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ESTATE PLANNING RESOURCES
ABA TRUST FREQUENTLY ASKED QUESTIONS (FAQ'S)

INTRODUCTION
National LawForms is committed to developing strong partnerships with industry leaders within the legal community, legal associations & legal professionals to deliver quality legal software products. In this section we attempt to provide a comprehensive database of helpful estate planning articles and other resources which compliment our Estate Planning, Trust & Wills software package. View answers to the most common questions about the estate planning process, probate and administration of estates, transfer taxes and tax planning for your assets, and disability planning.
Terms of Use


FREQUENTLY ASKED QUESTIONS: WILLS

What happens if you die without a Will?
What a Will does do
What a Will does NOT do
How to execute a Will
    Jointly owned (non-probate) property

FREQUENTLY ASKED QUESTIONS: TRUSTS

What is a Trust?
Annuities and retirement benefits
Life Insurance
How do I title accounts?
How do I sign my name in a fiduciary capacity?
Where do I hold the estate or Trust assets?
How (and how much) do I get paid?
What if a Beneficiary complains?
Can I be sued or held personally liable?
How am I discharged as fiduciary at the end of the administration? What if iI want to resign?

FREQUENTLY ASKED QUESTIONS: REVOCABLE TRUSTS

What is a Revocable Living Trust?
Power-of-Attorney
Who Should Be Your Agent?
How Should the Agent Sign?
Beyond Signing Checks
State Laws Vary
    What if I Move?
    Will My Power of Attorney Expire?

   
 

TERMS OF USE:
Resources in this section are provided AS-IS and may not be suitable for the purposes intended. Questions relating to article content or application should be discussed with a qualified professional. No tax, legal, financial, investment or similar advice is provided herein. National LawForms, Inc. makes no representation or warranty as to suitability of use or accuracy of content. Further, National LawForms, Inc. disclaims any other warranties, express or implied, including but not limited to the warranties of merchantability or fitness for the intended purpose or use. By using he information provided on this page, you are accepting these terms.

Much of the information on this page was provided by the Public Information Web Site of the American Bar Association’s section of Real Property, Probate and Trust Laws. Visit the American Bar Association to view their disclaimer.


WHAT HAPPENS IF YOU DIE WITHOUT A WILL?
If you die intestate (without a will), your state's laws of descent and distribution will determine who receives your property by default. These laws vary from state to state, but typically the distribution would be to your spouse and children, or if none, to other family members. A state's plan often reflects the legislature's guess as to how most people would dispose of their estate and builds in protections for certain beneficiaries, particularly minor children. That plan may or may not reflect your actual wishes, and some of the built-in protections may not be necessary in a harmonious family setting. A will allows you to alter the state's default plan to suit your personal preferences.


WHAT A WILL DOES DO!
A will provides for the distribution of property owned by you at the time of your death in any manner you choose (subject to the forced heirship laws of some states that prevent disinheriting a spouse and, in some cases, children). Your will cannot, however, govern the disposition of properties that pass outside your probate estate (such as certain joint property, life insurance, retirement plans and employee death benefits) unless they are payable to your estate.

Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. If a will provides for the outright distribution of assets, it is sometimes characterized as a simple will. If the will establishes one or more trusts, it is often called a testamentary trust will. Alternatively, the will may leave probate assets to a preexisting inter vivos trust (created in your lifetime), in which case it is called a pour over will. In either case, the purpose of the trust arrangement (as opposed to outright distribution) is to ensure continued property management and creditor protection for the surviving family members, to provide for charities, and to minimize taxes.

Aside from providing for the intended disposition of your property to spouse, children etc., there are a number of other important objectives that may be accomplished in your will.

  • You may designate a guardian for your minor child or children if you have survived the other parent-and, by judicious use of a trust and appointment of a trustee, eliminate the need for bonds and supervision by the court regarding the care of each minor child's estate.
  • You may designate an executor of your estate in your will and eliminate the need for a bond; in some states the designation of an independent executor will eliminate the need for court supervision of the settlement of your estate.
  • You may choose to acknowledge or otherwise provide for a child (e.g., stepchild, godchild, etc.) in whom you have an interest, an elderly parent, or other individuals.
  • If you are acting as custodian for the assets of a child or grandchild under the Uniform Gift (or Transfers) to Minors Act, you may designate your successor custodian and avoid the expense of a court appointment.

Good planning can also enhance your support of religious, educational, and other charitable causes.


WHAT A WILL DOES NOT DO!
A will does not govern the transfer of certain types of assets, called non-probate property, which by operation of law or contract pass to someone else on your death.


HOW TO EXECUTE A WILL
Wills are signed in the presence of witnesses and certain formalities must be observed. A later amendment to a will is called a codicil and must be signed with the same formalities. In some states, the will may refer to a memorandum disposing of tangible personal property, such as furniture, jewelry, automobiles, etc., which may be changed from time to time without the formalities of a will. In many states, a will that is formally executed with the signatures notarized is deemed to be self proved and may be admitted to probate without testimony of witnesses or other additional proof.


JOINTLY OWNED (NON-PROBATE) PROPERTY
If you own property with another person as joint tenants with right of survivorship, that is, not as tenants in common, the property will pass directly to the remaining joint tenant upon your death and will not be a part of your probate estate. (It will, however, be a part of your taxable estate.) Frequently, people (particularly in old age) will cause bank accounts or securities to be placed in the name of the owner with one or more children or trusted friends as joint tenants with right of survivorship. This is sometimes done as a matter of convenience to give the joint tenant continuing access to accounts to pay bills.

It is important to realize that the ownership of property in this fashion often leads to unexpected or unwanted results. Disputes, including litigation, are common between the estate of the original owner and the surviving joint tenant as to whether the survivor's name was added as a matter of convenience and/or management or whether a gift was intended. The planning built into a well-drawn will may be partially or completely thwarted by an inadvertently created joint tenancy that passes property to a beneficiary by operation of law, rather than under the terms of the will.
Many of these problems are also applicable to institutional revocable trusts and "pay on death" forms of ownership of bank, broker, and mutual fund accounts and savings bonds. Effective planning requires knowledge of the consequences of each property interest and technique.


WHAT IS A TRUST?
The term trust describes the holding of property by a trustee (which may be one or more persons or a corporate trust company or bank) in accordance with the provisions of a written trust instrument for the benefit of one or more persons called beneficiaries. A person may be both a trustee and a beneficiary of the same trust. A trust created by your will is called a testamentary trust and the trust provisions are contained in your will.

If you create a trust during your lifetime, you are described as the trust's grantor or settlor, the trust is called a living or inter vivos trust, and the trust provisions are contained in the trust agreement or declaration. The provisions of that trust document (rather than your will or state law defaults) will usually determine what happens to the property in the trust upon your death.

A living trust may be revocable (subject to change and terminated by the settlor) or irrevocable. Either type of trust may be designed to accomplish the purposes of property management, assistance to the settlor in the event of physical or mental incapacity, and disposition of property after the death of the settlor of the trust.

Trusts are not only for the wealthy. Many young parents with limited assets choose to create trusts either during life or in their wills for the benefit of their children in case both parents die before all their children have reached an age deemed by them to indicate sufficient maturity to handle property. This permits the trust estate to be held as a single undivided fund to be used for the support and education of minor children according to their respective needs, with eventual division of the trust among the children when the youngest has reached a specified age. This type of arrangement has an obvious advantage over an inflexible division of property among children of different ages without regard to their level of maturity or individual needs at the time of such distribution.


ANNUITIES AND RETIREMENT BENEFITS
You may be entitled to receive some type of retirement benefit under an employee benefit plan offered by your employer or have an Individual Retirement Account (IRA). Typically, a deferred compensation or retirement benefit plan will provide for the payment of certain benefits to beneficiaries designated by the employee in the event of the employee's death before retirement age. After retirement, the employee may elect a benefit option that will continue payments after his or her death to one or more of the designated beneficiaries. Certain spousal annuities are now mandated by law and may be waived only with the spouse's properly witnessed signed consent. The various payment options will be treated differently for tax purposes. Any person entitled to retirement benefits should seek competent advice as to the payment options available under his or her retirement plan and the tax consequences of each.


LIFE INSURANCE
If you own life insurance on your own life, you may either:

(a) designate one or more beneficiaries to receive the insurance proceeds upon your death, or
(b) make the proceeds payable to your probate estate or to a trust created by you during your lifetime or by your will.

If the insurance proceeds are payable to your estate, they will be distributed as part of the general estate in accordance with the terms of your will or, if you die without a will, the distribution will be according to the applicable laws of interstate succession. If the proceeds are payable to a trust, they will be held and distributed in the same manner as other trust assets and may also be free of creditors' claims. Insurance proceeds that are payable directly to a minor child will generally necessitate the court appointment of a legal guardian or conservator. This can be avoided by having a trust designated as beneficiary or a custodial account under the state-transfers-to-minors law.

Insurance plays an important role in estate planning and should be coordinated with all other aspects of your estate plan. The laws pertaining to the taxability of insurance proceeds are complex, however, so it is important that all matters pertaining to life insurance be carefully reviewed with your attorney and insurance advisor.


HOW DO I TITLE ACCOUNTS?
Each bank or investment firm may have its own format, but generally you may use, for a trust, "Alice Carroll, Trustee, Lewis Carroll Trust dated January 19, 1998," or, in a shorthand version, "Alice Carroll, Trustee under agreement dated January 19, 1998." For an estate, "Alice Carroll, Executor, Estate of Lewis Carroll, Deceased."


HOW DO I SIGN MY NAME IN A FUDUCIARY CAPACITY?
An executor signs: "Alice Carroll, Executor (or Personal Representative) of the Estate of Lewis Carroll, Deceased". A trustee signs: "Alice Carroll, Trustee".


WHERE DO I HOLD THE ESTATE OR TRUST ASSETS
If you engage a trust company, they will open an account in the name of the estate or trust and provide regular statements showing all income and disbursements. You can open an investment account with a bank or brokerage company in the name of the estate or trust. All expenses and disbursements must be made from these accounts, and you should receive regular statements.


HOW (AND HOW MUCH) DO I GET PAID?
Fiduciary work is time-consuming and can be difficult; it is appropriate to seek payment for your services. The will or trust agreement may set forth the compensation. If they do not, many states provide either a fixed schedule to which you must adhere, or allow "reasonable" compensation, which usually takes into account the size of the estate, the complexity involved, and the time spent by the fiduciary. Executor's or trustee's fees are taxable compensation to you. As stated above, several states do not permit the fiduciary to pay his or her own compensation without a court order; check with your attorney before you write yourself a check.


WHAT IF A BENEFICIARY COMPLAINS?
Even professional fiduciaries, such as trust companies, receive complaints from time to time. The best way to deal with them is to do your best to avoid them in the first place by following these guidelines and consulting with an attorney experienced in estate administration. Many complaints arise because beneficiaries are not kept up to date on the administration of the trust or estate. Frequent communication with beneficiaries is a must. Whenever possible, consult with an attorney who specializes in trust and estate matters when a complaint involves more than routine issues.


CAN I BE SUED OR HELD PERSONALLY LIABLE?
Your errors or mismanagement of a trust and estate can indeed subject you to personal liability. Common pitfalls include not paying tax or filing returns on time, improper investment choices (whether too conservative, too speculative, or favoring one beneficiary over another), self-dealing (buying assets for yourself or your family from the estate or trust, whether or not at market price), or allowing property or casualty insurance to lapse, resulting in a loss to the account. Your best protection is to get good professional advice and to fully document your actions and decisions.


HOW AM I DISCHARGED AS FIDUCIARY AT THE END OF THE ADMINISTRATION? WHAT IF I WANT TO RESIGN?
Whether you stop acting because the estate or trust has terminated, or you wish to resign before the conclusion of your administration, you must be discharged, either by the local court or by the beneficiaries. In some states, this is a formal process, involving the preparation of an accounting. In others, a relatively simple document signed by the beneficiaries can be used. If you are resigning prior to the conclusion of your administration, check the document to see who succeeds you as fiduciary. If no successor is named, you may need a court proceeding to appoint a successor before you can be discharged.


WHAT IS A REVOKABLE LIVING TRUST?
Much has been written recently regarding the use of living trusts (also known as a revocable trust or inter vivos trust) as a solution for a wide variety of problems associated with estate planning through wills. Some attorneys regularly recommend the use of such trusts, while others believe that their value has been somewhat overstated. The choice of a living trust should be made after consideration of a number of factors.

This brief summary is intended to provide a framework of basic knowledge regarding "living trusts" in general, in order that you might determine whether you should pursue a discussion of this technique further with your attorney licensed to practice in the state where your estate would be administered.

The term "living trust" is generally used to describe a trust

(a) which you can create during your lifetime, and
(b) which you can revoke or amend whenever you wish to do so.

You can also create an "irrevocable" living trust, but that is permanent and unchangeable and is almost exclusively done to produce certain tax results beyond the scope of this summary.

A "living trust" is legally in existence during your life, has a trustee who is currently serving, and owns property which (generally) you have transferred to it during your life. While you are living, the trustee (who may be you) is generally responsible for managing the property as you direct for your benefit. Upon your death, the trustee is generally directed to either distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries. Like a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also

(a) provide you with a vehicle for managing your property during your life, and
(b) authorize the trustee to manage the property and use it for your benefit (and your family) if you should become incapacitated, thereby avoiding the appointment of a guardian for that purpose.


POWER OF ATTORNEY
An important part of lifetime planning is the Power of Attorney. Valid in all states, these documents give one or more persons the power to act on your behalf. The power may be limited to a particular activity (e.g., closing the sale of your home) or general in its application, empowering one or more persons to act on your behalf in a variety of situations. It may take effective immediately or only upon the occurrence of a future event (e.g., a determination that you are unable to act for yourself). The latter are "springing" Powers of Attorney. It may give temporary or continuous, permanent authority to act on your behalf. A power of attorney may be revoked, but most states require written notice of revocation to the person named to act for you.
The person named in a Power of Attorney to act on your behalf is commonly referred to as your "agent" or "attorney-in-fact." With a valid Power of Attorney, your agent can take any action permitted in the document. Often your agent must present the actual document to invoke the power. For example, if another person is acting on your behalf to sell an automobile, the motor vehicles department generally will require that the Power of Attorney be presented before your agent's authority to sign the title will be honored. Similarly, an agent who signs documents to buy or sell real property on your behalf must present the Power of Attorney to the title company. The same applies to sale of securities or opening and closing bank accounts. However, your agent generally should not need to present the Power of Attorney when signing checks for you.

Why would anyone give such sweeping authority to another person? One answer is convenience. If you are buying or selling assets and do not wish to appear in person to close the transaction, you may take advantage of a Power of Attorney. Another important reason to use Powers of Attorney is to prepare for situations when you may not be able to act on your own behalf due to absence or incapacity. Such a disability may be temporary (e.g., due to travel, accident, or illness) or it may be permanent.

If you do not have a Power of Attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint one or more people to act for you. People appointed in this manner are referred to as guardians, conservators, or committees, depending upon your local state law. If a court proceeding, sometimes known as intervention, is needed, than you may not have the ability to choose the person who will act for you. With A Power of Attorney, you choose who will act and define their authority and its limits, if any.


WHO SHOULD BE YOUR AGENT
You may wish to choose a family member to act on your behalf. Many people name their spouses or one or more children. In naming more than one person to act as agent at the same time, be alert to the possibility that all may not be available to act when needed, or they may not agree. The designation of co-agents should indicate whether you wish to have the majority act in the absence of full availability and agreement. You should name a successor agent to address the possibility that the person you name as agent may be unavailable or unable to act when the time comes.

There are no special qualifications necessary for someone to act as an attorney-in-fact except that the person must not be a minor or otherwise incapacitated. The best choice is someone you trust.


HOW SHOULD THE AGENT SIGN
Assume Elvis Presley appoints his wife, Priscilla Beaulieu Presley, as his agent in a written power of attorney. Priscilla, as agent, must sign as follows: Elvis Presley, by Priscilla Beaulieu under POA or Priscilla Beaulieu Presley, attorney-in-fact for Elvis Presley.


BEYOND SIGNING CHECKS
In addition to managing your day-to-day financial affairs, your attorney-in-fact can take steps to implement your estate plan. Although an agent cannot revise your will on your behalf, some jurisdictions permit an attorney-in-fact to create or amend trusts for you during your lifetime, or to transfer your assets to trusts you created. It is prudent to include in the Power of Attorney a clear statement of whether you wish your agent to have these powers.

Gifts are an important tool for many estate plans, and your attorney-in-fact can make gifts on your behalf, subject to guidelines that you set forth in your Power of Attorney. For example, you may wish to permit your attorney-in-fact to make "annual exclusion" gifts (currently up to $10,000 in value per recipient per year) on your behalf to your children and grandchildren. It is important that the lawyer who prepares your Power of Attorney draft the document in a way that does not expose your attorney-in-fact to unintended estate tax consequences. While some states permit attorneys-in-fact to make gifts as a matter of statute, others require explicit authorization in the Power of Attorney.


STATE LAWS VARY
Beyond the ability to make gifts on your behalf, many aspects of a Power of Attorney are governed by state law. Generally, the law of the state in which you reside at the time you sign a Power of Attorney will govern the powers and actions of the agent(s) under that document.


WHAT IF I MOVE?
Generally, a Power of Attorney that is valid when you sign it will remain valid even if you change your state of residence. Although it should not be necessary to sign a new Power of Attorney merely because you have moved to a new state, it is a good idea to take the opportunity to update your Power of Attorney.


WILL MY POWER OF ATTORNEY EXPIRE?
Some states used to require renewal of Powers of Attorney for continuing validity. Today, most states permit a "durable" Power of Attorney that remains valid once signed until you die or revoke the document. However, you should periodically meet with your lawyer to revisit a Power of Attorney and consider whether your choice of agent still meets your needs and learn whether developments in state law affect your Power of Attorney.


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