust is one that can be changed or terminated by the grantor at any time and for any reason.
Irrevocable trust: An irrevocable trust, once established cannot be terminated or altered for any reason.
A Trust can also be a Living Trust or a Testamentary Trust.

Living trust: A living trust is created while you are alive. This type of trust is a means of avoiding probate and the costs associated with probate. However, it will not allow you to avoid death taxes because the trust is controlled by you. Experienced estate planning attorneys often use living trusts, created while you are still alive, as a way to avoid probate and its associated costs.

Testamentary trust: A testamentary trust is created through a will. These trusts generally must go through the probate process.
In addition, there are many “specialized” trusts that are used for particular circumstances including the following:

Self-declaration trust: This is a subcategory of living trusts. It consists of a trust that provides support for the grantor during his/her life and includes a provision for the distribution of the remaining property when the grantor dies.
Support trust: A support trust is established to provide support for one or more beneficiaries. These trusts are established to provide only for the education, health care, and general support of one or more beneficiaries. The trustee may not use more of the principal and income than is necessary to accomplish this support.
Charitable trust: A charitable trust is established to provide support to charities as specified by the grantor. The support can be in annual installments or a lump-sum payment. A charitable trust is an irrevocable trust. These trusts are often used because they provide estate and capital gains tax advantages. A charitable remainder trust is a type of charitable trust that allows the grantor to set up the trust with a non-profit charity that will act as the trustee. The charity, as the trustee, manages and invests the assets in the trust to produce income. This income is then payable to you, the grantor, during your life (or for some portion of your life) and at the time of your death (or the end of the portion of your life you indicated when setting up the trust). The charity owns all the property in the trust.
Spendthrift trust: A spendthrift trust allows the grantor to establish some control over the beneficiary’s ability to access the assets in the trust. These trusts allow the trustee to pay money to third parties for the benefit of the beneficiary instead of to the beneficiary himself,or to withhold payments altogether. These trusts can also protect the beneficiary from creditors. As long as the trustee does not make payments directly to the beneficiary the creditors cannot access the money in the trust through attachment proceedings.
Insurance trust: An insurance trust is established to become the beneficiary of one or more insurance policies. These trusts are used to take the proceeds out of your estate for probate and federal estate tax purposes. Insurance trusts are irrevocable.
In addition to true legal trusts, other trust-like instruments you may use to involve others in the execution of your wishes include the following:

Power of Attorney: A power of attorney gives someone you trust the ability to make decisions for you when you are incapacitated. That person does not have to be an attorney although he/she will be known as your “attorney in fact.” A power of attorney used to address broad issues such as medical care decisions is called a Health Care Power of Attorney. A power of attorney can also address narrow issues and simple decisions including the purchase of a single parcel of real estate.
Health Care Directive and Living Wills: In a health care directive you make the decisions regarding your medical care for all situations should you become incapacitated. A living will is a narrower form of a health care directive, generally limited to situations in which death is imminent. Every state recognizes a patient’s right to make fundamental choices about the care and treatment he/she receives at or near the end of life. Health care providers must generally honor the terms of living wills and advanced medical directives.

Probate

Probate is the court procedure by which a will is proved to be valid or invalid and a process of winding up your affairs after death. Creditors of the estate are provided the opportunity to file claims against the estate and receive payment of those claims. After the administration fees, taxes and creditor claims are paid, any remaining assets of the estate are distributed to the beneficiaries.

The estate is the total amount of property owned by the decedent at his or her death. Once a person dies, the estate is submitted to the probate court. If there is a will, the probate court will determine if the will is valid and then oversee the administration of the estate by the executor (the person appointed in the will to oversee the estate). If there is no will or the will is determined to be invalid, the probate court will appoint an administrator and the decedent’s property will be distributed according to the state’s laws of inheritance.

Many people associate probate with large costs and even bigger hassles and think that the smart thing to do is to avoid probate. Contrary to this popular belief, the probate of most estates runs smoothly. The court’s supervision ensures that your outstanding debts, taxes, and claims against you are paid and that your remaining assets are divided among your heirs. Attorneys experienced in probate law can explain the probate process whether you are planning for the future or involved in probate right now.

Probate without a will

The court-supervised steps of probate include the following:

Evaluating and deciding on the validity of your will, if you have one.
Gathering all of your assets, making an inventory of those assets, and appraising the assets. The assets that are included in your estate for purposes of probate are called your probate estate. Assets can include solely owned property, as well as your interest in jointly owned property, the value of life insurance policies, trusts, retirement plans, annuities, collections, antiques and other miscellaneous household items, including cars etc. A small probate estate does not necessarily mean that your taxable estate will be as well.Just because an asset is not part of your probate estate does not mean that it is not part of your taxable estate.
Paying your outstanding expenses, debts, and taxes. These are generally paid in the following order: costs and expenses involved with the administration of your estate, funeral expenses, debts and taxes, followed by all other claims.
Distributing the remaining assets to the person(s) entitled to them.
Probate takes place in the county that was your legal residence at the time of your death. Probate takes place in Probate Court and is supervised by that court.It is a public process. There is little to no privacy regarding the details of your Will, your outstanding debts and extent of your assets.

Probate When You Have a Will

If you have a valid will, the probate process will likely proceed smoothly. Your will should name the person you want to act as executor of your estate. The executor will have your will declared genuine and valid. The court usually makes this declaration by “admitting the will to probate.”

Once admitted to probate, the county clerk records the will. Some states require notice of the probate proceedings be published in the newspaper. All those who believe that they have a claim against the estate must make that claim within a specified period of time. If someone has a reason to believe that the will is not valid, they also must make that claim known to the court within a specified period of time.

The probate court will also appoint the executor of your estate. This appointment gives the executor the authority to handle your accounts. Banks and other institutions will know that your executor has the court’s permission to act because the court will provide him/her with “letters of administration” or “letters testamentary.”

The executor owes fiduciary duties to anyone who has an interest in the estate. This means that the executor owes a duty of loyalty and must act in the best interests of the estate. For example, if the executor mismanages estate assets and causes the estate to lose value, he or she can be held liable for these actions and may have to repay the estate the amount of the lost value.

The executor, having inventoried the assets, must act immediately to preserve and protect them. He/she then reviews the claims against the estate and pays those he/she deems valid and rejects the rest. Rejected claimants have a limited time in which to file a lawsuit against the estate.

The executor may sell real estate at any time after a state specified waiting period. The executor may sell any other property not specifically given to an heir to pay estate debts at any time after his/her appointment but may not begin the final distribution of property and/or sale proceeds until after the state specified waiting period. Property specifically given to an heir may only be sold to pay estate debts.

Once all the debts, claims, taxes, and expenses have been paid, the executor distributes the remaining property according to the directions in your will. Unless you have specified otherwise, the executor may sell all assets and distribute the proceeds in cash.

The final report of the executor is the last chance for unhappy creditors and beneficiaries under your will to file objections. If objections are filed, a hearing may be necessary to settle the matter. With the court’s approval of the final report, the executor’s job is finished, and your estate has been settled.

Wills and Trusts

If you want to minimize the complications for your survivors, or if you are in the midst of probate right now, an experienced probate lawyer can answer your questions and put your mind at ease.

When someone passes away, they leave behind a taxable estate. Under current law, your taxable estate for federal estate and gift tax purposes can be significantly larger than your probate estate. Unfortunately, your taxable estate includes everything, such as:

All your property interests. Includes any property interests you own and property interests in a trust controlled by you outright or by a Trust to which you have significant “strings attached.”
All your qualified retirement plan proceeds. Qualified retirement plan proceeds are included unless you retired no later than 1984. Persons retiring no later than 1984 may qualify for a full or partial exclusion of these proceeds.
All life insurance proceeds. Proceeds from life insurance policies owned by you at the time of your death or payable to your estate are part of your taxable estate.
The federal estate tax generally applies when a person’s assets exceed $11.4 million in 2019 and $11.58 million in 2020 at the time of death. The estate tax rate can be up to 40%. Some states also assess estate tax. Property left to a surviving spouse generally isn’t subject to the estate tax.

In addition to federal estate and gift taxes, there are also state inheritance or estate taxes. For 2019, 13 states, including Maryland, and the District of Columbia have an estate tax. Many have lower asset thresholds than the federal government. If you live ina state with an estate tax, the good news is that (generally speaking) your estate tax bill is subtracted from the value of your taxable estate before you calculate what you might owe the IRS.

Gift taxes: In 2020, the lifetime exclusion rises to $11.58 million.In 2019 and 2020, you can give up to $15,000 to someone in a year.If you give more than $15,000 in cash or assets in a year to anyone, you need to file a gift tax return. That doesn’t mean you have to pay a gift tax; It just means you need to disclose the gift. The annual exclusion per recipient; it isn’t the sum total of all your gifts. That means, for example, that you can give $15,000 to your cousin, another $15,000 to a friend, another $15,000 to the neighbor, and so on all in the same year without having to file a gift tax return.The annual exclusion also per person, which means that if you’re married, you and your spouse could give away a combined $30,000 a year to whomever without having to file a gift tax return.

Clearly, the tax issues surrounding your estate can be quite complex. An experienced estate planning attorney will help you address these tax issues and minimize the impact of taxes on your beneficiaries through the use of a carefully drafted combination of Wills, Trusts and other insurance and gifting Instruments.

Guiding an estate through the probate process and effectively administering that estate requires a keen understanding of probate and tax laws. If you need help in administering an estate, contact an attorney experienced in probate and estate administration to ensure the most effective administration of the estate.