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farrar and williams attorneys in hot springs arkansas specializing in elder law and estate planning

FAQ

Frequently Asked Questions

ESTATE PLANNING DEFINED

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:

 

OBJECTIVES OF ESTATE PLANNING:

Most families have the following basic estate planning goals:

  • Protection of your financial security
  • Probate avoidance
  • Estate tax reduction
  • Second marriage planning
  • Planning for high cost of nursing home care
  • Distributing assets in desired manner to your children
  • Planning for possible inheritances by your grandchildren
  • Disability planning
  • Health care planning (living wills, medical powers of attorney)
  • Protection of assets accumulated over a lifetime
  • Other goals unique to your family

 


 

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).  

 

ADVANTAGES OF A REVOCABLE LIVING TRUST:

Most families have the following basic estate planning goals:

  • Avoid Expense (up to 6%) and Delay of Probate (up to 2 years!)
  • Disability Management
  • Estate Tax Savings (taxes up to 40%)
  • Second Marriage Planning
  • Simplicity for Family Following Your Death
  • Optional Protection for Your Adult Children’s Inheritance

 

Where:

 

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 :

 

  • Required re-registration of major assets in trust name
  • Attorney fees for drafting Trust are higher than for simple Wills
  • Does not increase eligibility for government nursing home benefits

 

WHO CAN I APPOINT AS MY TRUSTEE?

 

  • Your Trustee can be any of the following:
  • You (and/or your spouse)
  • Your Children
  • Bank Trust Department
  • Other Corporate Trust

 

DO I LOSE CONTROL OF MY ASSESTS

The short answer is NO! A Revocable Living Trust is under your total control. Most of our clients initially name themselves as Trustee.

DO MY WIFE AND I NEED A TRUST IF OUR ESTATE IS UNDER $5,250,000?

While an estate under $5,430,000 is not subject to federal estate taxes, a Living Trust still has the following benefits:
    • Probate Avoidance
    • Second Marriage Planning
    • Management of assets in event of disability
    ARE THERE ANNUAL COSTS OR CHARGES ASSOCIATED WITH A REVOCABLE LIVING TRUST?   Usually not. If you are serving as your own Trustee, there are no Trustee’s fees. Further, you should not have to consult with your attorney about your Trust any more frequently than every five or ten years (and then only to update your Trust if there are changes in your family’s circumstances or major changes in your financial situation).

    WHAT ARE THE ATTORNEY’S FEES FOR PREPARATION OF A LIVING TRUST?   Our law firm published a schedule of fees that is available to you upon request. Our fees included all of the following services:
    Nursing Home Planning Hot Springs

    WHY DO I NEED A “POUR-OVER” WILL IF I HAVE A TRUST? A “Pour-over” Will simply directs that any assets not placed in Trust during your lifetime be distributed to your Trust at your death. The “Pour-over” Will is a “safety net” that is usually never needed. However, if major assets are outside your Trust, the “Pour-over” Will insures that these assets are controlled by your Trust.

     

    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.

     

    DURABLE POWERS OF ATTORNEY

    WHAT IS A “DURABLE POWER OF ATTORNEY”?     First, a Durable Power of Attorney has nothing to do with lawyers. A Durable Power of Attorney is simply a document by which you delegate to another person or institution the authority to act for you if you are disabled. You can customize your Durable Power of Attorney to provide for broad or limited powers.


    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?

    Your Spouse

                  (and/or)

    Your Children

                   (and/or)

      Your Corporate Trustee

     

    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

     

      Year           Amount

     

      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 .

     

    PROBATE

     

    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”.

     

    QUESTIONS ASKED ABOUT ESTATE PLANNING FOR THE SINGLE PERSON
    IF I AM A SINGLE PERSON, DOES A REVOCABLE LIVING TRUST STILL MAKE SENSE FOR ME?        Yes, a Revocable Living Trust can provide for management of your assets in the event of your disability, probate avoidance at your death, and a “plan” for your family.

    WHO SHOULD I NAME AS MY TRUSTEE IF I BECOME INCAPACITATED DUE TO ILLNESS OR ADVANCED AGE?

    You can name one of the following:
    Your Children
    Bank Trust Department

    Other Corporate Trustee

     

    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 i nto an antenuptial agreement prior to your remarriage.

     

     

     

     

     

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