• Estate Planning: Questions and Answers
  • July 24, 2007
  • Law Firm: Boardman Law Firm LLP - Madison Office
  • 1. What is an estate plan?

    An estate plan is a comprehensive set of documents designed to provide for the management and disposition of your assets if you die or become incapacitated. Typically a will or other dispositive instrument, like a revocable living trust, is the centerpiece of an estate plan. An estate plan will also include other documents—for example, a marital property agreement (if you are married), beneficiary designation forms, and powers of attorney. An estate plan will help you implement the following objectives:

    • An estate plan will help you control how your assets are distributed on your death. It allows you to provide for family members, including minor children and those with special needs. Your plan can provide for gifts to charities, friends, or others. If you own a business, your estate plan will help you address the many complicated issues in transferring your business to your intended successors.

    • An estate plan will help you save or even avoid taxes, including gift and estate taxes, income taxes, and other taxes that may apply to your estate.

    • An estate plan will help you plan for temporary or long-term incapacity through the use of trusts or powers of attorney, including powers of attorney for health care.

    • An estate plan will help you plan for retirement, through planning for distributions from qualified plans such as 401(k)s and 403(b)s, and IRAs.
    2. What happens to my assets if I don't have an estate plan?

    If you have no estate plan, you cannot control how your assets are managed or distributed if you die or become incapacitated. If you die without a will or other dispositive instrument, like a trust or marital property agreement, your estate will be distributed to your heirs at law, or other default beneficiaries.

    If you become incapacitated and have not appointed a trustee or agent under the power of attorney to manage your assets, your family may have to petition a court to appoint a guardian for you. The guardianship process can be costly. It can be easily avoided by planning.

    Additionally, if you die without an estate plan, your family may be faced with very substantial taxes that could have been avoided with simple planning.

    3. My estate plan is simple. Can't I just get a will?

    While a simple will alone may be sufficient in certain circumstances, in most cases it is not. Many assets (e.g., joint assets, survivorship marital property, life insurance proceeds, IRA proceeds) are not governed by a will. You should consider how all of your assets will be transferred, not just those governed by your will. Your estate plan may not be as simple as you expect.

    If you have a taxable estate (i.e., one that exceeds the applicable exclusion amount discussed in Question 6 below), or if you anticipate that you may have a taxable estate in the future, you may also want to consider sophisticated estate planning techniques, such as a credit shelter trust, a lifetime giving program, charitable trusts, or an irrevocable trust.

    4. Should I have a "living trust"?
      A living trust is a revocable trust designed to hold your assets. A revocable trust has both advantages and disadvantages, however, and is not the best option for everyone. We will be pleased to discuss these trusts with you in more detail.
    5. How are my assets taxed?

    Your assets may be subject to federal transfer taxes when you transfer them. The primary transfer taxes are the federal estate tax and the federal gift tax.

    The federal estate and gift tax system is a "unified" system. That means that the gift tax (which applies to lifetime transfers) and the estate tax (which applies to transfers on death) are interrelated. Taxable gifts you make during life can affect the amount of estate tax your estate will pay on your death. It is important to coordinate any lifetime giving program with planning for estate taxes.

    If your estate exceeds $1 million, it could become exposed to an additional federal transfer tax, the generation-skipping transfer tax. This is a complex tax that provides both opportunities and challenges.

    6. Can I avoid these taxes?

    Our attorneys can help you take advantage of the following important exemptions from the federal transfer tax:

    • You can give $11,000 per year to any donee without any transfer tax implications.

    • You can pay tuition directly to an educational institution or pay certain medical expenses without any transfer tax implications.

    • During your life or at your death you can transfer to your spouse assets of any value without any transfer tax at all.

    • You can transfer an unlimited amount to a qualified charity without paying any transfer tax.

    • You have a one-time exemption from the gift and estate tax for all transfers made during life or at death that are not sheltered by other exemptions or exclusions. This one-time exemption is called the applicable exclusion amount.

    • The status of the transfer tax remains uncertain. Under current law, the applicable exclusion amount for the estate tax increases according to a schedule. The estate tax is repealed for one year, in 2010, and reinstituted thereafter. The applicable exclusion amount for the gift tax remains fixed at $1 million through 2010 and after. Whether these exclusions remain in effect and whether the estate tax will in fact be repealed in 2010 is uncertain.

    • Our lawyers can assist you in structuring a plan within the available exclusion amounts, even in light of current uncertainty, to minimize or eliminate transfer taxes in your taxable estate.
    7. What assets are included in my "taxable estate"?

    The limits discussed in the section above sound large, but as a practical matter they offer less protection than most people think. This is because your taxable estate consists of the value of virtually all assets that pass by reason of your death. Such assets include:

    • Real estate
    • The face value of all your life insurance
    • Deferred compensation and IRAs
    • Stocks, bonds, and related investments
    • Closely held business interests, and
    • Tangible personal property, such as automobiles, artwork, and antiques

    When you total the value of the assets in your taxable estate, you will probably find that the value is higher than you anticipated.

    8. How much will an estate plan cost to prepare?

    You may pay for your estate plan either on an hourly rate basis, or by paying a fixed fee. In either case, the cost will vary, depending on how extensive your estate planning needs are. In most cases, without obligation to you, we will give you an estimate of the total costs or agree to a fixed fee before we prepare your estate plan.

    If you have a taxable estate, your family can save many thousands of dollars through proper estate planning. Even if your estate is not subject to estate taxes, an estate plan can save income taxes. It also permits you to plan for your disability or death and avoid the time and expense of future proceedings.

    9. Will a fixed fee cover all matters relating to my estate plan?
      Typically, a fixed fee will cover all our services in drafting and helping you complete your estate planning documents. It will also cover our services in attending to other ancillary matters, such as completion of beneficiary designation forms for your insurance policies or employee benefit plans.
    10. Do I have to pay my entire bill all at once?
      Typically, our bills are due and payable within thirty (30) days of receipt. However, we do offer an installment payment plan that many clients prefer. Under this plan, you pay your bills over time, paying ten percent (10%) of the bill (or more at your option) each month. Under the installment plan, you are charged interest at a competitive rate of 12% per year. We also accept major credit cards.
    11. Once my estate plan is in place, how often should I update it?
      An estate plan is like an investment plan. It changes as your circumstances, your needs, and the laws change. We typically advise clients to have their estate plans reviewed every five years.
    12. Why should I consider Boardman attorneys for my estate plan?
      Estate planning is complicated and highly technical. Boardman Law Firm has been a leader in this area for many years. We are active at the state and national levels in organizations that not only follow but also help to shape the law in this area.
    13. How do I get started?
      As a first step, one of our attorneys will use a questionnaire to ask you for information about your assets, your family, and your planning objectives. Your attorney will then prepare a financial balance sheet. Your responses to the questionnaire and the balance sheet will guide you and your attorney in preparing your estate plan.