Estate Planning

(Wills/Trusts/Estate Tax Planning/Powers of Attorney/Health Care Directives of Living Wills)

Wills

Be aware that, if you do not have a Will, also known as a Last Will and Testament, Minnesota State Statutes will direct who has the right to be appointed Personal Representative (Executor) of your estate, and how your estate assets will be distributed.

A Will is a simple document instructing who you want to act as your Personal Representative (also known as an Executor), and how you wish your estate to be distributed. A Will only becomes effective upon your death, and only becomes legally enforceable when filed with the Probate Court. Your Personal Representative is appointed by the Court to carry out your instructions.

Contact me today for estate and disability planning needs for you and your loved ones.

A Will can be much more complex if circumstances warrant. You can incorporate estate tax planning trusts, called Testamentary Trusts, into your Will resulting in substantial savings by avoiding or minimizing the payment of estate taxes at your death. Minnesota currently taxes any estate that exceeds $1,000,000.00. The Federal government taxes estates that exceed $2,000,000.00.

You can also create a Testamentary Trust (incorporated into your Will) to be managed for any family member with special needs, or one under an age that you determine. Many of my clients with larger estates do not wish their younger adult children, or grandchildren, to immediately inherit significant sums of money. A well thought out, properly prepared, Testamentary Trust will ensure your hard earned assets are not squandered.

It is important to draft your Will carefully with the guidance of an experienced attorney who can anticipate and provide for potential problems and also to ensure that the proper formalities are followed when your Will is executed.

Contact me to schedule a no charge initial consultation to discuss your special circumstances. But before visiting my office, please download my Estate Analysis Summary in order to ensure a complete review of your needs during our visit (click here for a single person or here for two persons).

Estate Tax Planning

The State of Minnesota currently taxes any estate that exceeds $1,000,000.00. The Federal government currently taxes any estate that exceeds $2,000,000.00. If the value of an estate exceeds or falls between these amounts, a comprehensive estate tax plan should be completed.

Testamentary Trusts can be used to avoid, or at least minimize, the payment of estate taxes. Testamentary Trusts, called Credit and Marital Trusts, are created within a person’s Will. After death, an estate is appraised, and enough of your assets are transferred into a trust so its value equals the maximum credit for estate taxes. Hence the name, Credit Trust.

The balance of the assets are either transferred outright to a spouse, or held in another trust called a Marital Trust. The spouse is the beneficiary of both the Credit and Marital Trust with complete access to the assets in the Marital Trust and limited access (at the discretion of the Trustee) to the Credit Trust. If a spouse now has assets, exclusive of what is in the Credit Trust, that exceed the taxable threshold, they may be gifted to the heirs via lifetime gifts. The current annual exclusion for these gifts is $12,000.00 per person, per year.

The result will either avoid, or significantly minimize, the amount of taxes that will be due when both spouses die.

Here's an example of how estate tax planning can save significant amounts of money:

Mr. & Mrs. Smith have an estate totaling $2,400,000.00 They have three adult, married children. They own everything jointly and only have simple Will leaving everything to each other, or equally to their children after both have died. Mr. Smith dies. Mrs. Smith now owns the entire estate because she is the surviving joint owner.

Scenario with improper estate tax planning:

Mrs. Smith dies a few years later, and the entire $2,400,000.00 estate is to be divided equally among their three children. First, State and Federal estate taxes must be paid. Mrs. Smith's estate would owe approximately $180,000.00 in Federal estate taxes, and $130,800.00 in Minnesota estate taxes. The total tax bill is $310,800.00 Their three children would inherit $2,089,200.00.

Same scenario with proper estate tax planning:

Properly drawn Testamentary Trusts would result in no taxes being owed to the Federal government, and only $58,000.00 owed to the State of Minnesota. That is $252,800.00 less in taxes paid, and $252,800.00 more to the children.

Contact me if you have a larger, potentially taxable, estate and schedule a no charge, initial consultation with me to discuss your estate tax planning questions.

Trusts

A Trust is a document that requires a Trustee to hold assets for the benefit of another person. The Trust is a set of instructions directing the Trustee’s distribution of income or principal to or for the benefit of the beneficiaries. A Trustee can be an individual, bank, or other financial institution.

There are many different trusts that can be used to accomplish your wishes. Revocable Trusts, Irrevocable Trusts, Charitable Remainder Trusts, Life Insurance Trusts, and Special Needs Trusts, briefly described below, are just a few of the types of trusts available to you.

Revocable Trusts

A Revocable Trust is created naming you as Trustor and the Trustee. It is effective as soon as your assets are transferred into the Trust. This is known as “funding” your trust. Failure to fund a trust is common problem that I have encountered many times, mostly by people who have attended “free seminars” which are widely advertised these days.

People are persuaded at these seminars to create a Revocable Trust. A Local attorney will prepare an impressive looking set of documents, collect a hefty fee, and send the people on their way. The only problem, and it’s a major one, is that none of their assets have been transferred to the Revocable Trust. The Revocable Trust is useless if not properly funded.

Creating any trust is like building a swimming pool. If you don’t put any water in it, all you have is an expensive hole in the ground.

A properly funded Revocable Trust is an excellent estate and disability planning tool. Since it is revocable, you always have the ability to change it to meet your own changing circumstances. One of the primary benefits of a Revocable Trust, is the fact that the administration of the trust can continue, unimpeded, regardless of your future disability and death, and it can be done so privately. Nothing needs to be filed with the Probate Court, where all filings are open for the general public to view at any time.

A Successor Trustee (who you have named in your Revocable Trust) immediately has the ability to assist you in the management of your financial affairs. Sometimes a Revocable Trust is a necessity, especially if you own property in another state. Each client’s circumstances are unique, and not every client will require the level of sophistication that a Revocable Trust will provide.

Irrevocable Trusts

There are times when you may wish to establish an Irrevocable Trust. These trusts require serious consideration and planning, since they cannot be amended or changed once executed and funded.

You may have a large estate and would like to save estate taxes. By creating an Irrevocable Trust, any asset you transfer into the trust is removed from your estate. It is considered a gift to the trust’s ultimate beneficiaries.

Another advantage of using an Irrevocable Trust is you can determine how and when the ultimate beneficiaries will receive the benefits. You can also retain the right to receive the trust income for the rest of your life. There is a variation to the Irrevocable Trust that can also allow you to obtain a current tax benefit.

Contact me to schedule a no charge initial consultation to discuss your special circumstances. Before visiting my office, download my Estate Analysis Summary in order to ensure a complete review of your needs during your visit (click here for a single person or here for two persons).

Charitable Remainder Trusts

A Charitable Remainder Trust allows you to receive a current tax deduction for the value of the asset used to fund the trust. It is considered a gift to the ultimate beneficiary, a charity. You can still retain the right to receive the income for life, and, upon your death, the principal of the trust is distributed to the charity of your choice.

Life Insurance Trusts

Another version of an Irrevocable Trust is called a Life Insurance Trust. You fund the trust with an insurance policy. While you won’t receive lifetime income from this type of trust, it will allow the ultimate trust beneficiaries to receive the death benefit of the insurance policy when you die. The proceeds of the insurance policy, which can be substantial, are not part of your taxable estate.

Special Needs Trusts

A Special Needs Trust is specially designed to benefit a person who has some form of disability and is receiving monetary assistance from the Federal government, such as SSI. A large outright gift would disqualify this person from receiving their Federal benefits. A Special Needs Trust provides money to pay for the “special needs” of the individual (such as clothing, trips, or other luxuries), and does not disqualify that person from receiving their Federal benefits.

Powers of Attorney

A Power of Attorney allows you to give someone, usually a family member, the authority to help you with your financial and business affairs. The person named in your Power of Attorney, called an Attorney-in-Fact, has your authorization to access all of your non–health care needs. This authority continues until you die.

There are two types of Powers of Attorney – Statutory (also called a Durable General Statutory Power of Attorney and a Common Law Power of Attorney

Durable General Statutory Power of Attorney

A Durable General Statutory Power of Attorney is very easy to prepare. You can name successor Attorneys-in-Fact, or co-Attorneys-in-Fact. The format of the document is outlined in the statute authorizing its use. If properly completed and executed, it is almost universally accepted at any bank, financial institution, or insurance company.

Common Law Power of Attorney

A Common Law Power of Attorney is a much more extensive document drafted entirely by an attorney with expansive powers given to the Attorney-in-Fact. A Common Law Power of Attorney is only needed when the client’s potential future needs won’t be met by using the Durable General Statutory Power of Attorney. Powers of Attorney will prevent the need for formal Probate Court proceedings to give someone access to your finances. They are excellent disability planning tools, easy to prepare, and easy to use.

Contact me to schedule a no charge initial consultation to discuss your special circumstances.

Health Care Directives also known as Living Wills

A Health Care Directive (Living Will) allows you to appoint someone, usually a family member, as your agent to make health care decisions for you in the event you are incapable of communicating with your medical providers.

A Health Care Directive (Living Will) can also provide detailed instructions about the kind of health care services you do or do not want, and will give your agent access to your medical records.

A properly appointed health care agent has the obligation to carry out your health care wishes. If there are differences of opinion among your family members regarding the care options available to you, you can be assured your agent has a legally enforceable obligation to carry out your wishes. Your health care providers will rely on the authority you have given your agent and will carry out your instructions.