Estate Planning
1. What is a will?
A will is simply a document, executed according to state law, which provides for the disposition of your property at death. It allows you to control who gets your property. Without a will, a state statute will control where your assets go. Until your death, a will is not enforceable and can be revoked or altered.
2. What is a trust?
A trust is a document, effective immediately, which creates a separate entity to hold title to your assets. Trust assets do not require probate because the trust never dies. That is the reason that so many people choose trusts in order to avoid a probate proceeding. In addition to determining who gets your assets at your death, a trust can also help manage your assets in the event you become incapable of handling your own affairs. In essence, a trust allows you to pre-probate your estate.
3. Do I need a will or a trust?
It depends on your individual circumstances. Both are highly effective for transferring your assets to the appropriate parties at death. A will is generally less expensive to draft, but more expensive when the eventual probate is factored in. A trust, however, can do the same things as a will, but can also help manage your property outside of the courts in the event you become incapacitated. In addition to the privacy of a trust, which does not have to go through the courts, a trust also allows you to pre-probate your estate. Because more of the work is done up front, a trust can be more expensive to establish, but is typically less expensive in the long run. Either can be drafted to minimize estate tax consequences.
4. What is probate?
Probate (or "estate administration") is the court proceeding that allows all of your debts to be settled and the remaining property to be distributed to your heirs. A probate will be necessary if a person dies without a will or with a will and owns property in his individual name. A will always requires probate to be effective. However, a probate is only effective to transfer property titled in a person's name at his or her date of death. Therefore, if an asset either passes through joint tenancy, beneficiary designations, pay-on-death designations or was owned by a trust, a probate would not be necessary as to that asset.
5. How are death taxes assessed?
Death taxes can be assessed both at the state and the federal level. Although the rules are extremely complex, in general, your estate is subject to federal tax if your gross estate exceeds $3,500,000.00 (for deaths in 2009). The tax rate is 45%. The gross estate typically includes anything in which you had an ownership interest, including the death benefit of most life insurance policies, all retirement plans and IRAs. Kansas imposes a minimal estate tax on estates in excess of $1,000,000.00.
6. Can death taxes be reduced?
The estate tax code is extremely complex. However, three fundamental pillars allow for significant potential reductions in estate tax liability. First, spouses can transfer to each other an unlimited amount of money or assets either during their lifetimes or at death without any taxes being assessed. Second, each person is allowed to transfer at death property up to $3,500,000.00 to a non-spouse prior to federal estate tax being assessed. Third, the gift tax rules allow gifts in the amount of $13,000.00 per donor per donee per year. Using these three ideas, significant reductions in estate tax can be achieved. However, it is crucial to consult with attorneys who practice specifically in this estate planning area.
7. What is a durable power of attorney for financial decisions?
A durable power of attorney for financial decisions allows the holder to conduct business for the named party. This document can either be effective immediately or upon the happening of some event. The holder of a durable power of attorney could pay bills, sell property, and generally manage someone's financial affairs if granted the authority in the document. A power of attorney is "durable" if specific language is included that allows the power of attorney to remain effective upon incapacity. All powers of attorney, however, are terminated automatically at death.
8. What is a durable power of attorney for health care decisions?
A durable power of attorney for health care allows another individual to make medical decisions for you. It is only effective if you are legally incompetent. Having a durable power of attorney can help avoid the necessity of a court-appointed guardian.
9. What is a living will?
A living will, known as a declaration in Kansas, provides that if you have an incurable and terminal injury, disease or illness certified by two physicians, you do not wish to be put on or remain on life support. This document is simply a statement of your wishes and helps guide your caregivers in the event of a catastrophic event. The living will does not, however, prevent initial emergency treatment or the giving of pain relief medication.
10. What is a Do Not Resuscitate Order?
A Do Not Resuscitate Order ("DNR") is a physician's order usually executed in the terminal stages of the disease or injury. It is the physician's order to other medical care providers not to resuscitate the patient in the event of a cardiac arrest. You cannot prearrange a DNR, as it is issued only by a physician.