Selecting the appropriate personal representative is an important decision when preparing your estate. Your personal representative must be prepared to perform some important duties for the heirs.
Many individuals utilize a revocable trust to distribute assets. As the name implies, this trust can be revoked or changed at any time prior to death. You can also change beneficiaries of your trust, the trustee(s) or any other provisions.
The primary reason you may choose a revocable trust as part of your estate plan is the ability to avoid probate.
Revocable trusts do not require any additional tax reporting since all income on trust assets are included on the individual tax return of the trust’s grantor.
In order to avoid probate, many assets will need to be retitled in the trust’s name. For most assets this is a simple, yet necessary step.
Estate planning documents should be reviewed whenever there is a change in the applicable laws or a change in your individual circumstances. These changes could include births or deaths in the family, changes in your financial situation or changes in health.
Probate is part of the process of closing your estate. Your personal representative is the individual(s) or entity responsible for initiating this process. Assets that are individually owned without a named beneficiary, will likely pass though probate before being distributed to heirs.
Regardless of the trustee selected, the trustee will need to understand this role comes with considerable responsibility. Among the responsibilities would be ensuring the assets of the trust remain productive and managed in a manner consistent with the trust language. The trustee will be responsible for required tax filings, if any, and to account to the trust beneficiaries when requested. The trustee often seeks outside assistance with these tasks from a financial advisor, CPA or attorney.
One of the most difficult decisions when planning your estate is how to care for minor children you my leave behind. Appointing an appropriate guardian is a decision in which many parents struggle. Family members are often looked upon to fill this role. However, non-family members are an option as well. Although every situation is unique, you will want to factor into your decision a variety of factors when deciding on a guardian. Specifically, the guardian’s age, financial means if you are not able to leave sufficient resources for the remainder of the child’s youth, family values and where they live. If the guardians are a married couple, what would your preferences be if there was a divorce.
A health care directive is a document where an individual is named to make health care decisions on your behalf if you are unable to do so. Preparing a health care directive can save the family a great deal of grief given that some difficult decisions as it relates to healthcare have been made
A power of attorney is a document that appoints someone to act on your behalf if you are unable to do so. Despite the name, your appointed agent does not need to be an attorney. The powers of your appointed agent can be specified in the document, but often includes the following:
As the list indicates, the agent has potentially broad powers. Selecting the right agent is a decision requiring careful thought and consideration. There is also the option to appoint an agent to act even if the grantor of the power becomes disabled. This would be called a durable power of attorney.
in advance. This saves the family members from making many of these decisions where there is often disagreement as to how to proceed with certain medical decisions. A health care directive can maintain family harmony during a difficult period.
Although everyone’s situation is different, as a general rule estate planning documents should be reviewed every three years or so. This does not mean documents need to be actually updated this often.
The need for a trustee will arise when there is a trust created during lifetime or if assets pass to a trust at death as part of your will. The role of the trustee is to safeguard assets for the beneficiaries while executing upon the terms of the trust.
For certain trusts, the grantor can name themselves as trustee. Otherwise, another individual or entity, such as a bank can be named.
The role of the personal representative is to facilitate bringing the estate to a close. You will select your personal representative in your will. Married couples often select each other as their representative with a successor in the event the surviving spouse is unable to serve in that function. Others may select other family members, friends or an institution to serve as personal representative. Among the duties of the personal representative are as follows:
Assets that typically do not pass through probate include:
Probate is a process that adds additional costs to closing your estate and can result in a delay in heirs receiving assets. Therefore, planning to avoid probate can simplify the overall process.
In addition to deciding on a guardian, you will need to determine the individual or entity to serve as the trustee over your assets until your children have reached an appropriate age to manage such assets on their own. Like the selection of a guardian, the choice of a trustee is a decision based on family values and dynamics. This may be the same individual(s) that is acting as guardian, but you may determine that another individual or entity would be more appropriate. There is not a correct answer to whether you should having the same individual serve as both guardian of your children and trustee of your assets. As a general rule, however, if you select different individuals for each role, ensure those parties have a good working relationship and are willing to cooperate for the best interest of your children.
For many a will is the primary document that controls the distribution of assets. A will can provide for the individuals you wish to benefit from your estate. As part of a will, not only can you direct who will receive your assets, but also when. Many times, parents with young children would like their children to be the primary beneficiary of their estate, but believe they are currently too young to manage assets. Wills can provide that upon the death of parents a trust be created to hold assets and distribute them at a future time in which the parents deem more appropriate.
Your will is also the document where you appoint your personal representative. Your personal representative is the individual or entity that is responsible for managing the process of closing your estate.
If you die without a will, most assets in your name will be distributed according the intestacy rules in your state. State intestacy rules provide who will benefit from your estate, resulting in you losing control over how and when your assets will be distributed.