FAQ
1. ESTATE TAX UPDATE: STAY TUNED!
In December 2010, Congress voted to raise the federal estate tax exemption to $5,000,000 per person, but this exemption is only in place for deaths which occur in 2011 or 2012. Just as important as this change is the change in the federal estate tax rate, from 45% to 35%, and this rate change (as much as the increase in the exemption) presents opportunities for gifts and other planning in 2011 and 2012 which may not recur when Congress re-addresses the issue of estate tax in 2012 or 2013. Please stay tuned on this issue, and contact me with an update about your specific situation if you have questions.
2. What is a Revocable Trust?
A Revocable Trust is sometimes known as a "Living Trust" and this is often used to avoid the probate process at death. There are other reasons to use a Revocable Trust, including maintaining privacy. For example, if at death you do not have a Revocable Trust then your assets are transferred after death via the probate process which requires that your original Will is submitted to the courthouse, including information such as the names, addresses, ages, and shares for your beneficiaries including family members. Many would like this information to remain private, and it remains private and does not become part of the public record at the courthouse by having all of your assets at death owned by a Revocable Trust, or by having assets transferred at death to the Trust via beneficiary designations including "pay on death" (POD) for bank accounts or "transfer on death" (TOD") for brokerage accounts and mutual funds.
3. Doesn't the cost of a Revocable Trust exceed the filing fees saved during the probate process?
The costs avoided or reduced by having a Revocable Trust which owns all or most of your assets at death include: (a) court filing fees and (b) legal fees. For example, in Fairfax County, Virginia, the probate filing fees which are charged in order to begin the probate process are 1/10 of 1% of the gross value of your assets, measured at the date of death (NOT the net value of the assets after subtracting for debts). These filing fees can be high and are completely avoided by having assets owned by a Revocable Trust before death. In addition, the probate process cannot be completed until several other items are filing with the local Commissioner of Accounts, including an Inventory (which reports the nature and value of all estate assets) and Accounting (which reports transaction-by-transaction all of the activity in the estate, including debts, payments to beneficiaries, income, etc.). The Inventory and Accounting are most often prepared by my law firm and depending on the size and nature of the estate, can be either very simple or very difficult to prepare and file. The answer to the question of whether a Revocable Trust makes sense for a particular client is that for most people, including particularly those with wealth who prefer their wealth to not be disclosed on the courthouse records via the probate process, a Revocable Trust makes a lot of sense, both in terms of costs/fees saved at the courthouse, and in terms of privacy.
4. What is a "pourover" Will?
A pourover Will is often done at the same time as a Revocable Trust (see question #1 above). A pourover Will gives all of a decedent's assets which are not already in a Revocable Trust by the time of death, to the Trust. Probate is avoided on assets in the Trust by the time of death, but other assets which are only in the name of the decedent (and not beneficiary-designated to the Trust or another beneficiary, via a POD or TOD designation) go through probate and get to the Trust only after the probate process.
5. What are the advantages of estate planning?
Estate planning is the orderly process by which you can plan how and when to leave your assets after death to your choice of beneficiaries. Every state has a "default" estate plan in the form of intestacy laws which specify who will inherit your assets at death if you die without having a Will and/or a Trust. For example, most states provide that if someone dies without a Will and is married, then the widow or widower will inherit all of the decedent's assets. If someone dies without a Will and does not leave a widow or widower, then all assets are given to the decedent's children in equal shares. If someone dies without a Will and does not leave a widow or widower, or any living children or other descendants such as grandchildren, then more remote relatives will inherit the estate (for example, living parents if any, and otherwise siblings, etc.).
An unusual twist on the intestacy law is that in Virginia, if someone dies without a Will and leaves a spouse plus children by a relationship other than that spouse, then 1/3 is inherited by the spouse, and 2/3 by the decedent's children. This result can be avoided by having a Will and/or a Trust.
6. What are the fees associated with estate planning?
My law firm bills for all estate planning work on a flat-fee basis, if new Wills, Trusts, Powers of Attorney, and Living Wills (Medical Directives) are being signed for the first time at my firm. Please call or email me to obtain a fee schedule (my standard rates change each January 1). If documents such as Wills, Trusts, Powers of Attorney, and Medical Directives are being revised, then usually my hourly rate will apply for any changes, since those changes almost always cost less than the cost of preparation of new documents.