Wills are legal documents that take effect after you die. Wills provide instructions about who should serve as your personal representative (called an executor in some states) and who should receive your assets. Wills also can name a guardian for a minor child and make arrangements for the care of a disabled child or adult. If a person dies without a valid Will, state law determines who inherits the estate.
Wills only affect assets that are included in your “probate” estate – that is assets owned in your own name that don't have a beneficiary designation. Examples of assets that are generally not “probate” assets include jointly owned property, such as real estate and bank accounts, and property such as retirement accounts and life insurance that pass to a beneficiary through a beneficiary designation on the account. Assets already held in a trust would also be excluded from the “probate” estate.
Because these assets pass outside of the Will, the terms of their disposition need to be properly coordinated. This is part of the difference between merely drawing up a Will and preparing a comprehensive estate plan.
Trusts are estate planning tools used to manage property for a particular purpose. There are three parties to a trust: (1) the person who creates the trust (called a “donor” or “grantor” or “settlor”); (2) one or more persons who manage the trust (called a “trustee”); and (3) one or more beneficiaries. In some cases, the same person can occupy two or even three of these roles at any particular point in time.
Trusts come in all kinds of forms, depending on the function they are intended to serve. If created during the donor’s life, they are known as “living” trusts. If created under a Will, they are known as “testamentary” trusts (though such trusts are less commonly used in Massachusetts). Trusts can be structured as revocable by the donor or irrevocable. Revocable trusts are often paired up with Wills, under an arrangement calling for the major portion of the estate to “pour over” into the Trust. The Trust thereby can serve effectively as “Part II” of the Will, but with greater privacy and ease of amendment than a Will. Depending on state law, a pour-over Trust may also entail reduced involvement of the probate court than would a Will.
Benefits of a Trust: The key difference between a Will and a Trust is that the assets placed in a trust are no longer the legal property of the person who places them in the Trust. Instead, they effectively belong to the Trust itself, which is, in effect, a separate legal entity. The trustee can continue to manage them through any disability of the donor and through his or her eventual death. A properly drafted Trust can serve to reduce or eliminate estate taxes and generation-skipping taxes and can help beneficiaries to better manage their on-going income tax liabilities.
Durable Powers of Attorney allow you to name a person (or several persons) to act on your behalf for financial and legal decisions in case of legal incapacity or, if useful, even in the absence of legal incapacity. Although a durable power of attorney cannot totally eliminate the possible need for a guardianship or conservatorship proceeding, with its attendant red tape and expense, it will generally serve that purpose.
Health Care Proxies represent a special kind of power of attorney which authorize a person you designate to make health care decisions if you are unable to make or communicate such decisions yourself. This document may include the so-called “living will” language, to provide guidance for your agent to refrain from “heroic” medical procedures where such procedures would appear to be futile. In some cases, language of this kind may be included in a separate document, called a “Living Will.”
Special Needs Trusts: Certain individuals are born with or develop medical conditions that reduce their abilities to manage their own affairs. Examples include persons born with developmental disabilities or mental illnesses and persons developing mental illnesses later on in life, whether as a result of a degenerative medical conditions (such as Alzheimer’s Disease) or as a result of an accident, particularly one involving a head injury. Most such persons may eventually qualify for various public and private benefit programs. However, the benefits available under such programs often do not fully cover all of that person’s expenses. Some of these benefit programs are “means-tested”, and persons who are “too rich” do not qualify for them. In the case of some programs, being “too rich” means having more than $2,000 worth of “countable assets.” A Special Needs Trust properly drafted to meet the beneficiary’s particular situation can establish a pool of funds available to provide for those expenses not covered by the available benefit programs without disqualifying the beneficiary for benefits for which he or she would otherwise be entitled.
Preparing an Estate Plan: Every adult should have some sort of estate plan in place. In some cases, such plan can be implemented with a simple set of documents. In other cases, family, tax, asset protection or other concerns will require a more complex plan. The attorneys at Brier & Ganz LLP can help you to crystallize your intentions, understand the advantages and disadvantages of the various planning options available to you, and draft the estate planning documents necessary to implement your wishes. We can help you to maximize the wealth you pass to the parties you most want to benefit (whether a spouse, children or other relatives or charities) and minimize the wealth to be extracted by parties you might not want to benefit (including the tax authorities and unintended creditors).