What is Estate Planning?
Estate Planning is commonly understood to be the process by which a client plans for the distribution of their assets upon their passing. It can also include disability planning. The client can be assisted in this process by advisors, including a lawyer, CPA and financial advisor. There are a multitude of documents that can be employed to achieve the client's estate planning goals. Estate planning laws vary from state-to-state and estate planning documents must comply with relevant state and federal laws. Estate planning also provides for the proper and efficient administration of the estate or trust after the client's death.
What is the process of estate planning?
Complete the Estate Planning Questionnaire and deliver the completed document to Mr. Babirak before the initial consultation. Remember that this document has important and confidential personal and financial information. Please do not email this unless you encrypt it.
Meet with Mr. Babirak for your initial consultation. This meeting will cover: the facts as substantially set out in your completed questionnaire; how you want your property to pass on your death; and legal fees for this work.
After the initial consultation, Mr. Babirak will prepare the first draft of your estate plan. He will encrypt this first draft and email it to you for your review and comment.Thereafter a second meeting will be scheduled to review and discuss the first draft and make any further changes.
Meet a third time to execute your estate plan before two witnesses and a notary public, as required by law.
What is the Difference Between a Will and Revocable Trust?
Most estate plans are comprised of a number of documents: (1) a will or a revocable trust with pour over will; (2) a durable power of attorney for financial affairs; (3) a durable power of attorney for healthcare; and (4) a form certificate of trust. Other documents may be included such as beneficiary designation forms, post mortem letter, etc.
A prospective client needs to decide whether their estate plan should include a will or a revocable trust with a pour over will. Some prospective clients may not know the differences between the two and a review of the pros and cons of each can be helpful. Statistically, it appears that in Virginia far more estate plans are comprised of a revocable trust and pour over will, not a traditional will. The review below of the pros and cons of each is necessarily informal, partial and summary and should not be used as a substitute for a thorough discussion of the topic with legal counsel.
Will: Because of their long history, wills are generally well understood. A will is a public legal document that determines and coordinates the distribution of a person's assets after death. The person who makes a will is the testator. The person listed in the will as the executor will go to court after the decedent's death to probate the will. Wills must be probated in a local circuit court and this can take several months or even up to a year. The persons receiving distributions under the will are called beneficiaries.
A Will can be very helpful in the case a decedent's estate is contested. In such a case, the executor's actions in probate are approved by the Commissioner of Account and this affords some protection to the executor. On the other hand, the most commonly voiced concern about wills is that wills have to be probated and this can be difficult, take a lot of time, and result in greater legal fees.Also, wills offer no opportunity for disability planning. They are public documents, available to all after probate.
Revocable Trust: A revocable trust is a legal document that determines and coordinates the distributions of a person's assets after death, but also determines how a person's property is used for their care and support if they become disabled. The maker of a revocable trust ("Settlor" or "Grantor") makes a trust that reads like a will in distributing the Settlor's assets in the trust after the Settlor's death or disability. During the Settlor's lifetime, the Settlor transfers all of his assets to the revocable trust or designates the trust as the designated beneficiary of assets. The Settlor is named as the beneficiary of the trust during his lifetime and disability and his descendants are named trust beneficiaries on his death. The trust has a provision that identifies a successor trustee upon the Settlor's passing. Frequently, this is a spouse, child or bank.The revocable trust only works for assets in the trust or assets with the trust as a designated beneficiary.
The primary advantage of a revocable trust is to avoid the difficulties, time and expense of probate. The savings can be significant. Also, the trust is private, unless contested, and provides a better way to take care of the Settlor if disabled. Another advantage of a trust that is not discussed much but can be very important for clients who want to reduce the workload of their children or others is that there is a lot less for the successor trustee to do than in the case of an executor under a will.
The difficulties of a trust are that they are administratively more complex and the client has to understand the process. This may not be possible for the very elderly or disabled. It is also necessary in the case of a trust that the Settlor transfer his assets to the trust during his lifetime. This takes some time but saves the successor trustee a lot of work.