1.What is the difference between a living will and a living trust?
These two very important estate planning devices are quite different from each other but serve similar purposes. A living will lets you manage your health-care decisions in case you become incapacitated. A living trust lets you manage your property in case you become incapacitated.
A living will is not actually a will at all. It is a legal document that becomes effective if you become so ill or injured that you can't make responsible health-care decisions for yourself. It lets you approve or decline certain types of medical care in advance, even if you die as a result.
A living will is allowed only in some states. If you don't live in one of those states, you may be able to accomplish the same goal using a durable power of attorney for health care, health-care proxy, or Do Not Resuscitate order.
By comparison, a living trust is just what it says. It is a revocable trust you create while you are living. You transfer property to the trust, and the trust then "owns" it. You name yourself as trustee and someone else as a successor trustee. You manage the property in the trust unless you become incapacitated (or until you die), in which case your successor trustee automatically steps in to continue managing the property for you.
2. What is probate and why would I want to avoid it?
Probate is the court process of proving a decedent's will and/or supervising the administration of a decedent's estate. This process takes place in the probate court, which is a special court designed for this function. State law governs the proceedings in the probate court, so they vary from state to state. Generally, however, probate proceedings are initiated when someone petitions the court. If there is a will, the petitioner must first prove that the will is valid. The court then watches over the executor while he or she settles the estate. If there is no valid will, the court appoints an administrator to settle the estate.
Why would you want to avoid probate? Because for some estates, it may be a time-consuming, costly, and public procedure.
The entire process can take as little as three months or as much as two years (or longer if there is litigation). During this time, assets cannot be distributed to your heirs. These assets may lose value during this time, or your family may suffer because they cannot reach the funds they need for their support.
Probate costs may consist of court costs, publication costs for legal notices, attorney fees, executor fees, bond premiums, and appraisal fees. The total cost for probating an estate can range from $250 to $10,000 (or more if there is litigation). Because probate costs are paid for by your estate, this money does not go to your heirs.
Finally, probate is a public process that makes your will a public document, open to anyone who wants to see it. Your private affairs are no longer private.
On the other hand, there are good reasons for an executor to use the probate system. Probate may make sense in the following situations:
When the will is confusing, especially if there is a question about who is to pay the taxes
When it can't be determined which will should be probated
When the estate is insolvent
When there is disagreement among the beneficiaries or they impede the process in some way
3. What will happen if I die without a will?
Some people leave instructions about who gets what property in a legal document known as a will. If you do not have a will, you leave no legal instructions about how your property is to be distributed to your heirs.
The state then steps in and dictates how your property will be distributed. The state does this by following laws known as intestacy laws. Each of the states has adopted its own intestacy laws, so the pattern of distribution varies from state to state. However, a typical pattern may be that half of the property goes to the spouse, and the other half is split equally among the children.
The major disadvantage of this is that your property may not be distributed according to your wishes.
There are other drawbacks to this situation, as well. Instructions about other special matters, such as who will settle the estate or who will take care of minor children, are also left in a will. If you do not have a will, these matters will also be determined by the state. Although the state will do what it thinks is in the best interest of your family, its actions may not be consistent with what you would have wanted.
4. Do I need an attorney to prepare my will?
Legally, no. Practically speaking, yes. A will does not need to be prepared by an attorney for it to be legally effective. A will that you draft yourself, or even a printed will form purchased in an office supply store, will be legally effective if you are of legal age in your state (i.e., 18), are mentally competent, and execute the will properly. This means the will must be acknowledged and signed by you in front of witnesses. The required number and age of the witnesses varies from state to state, though two witnesses who are at least age 18 is typical. In addition, the witnesses should not be anyone who will benefit under your will. Some states also require that a will must be notarized to be legally effective.
However, most people feel uncomfortable with a do-it-yourself will. They generally have some questions that should be addressed by an experienced estate planning attorney. In addition, some people have more than just basic concerns or are in complex situations where drafting the will properly is vital. Legal assistance can help ensure that your intentions are clearly communicated and no questions exist at the time of your death. You should also seriously consider professional assistance if your personal situation includes concerns such as:
You have minor children, children from a prior marriage, or a beneficiary with special needs
You own significant assets and are concerned about minimizing estate taxes at your death
You want to achieve certain goals, such as controlling the management and distribution of your property after your death
You have heirs you wish to disinherit, or there is a chance your will may be contested after your death
5. What is the difference between a power of attorney and a durable power of attorney?
A power of attorney can be broad or limited. Since the power-of-attorney document is tailored for its specific purpose, your agent cannot act outside the scope designated in the document. For example, you may own a home in another state that you want to sell. Instead of traveling to that state to complete all the necessary paperwork, you can authorize someone already in that state to do this for you. When the transactions to sell the home are complete, the agency relationship ends, and the agent no longer holds any power.
A regular power of attorney ends when its purpose is fulfilled or at your incapacity or death.
A durable power of attorney serves the same function as a power of attorney. However, as its name implies, the agency relationship remains effective even if you become incapacitated. This makes the durable power of attorney an important estate planning tool. If incapacity should strike you, your agent can maintain your financial affairs until you are again able to do so, without any need for court involvement. That way, your family's needs continue to be provided for, and the risk of financial loss is reduced. A durable power of attorney ends at your death.