Last Will and Testament
You will often hear estate planning attorneys and financial planners say that the ground floor of any basic estate plan is to have a Last Will and Testament, often called a “simple will.” We agree. However, for reasons that will be explained below, we also feel that in many cases, a Will may not be enough, and, as you may have guessed, things are not very “simple” anymore. Throughout the rest of this discussion, we will refer to the Last Will and Testament as a “Will.”
The purpose of a Will is to see to it that your wishes are followed with regard to who is to receive your property after your death, and when they are to receive it. However, you must also remember that just because you have a Will your estate will not avoid probate. Unfortunately, many people are under the misconception that by having a Will their estate will not go through probate. This is not true. In order for any Will to be valid, it must go through the probate process, and while that process is time-consuming (12 to 18 months on average), and can be costly (perhaps up to 7% or 8% of the value of your assets), having a Will is better than not having one.
Remember, if you don’t have a Will, and you die owning property in your name alone, the laws of the state where you live will spell out who gets what after your death. This process is called “intestate administration.” For example, in Missouri, if you are survived by a spouse and children born to both of you (not a second marriage), then your spouse does not get the whole thing, but he or she would be entitled to the first $20,000 in value, and one-half of the rest. The other one-half would be split equally among the children. And, if the children are minors (under 18), a conservatorship (what used to be called a guardianship estate) would have to be established through probate court in order to oversee the management of assets for the children until they reach the age of majority.
A Will is also very important because this is the only document in which you can name the person or persons you want to appoint to act as guardians for your minor children. Unlike the “conservator” that is appointed to handle the assets that are given to a minor child, the “guardian” is the person appointed by the probate court to oversee the personal upbringing of a child. Of course, the same person can be appointed to act as both the “conservator” and the “guardian” for any minor child.
Finally, many states now allow you to prepare a list to designate certain items of property to go to certain people. However, in order to be considered binding, the list must be referred to in a validly drafted Will.
Also, please understand that even if you decide that a Living Trust is appropriate for you, a Will is still going to be a part of your estate planning documents. This will be explained in more detail below.
Durable Power of Attorney
The importance of a well-drafted Durable Power of Attorney document cannot be overemphasized. Basically, a Durable Power of Attorney allows you to appoint someone else to handle your affairs for you when you become unable to do so yourself. The range of power that may be given to someone is quite extensive, so you must be very careful in who you select, and what powers you choose to give that person.
Further, a Durable Power of Attorney may also be used to give another person decision making power concerning medical treatment. In response to the Nancy Cruzan and Christine Busalacchi cases, the Missouri legislature revised the statutes in order to permit the holder of a Durable Power of Attorney For Health Care to decide to either prohibit or withdraw life support, and even to withhold or withdraw food and water by tube feeding. Obviously, you must choose the person very carefully.
Often, a person will decide to combine the financial powers with medical care powers in the same Durable Power of Attorney document. This most often occurs in the case of a parent appointing one or more children to act as their Durable Power of Attorney.
This document is your own statement as to what you want to be done by way of medical treatment. If there is no one that holds a Durable Power of Attorney For Health Care, then a Living Will is vital. Without it, Missouri law requires that a doctor maintain providing water and food by tube even though there is no brain wave activity. While many of us think the law will change in this area, this is the law for the time being.
More and more people have decided that a Living Trust is preferable as a way to avoid probate and control the assets for those you care about after your death. And for many people, a Living Trust is the right decision. A following section of this handout goes into the many different aspects of a Living Trust.
“Pay On Death” and “Transfer On Death”
These are two terms which mean the same thing. Both stand for the proposition of having a particular asset, such as a bank account, certificate of deposit, stocks and bonds, transferred to the person you designate immediately after your death. While this method does not deal with what takes place if the person you name dies before you, it is far preferable than putting someone down as a joint owner. Remember, joint ownership means they actually own the asset with you, while using a P.O.D. or T.O.D. designation does not transfer any ownership until your death.
Federal Estate Tax
We have yet to find any of our clients who feel that the Federal Estate Tax is fair or just. Simply put, the Federal Estate Tax is a tax the government imposes on your assets at your death. There are no assets that escape being subject to this tax if you own or control the use of the asset at the time of your death.
Even life insurance proceeds do not escape this tax. While life insurance proceeds are not subject to income tax to the beneficiary when paid to a person as beneficiary, the total value of the proceeds is subject to estate tax in the estate of the person who died.
Fortunately, the current “Unified Credit” of $11,180,000 still allows the vast majority of people in the United States to avoid paying estate taxes at death. However, as the value of personal residences grows, along with the value of IRA’s, pension and profit sharing plans, plus the value of automobiles and personal savings, plus the face value of life insurance, some people are learning that their estates will be subject to tax. As the law now stands, the Federal Estate Tax is set to be reduced back down to $5,590,000 in 2026 if the law stays as written.
We can help keep your hard earned assets in the hands of those you care about instead of allowing Uncle Sam to be a silent partner with your loved ones.
We often help people through drafting Charitable Trusts and Irrevocable Life Insurance Trusts. For our clients with sufficient assets to make these techniques appropriate to consider, these devices can truly be a “wealth saver” and in many cases, even a “wealth builder” for their family. Since each of these techniques is somewhat complex, we will not attempt an explanation in this summary.