WHAT IS ESTATE PLANNING?
Estate planning is nothing more than being prepared for the possibility of illness or death within one’s family. Rather than leaving to chance the management of your assets accumulated over a lifetime of hard work, we recommend that you have a comprehensive plan:
REVOCABLE LIVING TRUST
What is a Revocable Living Trust? The Revocable Living Trust is clearly the preferred estate planning strategy for the 21 st Century. Recent changes in IRS regulations have greatly simplified the use of the Revocable Living Trust. Many families have converted their estate plan from a “testamentary” plan (i.e., an estate plan controlled by a Will), to a “trust” plan (i.e., a plan controlled by a Revocable Living Trust).
i. Child with creditor or marital problems;
ii. Child with disability;
iii. To insure that assets ultimately pass to grandchildren (and not in-laws).
DISADVANTAGES OF A REVOCABLE LIVING TRUST :
WHO CAN I APPOINT AS MY TRUSTEE?
WHAT ARE LIVING WILLS AND MEDICAL POWERS OF ATTORNEY?
LIVING WILLS DEFINED: A Living Will is a document directing that your physician not take extraordinary medical steps to prolong your life in the event you are suffering from a terminal illness or injury from which you have little possibility of recovering.
A NEW ALTERNATIVE, THE MEDICAL POWER OF ATTORNEY : If you feel strongly about avoiding prolonged and expensive medical care in hopeless situations, you may also wish to utilize a Medical Power of Attorney. A Medical Power of Attorney is a document by which you appoint another trusted person (usually a spouse or a child) to act on your behalf in the event you are unable to act for yourself, with regard to the hard decisions that must be made if you are terminally ill.
DO “LIVING WILLS” AND “MEDICAL POWERS OF ATTORNEY” WORK? Arkansas law specifically recognizes the validity of Living Wills and Medical Powers of Attorney. Both documents serve to clearly communicate your wishes to both your physicians and your family. While there are no perfect solutions in resolving the delicate matter of continued medical care for the terminally ill, our law firm recommends that you utilize both Living Wills and Medical Powers of Attorney as the best means available to bring common sense to the health care decision making process.
WHY DO I NEED A DURABLE POWER OF ATTORNEY? All of us run the risk of becoming incapacitated by reason of stroke, accident, or advanced age. A Durable Power of Attorney delegates the responsibility for the management of your assets and your personal care to another person or institution. Our firm recommends that all of our clients execute a Durable Power of Attorney as a part of a comprehensive estate plan.
WHY SHOULD A POWER OF ATTORNEY BE DESIGNED AS “DURABLE”? This permits a Power of Attorney to remain effective despite your disability. However, it is necessary that your Power of Attorney express your intent that the Power of Attorney be “durable”.
WHO CAN I DESIGNATE TO ACT FOR ME AS MY DURABLE POWER OF ATTORNEY IF I AM DISABLED?
FEDERAL AND STATE ESTATE TAXES
WHAT ESTATES ARE SUBJECT TO ESTATE TAXATION? Only families with assets of $5,250,000 or more (as of 2013) are subject to federal estate taxation. Further, to the extent that your assets pass outright to your spouse, your spouse can inherit your entire estate free of estate tax (no matter how large your estate!)
NEW ESTATE TAX EXEMPTIONS
2015 $5,430,000 *
* This exemption amount is “inflation adjusted” and will increase each year.
THE “A-B TRUST” TO REDUCE ESTATE TAXES:
If you are married, you and your spouse are eligible to take advantage of an “A-B Trust” (a form of a Revocable Living Trust) to achieve substantial tax savings for your heirs. This type of trust potentially doubles your $5,430,000 exemption. Possible tax savings to your children can be as much as $1,837,000 in federal estate taxes.
Further, under the new “portability law” it’s possible to double your exemptions without the use of the “A-B Trust”; however, this has complex requirements, and is also subject to being taken away in the event the surviving spouse should remarry.
WHAT ABOUT THE STATE OF ARKANSAS ESTATE TAXES? The State of Arkansas no longer has an estate tax nor a gift tax of any kind. Therefore, the only estate tax you may be faced with is the federal estate tax.
WHAT IS PROBATE? Probate is a Court supervised process to “approve” your Will and distribute your separate assets in accordance with your Will.
DOES MY WILL HAVE TO BE PROBATED WHEN I DIE? The short answer is “yes.” However, the expensive part of probate is the distribution of estate assets. If you hold your assets in a Revocable Living Trust, then you can avoid almost all probate expenses altogether.
WHAT DOES PROBATE COST? At your death, assets held in your separate ownership (i.e., not in joint tenancy, nor in trust ownership) are subject to probate. The cost runs between four and six percent of the value of such assets.
HOW DO I AVOID PROBATE? The best way to avoid probate is through the use of a Revocable Living Trust. All other alternatives (joint tenancy for example) are “second best”.
WHO SHOULD I NAME AS MY TRUSTEE IF I BECOME INCAPACITATED DUE TO ILLNESS OR ADVANCED AGE?You can name one of the following:
DOES A TRUST AVOID ESTATE TAXES IF I AM A SINGLE PERSON? No, a Revocable Living Trust cannot reduce federal estate taxes, if created following the death of the first spouse (this is only possible through an “A-B Marital Trust” which must be created while both spouses are alive). However, you can still reduce federal and state estate taxes through gifts and other strategies.
IF I MARRY AT A LATER DATE, WHAT RIGHTS DOES MY NEW SPOUSE HAVE IN MY TRUST? One of the major benefits of a Revocable Living Trust is that of limiting the rights of a spouse, following remarriage. If you create a Revocable Living Trust while you are single, you can better protect your assets from the inheritance or divorce claims of a spouse following your remarriage.
However, we would still recommend that you enter into an antenuptial agreement prior to your remarriage.