Common Estate Planning Issues

1. FREQUENTLY ASKED QUESTIONS 1. Why should I have a will? A will provides the opportunity to stipulate with clarity the people you would like to have receive your assets upon your death. In addition to making gifts of your assets, it is the document in which you can name guardians of minor children who are under the age of 18 and to name a custodian to manage the assets for these minor children. 2. What if I die without a will? If a person passes away without a will, it is necessary that we look to (the) law to determine which people are to inherit the decedent's assets. (Intestate) 3. Then who inherits if I don't have a will? This can be a variety of people, including a spouse, parents, children, brothers, sisters, etc. in some combination of percentages. Determined by the legal process 4. If my family is going to inherit my assets then why is this not a good approach? The effect of not having a will is that there will be substantially greater probate court involvement in the administration of the estate as we are relying on the state law to determine who will inherit. In the most extreme of circumstances, should you pass away without a will and have no living heirs surviving you, then the assets will pass to the State. 5. Does a will control where all of my assets go? Your will only controls assets which are in your name alone at the time of death. 6. What happens to my other assets? Jointly-owned assets (such as a residence owned jointly by husband and wife or a bank account owned jointly by a mother and child) do not pass through your will. In addition, assets which have a contract beneficiary (such as life insurance, individual retirement accounts and retirement plans) do not pass through your will. 7. Does the will avoid probate? Probate court involvement in your affairs is required any time a person passes away with assets in their name alone. In such cases, it is necessary that the probate court become involved to unfreeze the assets which became frozen at the time of death. Please note: Seek the advice of an attorney where these legal issues are concerned

2. Through proper planning, the involvement of the probate court can be minimized or avoided completely at the time of death. (see probate avoidance article) 8. Do I need a lawyer to prepare a will? It is not a legal requirement that you obtain legal counsel to prepare a will. Volumes of case law have been written about wills which have been prepared but improperly signed or witnessed. 9. What are the signature requirements for a valid will? Under (the) law, it is necessary that two individuals witnessed the signing of your will and that the document be notarized. Failure to adhere to these requirements can invalidate the will. 10. Can I change my will? A will can be changed; however, to do so requires you sign an amendment to your will (known as a codicil) with the same witness and notary requirements as signing your original will. 11. What is a living trust? A trust is a contract between a person who is creating the arrangement and the person who has been named as the trustee. Typically, this type of arrangement is written and stipulates the rules and regulations the creator feels is important for the particular circumstances. 12. Why would I have a Living Trust? Living trusts can be used for a variety of reasons such as for the protection of assets for minor children, minimization of estate taxes and controlling assets after the death of the creator. (See living trust article.) 13. Does my trust go through probate? A living trust is specifically designed so that it does not pass under the control of the probate court. If properly drafted, the trust and all assets the trust controls at the time of the creator's death, does not pass through the probate court. (See probate avoidance article.) 14. Does a trust have the same witness formalities as a will? Please note: Seek the advice of an attorney where these legal issues are concerned

3. Under Massachusetts law, a trust is valid if signed by the creator and by the trustee. The witness formalities of a will do not apply to a trust. For this reason, the trust is a more flexible document to change from time to time as the witnessing requirements of a will do not exist. 15. What is a durable power of attorney? A durable power of attorney is a legal document designed to provide another person with legal authority over your financial affairs should you become disabled. 16. Why would I want to give some authority over my assets? Both single and married people very often will have assets in their name alone or have assets which mandate they be the signatories. If the owner of the account became disabled, no other person would have access to those assets. The durable p ower of attorney provides a cost-effective means for a family member or friend to take charge of financial affairs in the event of disability. Avoiding Probate Through Living Trusts It has become an increasingly common goal of those undertaking their estate planning to pursue the avoidance of Probate Court involvement in the settlement of their affairs after death. While there are several ways to structure an estate plan and the related ownership of assets to achieve this goal, planners have found that through the use of funded Living Trusts that the desired goal of avoiding Probate Court involvement can be achieved with the least amount of risk or loss of control over assets. To understand the value of the Living Trust in avoiding Probate, it is first necessary to understand the Probate Court process itself. In its simplest form, the Probate Court process is one in which the Probate Court will re-title the assets owned by the decedent at the time of his or her passing. Since assets owned by a person in his or her own name cannot be dealt with after that person's death, it is necessary that there be a Court process Please note: Seek the advice of an attorney where these legal issues are concerned

4. to orderly administer these assets and transfer them to those persons named in the decedent's will (or to those persons who would inherit under state law if there was no will). Due to tax filings and creditor rights, it can often take anywhere from nine months to several years to complete the probating of an estate. Coupled with the cost of the Court process and the associated legal fees, people often labor to avoid subjecting their assets to this Court process. To fully avoid the Probate Court process, at the time of death a person cannot own assets in his or her name alone. Understanding this, many single people/surviving spouse's will place their assets in joint names with children or other relatives. By doing this, at the time of death, the assets will pass by rights of survivorship to the surviving joint owner without the necessity of Probate Court involvement. While this sounds as though the goal has been achieved, this approach can be fraught with disaster. The stories of jointly owned real estate with children, who then mortgage the property and lose it to foreclosure, or pledge the real estate as part of a business venture, only to lose it in bankruptcy or to a creditor are well known Issues of divorce of a joint owner, creditor problems or death of the younger joint owner only add to the reasons why this approach to avoiding Probate should be undertaken with caution. The better approach to avoiding Probate is through the use of a funded Living Trust of which the creator is also the Trustee. The Living Trust, or commonly referred to as the Revocable Trust or Family Trust, is a private contract between the person or persons creating it, the Grantor, and the person or entity they have chosen as their Trustee. It is private since no court intervention or formal legal entity is involved in authorizing, creating or overseeing its operation. It is "Living" since the Trust is created currently and given life by providing it an asset to own. Typically, the asset it owns is an initial funding of $20.00. By funding the trust it is legally in existence and has "life". Once created the Trust can be made the owner of all of a person's assets, so that at the time of death, the person owned no assets in their own name, and therefore has no need for Probate Court involvement. The Trust would name the creator or Grantor as the sole Trustee. By doing this only the Grantor would have control over the assets during his or her lifetime. The trust would be drafted to allow the Grantor to have exclusive rights to the assets placed in the trust, and upon the Grantor's death, the assets will pass (without Probate Court intervention) directly to the people named as beneficiaries. A related benefit to this type of arrangement is that should the beneficiaries be young, the Trust can provide terms under which assets for young children can be held until they attain a more mature age. While we typically refer to this type of arrangement for single people, the same techniques can be used for married people by creating a joint trust, so that upon the passing of the survivor of the spouses the assets will fully avoid Probate. During lifetime, the only change required is that the name on the various assets (bank account, stock brokerage accounts, real estate, etc...) be changed to reflect the Trust ownership. Bank accounts and other assets would no longer have an individual's name on it, but rather, would have the Trust's name, such as the "John Jones Family Trust" rather than "John Jones", individually. The income earned would be taxed as it always had been taxed, using the individual's social security number as the identifying number for the Trust. For married couples with substantial family assets (over $600,000) the funded Living Trust, in addition to avoiding Probate, is used to help defer or eliminate the impact of the federal estate tax upon the death of one or both spouse's. The very simple Living Trust that Please note: Seek the advice of an attorney where these legal issues are concerned

5. we would use for Probate Court avoidance purposes would be tailored to capture the various allowable tax benefits. These tax motivated trusts are commonly referred to as Credit Shelter Trusts, Qualified Terminal Interest Property Trusts (Q-Tip) or A-B Trusts. By creating and funding the private Living Trust you afford yourself maximum flexibility in controlling your family assets during your lifetime while avoiding the expense and delay associated with Probate Court involvement in passing your assets to your heirs after you have passed away. Living Trusts - Why and When? The Living Trust has become almost synonymous with Estate Planning. The Trust is a private contract between the person or persons creating it and the person or entity they have chosen as their Trustee. It is private since no court intervention or formal legal entity is involved in authorizing, creating or overseeing its operation. It is "Living" since the Trust is created currently and given life by providing it an asset to own. Typically, the asset it owns is an initial funding of $20.00. By funding the trust it is legally in existence and has Please note: Seek the advice of an attorney where these legal issues are concerned

6. "life". Once funded the trust can serve many family and estate tax planning needs since it is capable of receiving assets at anytime, whether during lifetime or at death at the direction of your Will, and the Trustee will hold, manage and distribute these assets based on the rules you have established in creating this private contract/trust. There are many reasons why utilizing a Living Trust can fit into your family and estate planning needs. Many young families with minor children have life insurance policies which would create substantial cash should both parents pass away in a common disaster. For families with a special needs child, it is often preferable that assets not be left outright to the child, but rather, they should be left to a trust for that child's benefit, to supplement any other financial resources that the child may be receiving. Similarly, in families where a child has a substance abuse problem the parents may want that child's inheritance to pass to their trust to be held for that child's benefit for some period of time. One opportunity afforded by a Living Trust is that it can receive and own assets at anytime. While most families elect not to have assets (other than the initial $20.00) pass to the trust during their lifetimes, there are occasions where it is appropriate to fund the trust during your lifetime with virtually all of your assets, in an effort to avoid the assets having to pass through the Probate Court at the time of your death. For people with substantial family assets (over $800,000 including the value of insurance policies) the Living Trust is used to help defer or eliminate the impact of the federal estate tax upon the death of one or both spouses. The very simple Living Trust that we would use for the young family is tailored to capture the various allowable tax benefits. These tax motivated trusts are commonly referred to as Credit Shelter Trusts, Qualified Terminal Interest Property Trusts (Q-Tip), A-B Trusts or Charitable Remainder Trusts. By creating the private Living Trust you afford yourself maximum flexibility in controlling your family assets for the benefit of your heirs after you have passed away and where possible maximizing the available estate tax benefits. Please note: Seek the advice of an attorney where these legal issues are concerned