by Jonathan Curshen
No one likes to think of his own demise. But in reality, where I virtually think we are, none of us are immortal. Few of us wish to take on the task of estate planning, not only due to the unpleasantness of thinking of our own eventuality, but there is the additional burden of having to sort through the jungle of unfamiliar terms and concepts.
In certain circumstances, such as the Terri Shiavo case of a few years back, there appears to be events worse than death: the possibility of some horrible accident leaving one incapacitated, a potential long term burden for someone else to bear. By not planning ahead, you serve to make what would be undoubtedly a very difficult time for your loved ones even more difficult by forcing them into positions that are nearly impossible to handle deftly.
When you create for yourself or a loved one a will or an estate plan, I can promise you this: that in a time when you are unable to ease the sorrows and the burdens of family and close friends, you will have already done so by alleviating the responsibility of making some of the most difficult and challenging decisions anyone will ever make. Additionally, this relief will come at the specific time these decisions are the most difficult to make.
As to winding one's way through a maze of unfamiliar concepts and legal mumbo jumbo, the purpose of this article is to define some of the basic terms and concepts and examine some of the more effective approaches to estate planning.
Fundamentals of Estate Planning
An estate is the sum total of one's assets and liabilities upon his or her death. Estate planning is a process of planning out exactly what portions of the estate go to which heirs. It can be a very simple or a rather complicated endeavor depending on the size of the estate and how the grantor (deceased) wishes to distribute the assets upon his or her death.
A will is a legal statement of exactly how one's estate will be passed along to his or her heirs, With respect to estates and probate, there are only two ways one can die: with a will or without a will (also referred to as dying intestate.)
If one dies intestate there is not much that can be done by the heirs as most jurisdictions have already done their estate planning for them. This planning usually includes payment of any creditors, funeral and hospital expenses, and a healthy portion to go to that particular jurisdiction by way of probate fees and applicable estate taxes. Depending on where one dies there already exist laws that determine who in the family is entitled to what portions of one's estate.
The laws are generally only applicable over a certain minimum estate value, and then have predetermined percentages for proportioning the estate according to family relations. For example, in some states everything goes to the surviving spouse, or it may all go to the children, or it could be proportioned between.
At first look this might appear fairly simple and a reasonable way to go, but when you stop to consider all the divorces and children of multiple sets of parents, adoptions, etc., it can all very quickly become quite a mess. The simple way out is to take the time to set up a proper plan of action should anything happen.
There are various methods by which property can be transferred upon one's death and at the same time avoid having to go through the probate process. Property can be titled (whether it be real property, securities, or bank accounts) so that upon the death of a principle owner it is transferred to a beneficiary. If there is a joint owner, property may become the exclusive property of the surviving joint owner. Such methods of titling the property are: joint tenancy in common; T.O.D., transfer on death; or P.O.D., payable on death, and are fairly simple methods of transference upon the event of one's death.
In some jurisdictions where community property laws are applicable, when one spouse dies the surviving spouse becomes the owner, which has the effect of continuing the uninterrupted the ownership of the property. Joint ownership title may allow creditors of spouses and joint tenants in common to use the property to satisfy a debt. Thus, other factors and laws affect intended transfer or ownership of the property. For these and other reasons, wills and trusts are far better methods used in estate asset protection and are often most effective when used in combination.
Titling certain property in such a manner as to transfer the property at the time of death is an effective method to avoid probate and make a smooth, prompt transfer of property. Wills are an all-encompassing method of transference of estates. But by far the surest and most effective method of avoiding probate and making a prompt, smooth transition of title is through the use of trusts, which is after all, the primary reason for their existence.
Trusts and Wills: Their Uses and Differences
Few people are actively engaged in the use of trusts, and you may have heard many variations of the definition, I would like to clear this up: a trust is a trust. They do not all function the same, and some are better suited for certain tasks than others, but their basic structure is the same. A trust is really nothing more than a relationship between certain parties. Certain clauses or characteristics of trusts can make them very well suited for specifically selected objectives and not for others.
Simply stated, a trust is a legal instrument through which an individual (or other legal entity such as a corporation) conveys legal title of property to another person (or entity) to administer for the benefit of a beneficiary (or beneficiaries) named in the trust documents.
The jurisdiction, state, or country in which the trust is established and the objectives for establishing the trusts are the determining factors of some of the specific benefits when forming a trust.
Trusts were born out of a need to pass substantial estates to heirs and charitable organizations without losing large portions to the state. Since their conception they have evolved into a legal instrument that has almost as many different forms as there are uses. However defined, trust functions are still primarily for estate planning and asset protection.
A will is a legal declaration of a person's decisions as to the manner in which they would dispose of his estate upon death. It is more limited in scope and is often the instrument through which a trust is defined, funded, or established.
When dealing with estates of substantial value with numerous divisions of the estate and a contingent of heirs, a will can become quite a lengthy and cumbersome document. A combination of methods such as specific titling of the property along with the use of a trust may best facilitate a smooth transition of assets with a minimal loss of assets to tax, and without an excessive delay due to probate.
In addition to distributing or transferring property, a will may have other functions, i.e. to create a trust on behalf of children or others, naming a guardian for any minor children, or appointing a personal representative or "executor" to handle the estate and other matters from death until an estate is settled.
Living Wills vs. Living Trusts
There are two forms of trusts in respect to the death of the grantor: inter vivo and testamentary. Inter vivo is a Latin term applied to a trust created while the grantor is living, thus the name "living trust." A testamentary trust is written prior to the death of the grantor but only goes into effect immediately upon death of the grantor. Effectively the grantors death "triggers" the transfer of assets to the trustee(s) in essence creating the trust at that moment. This creates a very effective means of transferring assets while avoiding probate and any undue confusion.
Other Considerations
An important but often overlooked part of estate planning is the need for a formal review of the will from time to time to update the needs of the grantor with the ever-changing status of the family.
Wills are not documents that should be written and forgotten about, especially when created early on in life. Often times after drafting a will families change due to births, deaths, divorces, adoptions, and other unforeseen events. The financial status of the person who created the will may have changed also. It is therefore recommended that periodically one should take the will to an attorney or advisor and go over it for any changes that have occurred. This is the time to make any changes required to ensure that the will is current with the signer's latest wishes.
For those who have sufficient liquid assets to meet all of their foreseeable needs and extra for unforeseeable events, they may wish to begin giving some of their estate to their heirs prior to their demise. Property given away in advance is not a part of the estate upon their death.
There are several methods of gifting to avoid probate and save on taxes for a selected portion of the currentestate. One method is to simply give away portions of the estate prior to your death. In the United States you are allowed to gift up to $11,000 per year per recipient before any applicable taxes are incurred. Most jurisdictions allow certain amounts to be given away annually. There are certain other specifics to this gift law which allow for cumulative amounts over a period of years.
An insurance policy in the name of one your heirs or in the name of a trust will not be taxed under your estate,since it is not yours. Most people are not aware that proceeds of a life insurance policy can be part of the deceased person's estate.
Concluding Thoughts
This is only a small sprinkling of the key concepts and basic techniques involved in estate planning. I hope that I have at least provoked enough thought to motivate you to become proactive in taking the appropriate steps toward assessing you and your family's needs and drawing up the best possible combination of instruments to properly address any eventualities.
At the very least, review your will later today. Don't have one? Call your lawyer and have one created. It's much cheaper now than later. If you have any questions, we'd be happy to help. Our firm works with lawyers and estate planners to form the best possible structures to keep your assets safe and in the hands of you and your family. We are specialists in wealth preservation and international asset protection.
Bio: Jonathan Curshen is a Certified Trust and Estate Planner (CTEP) and is recognized as an expert in international asset protection and estate planning strategies. He specializes in trusts, foundations, international business corporations, worldwide investing, and global banking. Jonathan Curshen is a member of AOA (The Asia Offshore Association), ITPA (The International Tax Planners Association) IFA (International Fiscal Association), IOD (Institute of Directors), TOI (The Offshore Institute), RSOF (Royal Society of Fellows) and is a featured speaker at countless seminars around the world. To find out more about any offshore investing, trusts and foundations, or to set up any kind of asset protection structure, please call for a FREE Report "Setting up an asset protection trust," or drop an email to the author at jonathan@investoffshore.com or call +1-800-315-4269
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
