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3 Common Estate Plans
The last column discussed probate and how to avoid it. Did you notice that none of the suggestions for probate avoidance was a Will? - that's because Wills don't avoid probate. However, most estate plans include a Will because it accomplishes other goals. Probate avoidance is only one concern in estate planning. Most families also are concerned with assuring the transfer of property to family members or charities; designating a guardian for children; providing a simple process for someone to manage their assets if they become disabled; avoiding unnecessary costs if a probate is necessary; and having someone monitor distributions to young or disabled beneficiaries.
There are three common estate plans that accomplish these goals. Your personal situation will dictate which plan works best for you, or if other documents also are necessary. This explains the value of seeing an estate planning attorney instead of using a do-it-yourself estate plan - you may end up with an enforceable Will, but a Will may not be all you need. On the other hand, you may create a trust and not really know why you have it or how to use it, and, therefore, not receive its many benefits.
Plan A: Will(s) and Power(s) of Attorney
The Will allows you to direct who will inherit your assets and name a guardian for minor children. The Power of Attorney ("POA") for Property allows your named "agent" to carry out financial transactions for you if you should become disabled. A POA for Healthcare allows your named agent to make healthcare decisions for you when you cannot do so. You can avoid probate by holding assets in joint tenancy or by naming beneficiaries on accounts.
NOTE: JOINT TENANCY PUTS YOUR ASSETS AT RISK FROM THE JOINT TENANT'S CREDITORS.
Plan A "Add-On": A Transfer on Death Instrument ("TODI") is a document that is executed and recorded now to state who will take title to your residential real estate at your death, thus avoiding probate on your home. It does not change any aspect of ownership during your lifetime, and is safer than naming a non-spouse joint tenant. A land trust at a bank also could be used to avoid probate on any real estate.
Plan B: Will(s) and Joint Trust; Powers of Attorney
As with Plan A, the Will allows you to nominate a guardian for minor children. At death it "pours over" into the Joint Trust any assets you did not title in the name of your trust during your life. However, that is done through probate, so it is better to title assets in your trust before you die.
After the Trust is executed, deeds will be used to transfer title of real estate into the Trust. Financial accounts will be transferred into the trust according to the instructions of the financial institution. This "funding" of the trust is critical! If no accounts are titled in the trust, the successor trustee will have no cash to spend for your benefit in your disability, and a guardian may have to be appointed to access your accounts.
Your successor trustee can manage all trust assets for your benefit if you become disabled. Then at your death, he will pay bills and distribute assets according to the instructions in the trust, without probate. The Trust can set up delayed distributions for beneficiaries if appropriate.
NOTE: A Joint Trust is not appropriate in larger estates (over $4 million) because estate tax planning is necessary, and it cannot be accomplished effectively with a Joint Trust. A Joint Trust also is not appropriate if either spouse desires to keep his property "separate" for purposes of the marriage dissolution laws.
Plan C: Will(s) and Separate Trusts for Each Spouse; Powers of Attorney
If you are married and your assets' combined value is at or near the Federal ($5.34 million) or Illinois ($4 million) exemption, each spouse should create a trust to hold title to half of the family's assets. At the death of the first spouse, the assets in his trust will be subject to estate tax, but the tax will equal $0 if the value of the assets is less than the exemption amount. At the second death, those assets will not be taxed again, and the second spouse can use his exemption against the value of his assets. (The discussion of Wills and Powers of Attorney is the same.)
Approximate Costs
The attorney's fees for estate plans vary for different reasons. The time spent on drafting documents is not necessarily less for a smaller estate. Here are some ballpark figures for attorney fees:
The cost of an estate plan like Plan A may be between $400 and $600 for a single person; and between $600 and $1,000 for a married couple. A TODI will add $200 -$300 plus a recording fee.
For Plan B, the attorney may charge between $1,500 and $1,800 with possible additional charges for deeds and recording fees.
For Plan C, the attorney may charge between $2,000 and $2,500 with possible additional charges for deeds and recording fees.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
3 Common Estate Plans
The last column discussed probate and how to avoid it. Did you notice that none of the suggestions for probate avoidance was a Will? - that's because Wills don't avoid probate. However, most estate plans include a Will because it accomplishes other goals. Probate avoidance is only one concern in estate planning. Most families also are concerned with assuring the transfer of property to family members or charities; designating a guardian for children; providing a simple process for someone to manage their assets if they become disabled; avoiding unnecessary costs if a probate is necessary; and having someone monitor distributions to young or disabled beneficiaries.
There are three common estate plans that accomplish these goals. Your personal situation will dictate which plan works best for you, or if other documents also are necessary. This explains the value of seeing an estate planning attorney instead of using a do-it-yourself estate plan - you may end up with an enforceable Will, but a Will may not be all you need. On the other hand, you may create a trust and not really know why you have it or how to use it, and, therefore, not receive its many benefits.
Plan A: Will(s) and Power(s) of Attorney
The Will allows you to direct who will inherit your assets and name a guardian for minor children. The Power of Attorney ("POA") for Property allows your named "agent" to carry out financial transactions for you if you should become disabled. A POA for Healthcare allows your named agent to make healthcare decisions for you when you cannot do so. You can avoid probate by holding assets in joint tenancy or by naming beneficiaries on accounts.
NOTE: JOINT TENANCY PUTS YOUR ASSETS AT RISK FROM THE JOINT TENANT'S CREDITORS.
Plan A "Add-On": A Transfer on Death Instrument ("TODI") is a document that is executed and recorded now to state who will take title to your residential real estate at your death, thus avoiding probate on your home. It does not change any aspect of ownership during your lifetime, and is safer than naming a non-spouse joint tenant. A land trust at a bank also could be used to avoid probate on any real estate.
Plan B: Will(s) and Joint Trust; Powers of Attorney
As with Plan A, the Will allows you to nominate a guardian for minor children. At death it "pours over" into the Joint Trust any assets you did not title in the name of your trust during your life. However, that is done through probate, so it is better to title assets in your trust before you die.
After the Trust is executed, deeds will be used to transfer title of real estate into the Trust. Financial accounts will be transferred into the trust according to the instructions of the financial institution. This "funding" of the trust is critical! If no accounts are titled in the trust, the successor trustee will have no cash to spend for your benefit in your disability, and a guardian may have to be appointed to access your accounts.
Your successor trustee can manage all trust assets for your benefit if you become disabled. Then at your death, he will pay bills and distribute assets according to the instructions in the trust, without probate. The Trust can set up delayed distributions for beneficiaries if appropriate.
NOTE: A Joint Trust is not appropriate in larger estates (over $4 million) because estate tax planning is necessary, and it cannot be accomplished effectively with a Joint Trust. A Joint Trust also is not appropriate if either spouse desires to keep his property "separate" for purposes of the marriage dissolution laws.
Plan C: Will(s) and Separate Trusts for Each Spouse; Powers of Attorney
If you are married and your assets' combined value is at or near the Federal ($5.34 million) or Illinois ($4 million) exemption, each spouse should create a trust to hold title to half of the family's assets. At the death of the first spouse, the assets in his trust will be subject to estate tax, but the tax will equal $0 if the value of the assets is less than the exemption amount. At the second death, those assets will not be taxed again, and the second spouse can use his exemption against the value of his assets. (The discussion of Wills and Powers of Attorney is the same.)
Approximate Costs
The attorney's fees for estate plans vary for different reasons. The time spent on drafting documents is not necessarily less for a smaller estate. Here are some ballpark figures for attorney fees:
The cost of an estate plan like Plan A may be between $400 and $600 for a single person; and between $600 and $1,000 for a married couple. A TODI will add $200 -$300 plus a recording fee.
For Plan B, the attorney may charge between $1,500 and $1,800 with possible additional charges for deeds and recording fees.
For Plan C, the attorney may charge between $2,000 and $2,500 with possible additional charges for deeds and recording fees.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
