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No single definition of estate planning applies to everyone, but perhaps the most comprehensive definition includes the following goals:
(1) to control your property while you are alive,
(2) to take care of yourself and your loved ones if you become disabled,
(3) to give your property to whom you want, they way you prefer to give it, and when you want the recipient to receive it, after your death, and
(4) to save every possible tax dollar, professional fee and court cost while adhering to all applicable federal and state laws and regulations.
Maintaining Control
More than anything, you want to maintain control over what you own. By planning ahead, you are able to maintain control longer. With a will or trust, you determine who receives your assets after you die, rather than leaving that decision to others. You also might discover that some of the assets you own are jointly owned and would pass to the other owner if you died first. Often, you can change ownership to ensure that if you die first, your portion of the property or asset passes according to your distribution plan in your will or trust.
By planning ahead, you also promote stability, for instance in a family business. By having a plan in place to cover any period, however brief, that you or another key person are incapacitated, you improve the likelihood that the business will survive the difficult period.
Protecting Against Disability
In any given year, the likelihood of you becoming injured or incapacitated far exceeds the chances of you dying. Yet, too few people plan for incapacity. Incapacity planning is essential for all ages. In fact, some view incapacity planning as most important for young adults who potentially face decades on life support if they are severely injured or suffer a debilitating disease.
The essence of incapacity planning focuses on authorizing someone else to make important decisions for you when you are unable to do so. These decisions fall into two groups: medical decisions and financial decisions. In Vermont, there are two separate documents for these purposes: the Vermont Advance Directive for Health Care and the General Durable Power of Attorney for Finances.
When you complete the Vermont Advance Directive for Health Care, you name an agent to make medical decisions for you if you are incapable of expressing your medical care wishes. This document also provides guidance to your agent as to the types of medical care you want or don't want, and various scenarios for you to indicated when you would want to be kept alive or may wish that extraordinary measures not be taken to keep you alive.
The General Durable Power of Attorney names an agent to make financial decisions for you, including managing your assets if you become unable to do so.
In addition, incapacity planning usually includes a Health Insurance Portability and Accountability Act (HIPAA) Release that allows medical institutions to release your medical information to your family and others you list on the document so that they can be aware of your medical condition. Release of patients' medical information became more restricted in 2004 when portions of HIPAA took effect, which prompted the need for HIPAA Releases.
If you don't have these documents in place, expect that your spouse or children will have to go to court to seek authority to make these medical and financial decisions for you. At the end of the day, someone will need to act on your behalf. The question is, will you make that decision or will the courts make that decision? And secondly, would you prefer to give that person authority when they most need it, when you are first injured, or would you prefer that they have to spend weeks or months tied up in court, paying attorneys fees and discussing your medical conditions amongst total strangers, in order to have the court grant them, or worse yet, someone you wouldn't want, the authority to make decisions on your behalf?
Orderly Distribution of Assets
A plan for distributing your assets is a central part of a will or trust. Everyone needs a plan for passing assets on, so even if you have not written a plan yourself, Vermont has a default plan for you. The problem with the Vermont default plan is that it is not tailored to you, rather it is a plan for what most people would want most of the time. That might be OK for some assets, but not for others.
By writing a will or trust you are taking control of the distribution plan. You are naming who receives what, and with a trust, when they receive it. One of the primary differences between a will and trust is process related, i.e. wills must pass through the probate courts and trusts do not need to. The process of probating a will results in (1) loss of control, because the probate courts take over, (2) time delays of months, even years, because the probate courts move on their own schedule, (3) extra costs, because attorneys usually shepherd the process and complete the many forms and appearances required by the probate courts, and (4) lack of privacy, because probate proceedings and documents are usually open to the public, including information gatherers who regularly review probate court records and try to use the information for their own benefit.
There are other advantages besides avoiding the probate process that trusts offer, such as planning to maximize available tax savings and leaving assets to children in trust which often offers higher levels of asset protection against the children's divorcing spouses and creditors. To learn more about the pros and cons of wills and trusts, and what is best for your situation, talk to an estate planning attorney.
Avoiding Unnecessary Expenses
Even dying costs money. The goal is twofold: to reduce and avoid taxes where legally possible, and to limit the expenses associated with wrapping up the affairs of a deceased person.
Two of the biggest transfer taxes (sometimes called death taxes) are the estate tax (applied on both the federal and Vermont levels) and the Generation Skipping Transfer Tax (GSTT). Every individual is provided an exclusion amount that passes free of both the estate tax and the GSTT. One of the dangers of not planning, or simply passing everything to your spouse in a simple will, is that the couple can lose the deceased person's exclusion amounts. This is one of the reasons estate planning using trusts is popular, because trusts typically ensure that the deceased person's exclusions are not wasted.
Expenses related to probate and trust administration can be large, particularly where the estate is disorganized or beneficiaries disagree about who should receive what. By planning ahead, being organized, and making your wishes clear, it is less likely that expenses will balloon out of control.
With Vermont adopting a lower state estate tax exclusion amount than the federal government, effective in January 2009, there is an even greater need for Vermont residents to plan ahead to avoid transfer taxes and expenses. The best way to keep taxes and expenses down is to plan ahead.
By reducing taxes and expenses, more of your assets pass to your beneficiaries.
In addition to maintaining control of your assets, protecting against disability, ensuring an orderly distribution of assets and avoiding unnecessary expenses, estate planning involves many other issues, such as how to pass on one's values and life's lessons, how children should be made aware of their parents final wishes, such as taking care of a special needs child or ensuring a family member finishes their education, and how to protect and pass on the family business. These and other issues should be raised with your estate planning attorney.
FAQs – Wills
What is a will?
A will is a written document (or sometimes an oral declaration) providing instructions for who should receive your property after you die. A will usually names an executor to manage the probate process and a guardian to raise your minor children. In Vermont, wills must be signed and properly witnessed by two individuals to be valid. A will has no effect until the drafter's death, at which time the will must be submitted to the probate court and the probate process begun.
What is a Bequest?
A bequest is a gift of personal property in a will. See also Device and Legacy.
What is a Codicil?
A codicil is an amendment to a will.
What is a Devise?
A devise is a gift of real property in a will. See also Bequest and Legacy.
What is an Executor?
An executor is a person named in a will, or appointed by the court, that is in charge of administering the deceased person's estate during the probate process.
What is an Heir?
An heir is someone who receives property under a state's intestacy laws.
What is Intestate?
A person who dies without a valid will is said to have died intestate.
What is a Legacy?
A legacy is a gift of money in a will. See also Bequest and Devise.
What is Probate?
Probate has come to mean the process of proving the validity of a will, and administering the related assets in conjunction with the court's oversight until final distribution to beneficiaries or heirs.
What are a Testator and Testatrix?
A person who dies with a valid will. A testator is male; a testatrix is female. Over time, testator has come to be used for both males and females who die with a valid will.
FAQs – Trusts
What is a trust?
A trust is a fiduciary relationship established between the trustee and the beneficiary where the trustee is the holder of legal title to property that is being held for the benefit of the beneficiary. Trusts come in many forms, but the majority of trusts used in estate planning are knows as revocable living trusts, or inter vivos trusts. Revocable living trusts may be amended or revoked by the trust maker, known as the grantor. Advanced estate planning often incorporates irrevocable trusts, which may not be amended after going into effect.
What is a Credit Shelter Trust?
A credit shelter trust is a trust that preserves a decedent's unified credit for estate and gift tax purposes. The trust "shelters" the decedent's estate tax exclusion so that married couples retain two estate tax exemptions rather than just one.
What is a Grantor?
A grantor is a person who sets up a trust, also known as a Settlor.
FAQs – General
What is Administration?
Administration is the process of collecting and managing a decedent's property, paying taxes and creditors and distributing the remaining property to beneficiaries or heirs.
What is a Beneficiary?
A beneficiary is someone who receives property according to the terms of a will or receives equitable title to property in trust according to the terms of a trust.
What is a Devise?
A devise is a gift of real property (real estate) in a will.
What is a Disclaimer?
A disclaimer is a person's refusal to accept rights or interest in specific property offered to the person. A successful disclaimer must be done within nine months, and must follow specific requirements, so it is important to discuss with an attorney when contemplating a disclaimer. When property is disclaimed, it passes as if the disclaimant were not alive at the time.
What is an Estate?
One's estate is the total of your assets, debts and other obligations. Estate can be used in different contexts, for instance probate estate (all assets passing through probate) and estate tax estate (all assets subject to federal or state estate tax).
What is a Fiduciary?
A fiduciary has a legal duty to act in the best interest of another, for example a trustee has fiduciary obligations to the beneficiaries. Fiduciaries generally have a duty of loyalty, a duty of care and a duty to account.
What is the Generation Skipping Transfer Tax (GSTT)?
A tax imposed on transfers of money or property to a person at least two generations below the gift giver. For example, if a grandparent left money directly to a grandchild, it may be subject to the GSTT.
What is the Gift Tax?
A tax imposed on transfers of money or property during the giver's lifetime.
What is a Guardian?
A guardian is legally responsible for the care and well being of another person, usually a minor. Guardians are appointed by the court, but the courts will usually honor a parents selection of a guardian in the parent's will, provided there are no compelling reasons not to appoint that person.
What is a Guardianship?
A guardianship is the court-managed process for overseeing the affairs of a minor child or incompetent person.
What is Joint Tenancy?
Joint tenancy is a form of ownership where two or more people own property together, and if one of the joint owners dies, their share passes to the remaining joint owners. A form of joint tenancy for married couples is known as tenancy-by-the-entirety.
What is Personal Property?
Personal property is anything that is movable, such as the contents of a home, automobiles, equipment and cash.
What is Real Property?
Real property is land, also known as real estate, and anything that is permanently attached to the land, such as a home, office building or farm barn.
What is Tenancy-by-the-Entirety?
Tenancy-by-the-entirety is a form of joint tenancy for married couples.
What is Tenancy-in-Common?
Tenancy-in-common is a form of ownership where two or more people own property together, but if one joint owner dies, the property passes to decedent's beneficiaries or heirs, and not the other joint owners.
What is a Testamentary Trust?
A testamentary trust is included in a will and comes into being only after the will maker dies and the assets pass through probate first. |