Frequently Asked Questions
By: Morris Law Group Newsroom Staff - July 22, 2019
The following are a few questions we've heard recently from our clients. Feel free to send us your burning questions on estate planning and wealth preservation and we'll feature them in upcoming issues of Your Monthly Wealth Preservation Update. Please contact us with your important questions.
What happens if you die without a will?
This is probably one of the most common questions we hear at the firm. If you don’t have a will when you die, also known as dying “intestate,” you would be subject to the intestacy laws of the state in which you live regarding how your property is distributed. This property includes your bank accounts, investments, real estate and other assets you own at the time of your death. Any real estate you own outside of the state in which you reside is subject to the intestacy laws of that state where the property is located. Intestacy laws vary from state to state and whether you are single, married or had children. In many cases, if you die without a will, your property will be distributed in split shares to your heirs, including your spouse, parents, siblings, and other relatives. If no relatives can be found, your entire estate would go to the state.
Intestacy laws only recognize relatives, however, so if you are living with someone without being married, your partner can’t inherit your property unless you have a will that clearly states your intentions for dividing your property when you die.
If you’re worried about how your property will be divided when you pass away, contact us to speak to one of our attorneys about what might happen in your particular case. Our estate planning attorneys can help you draft a will and estate plan to make sure your wishes are clearly expressed, and your wealth is preserved for future generations. Contact us for more details today.
What is the estate tax exemption?
The estate tax exemption refers to the portion of your estate’s value that exceeds an exemption level. The exemption level is typically updated annually. For example, in 2019, the estate tax exemption level is $11.4 million per individual (or $22.8 million per couple). That means that an individual can leave $11.4 million to his or her heirs and pay no federal estate or gift tax.
Your “estate” refers to all the property you own, such as cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. The total of these items is called your “gross estate.” According to the IRS, once you have accounted for the gross estate, you are allowed certain deductions including mortgages and certain other debts, estate administration expenses, property that passes along to your surviving spouse and qualified charities and the value of some businesses. The estate tax is a tax on your right to transfer this property when you die; Currently, the federal estate tax is 40%. For tax purposes, the fair market value of these items is used to compute the estate tax (not necessarily what you paid for them or what their values were when you acquired them). The federal estate tax is computed by finding your net estate amount (the gross estate minus any deductions plus any lifetime taxable gifts) less the available unified credit amount.
Simple estates comprised of cash, publicly traded securities, small amounts of easily valued assets with no special deductions or elections or jointly held properties don’t require the filing of an estate tax return. However, a filing is required for estates with combined gross assets and prior taxable gifts exceeding $11.4 million per individual.
Estate tax planning can be quite complicated, with complex wealth transfer strategies to help you stay below the new threshold and avoid the hefty estate tax.
For more information about the estate tax exemption, be sure to contact us or request a consultation with one of our estate planning attorneys to help you design a customized wealth preservation strategy for your specific needs.
What are the essential estate planning documents?
Every estate plan should include a will/trust, durable power of attorney, beneficiary designations, a living will/designation of healthcare surrogate, and guardianship designations for your children. There are two types of estate plans – a will-based estate plan and a trust-based estate plan. If you have a will-based estate plan, the essential documents include a last will and testament, a living will and a durable power of attorney. Your last will and testament should contain a detailed list of instructions of how your property should be distributed after you die. If you have minor children, if should also contain provisions for designating a guardian for your children. A living will contains a set of instructions on whether you want to receive life-sustaining procedures if you have been diagnosed with a terminal condition or are in a persistent vegetative state, as well as guidelines for your family members to follow if you become terminally ill.
If you have the need for more sophisticated estate planning, a trust-based estate plan should contain a pour-over will, a revocable trust, a living will, a designation of health care surrogate and a durable power of attorney. A pour-over will catches the assets that you did not transfer into your trust prior to your death, and only contains minimal instructions for distribution of your assets, because the main estate planning document in this case would be a revocable living trust. A revocable living trust contains detailed instructions for covering what happens to your property while you are alive, what happens if you become mentally incapacitated and what happens after your die. Assets held in the name of your revocable living trust at the time of your death will avoid probate.
The designation of health care surrogate, also called an advanced medical directive, allows you to designate someone to make medical decisions for you if you are unable to make them yourself. It can also be used to designate someone to serve as your guardian if a court determines you to have become mentally incapacitated. With a durable power of attorney, you can name the person of your choice to manage your financial assets, including retirement plans, securities and other assets, and it also can be used to transfer assets into your revocable living trust if you become mentally incapacitated before the trust is fully funded.
Please contact us if you have any questions about the essential estate planning documents or to update your estate plan today.
How often should estate plans be updated?
We recommend that you review your estate plan regularly or at least once every three to five years, or when you have a significant change in your life (illness/injury) or experience a key life event. Contact your estate planning attorney to update your estate plan when you experience one or more of the following events: marriage or divorce, purchasing a new home or other large asset, illness or disability of yourself or your spouse, the birth or adoption of a new child or grandchild, funding a child’s or grandchild’s education, if there is a death or change in circumstances of the guardian named in your will for minor children, if there is a change in the number of your dependents, if you (or your spouse) receives a large inheritance or financial gift, if you or a family member becomes ill or disabled, if you open or close a business or if there is a death or change in circumstance of your executor or trustee.
Be sure to contact us to discuss any changes needed in your estate plan with one of our estate planning attorneys.
What's the difference between a will and a trust?
Everyone has heard the terms “will” and “trust,” but you may not understand the difference between the two. Both a will and a trust are legal documents that state your wishes as to who should receive your property at your death and appoint a legal representative to carry out your wishes. A will (also known as a last will and testament) is created before you pass away and only goes into effect after you die. A trust goes into effect as soon as you create it. A trust is a legal document through which a person (or institution such as a bank or attorney), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” With a trust, you can begin distributing your property (cash, real estate or other assets) before your death, at death or afterward to your beneficiaries.
Contact us for more details about whether a will or trust is right for your situation or to help you set up or amend your estate plan today.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.