Planning Your Estate – A Step By Step Approach

IV. Other Estate Planning Documents That Should Be Considered


A. Revocable Inter Vivos Trust.

A Revocable Inter Vivos Trust (also commonly known as a Living Trust) is an instrument that should be considered for at least two reasons. First, a funded Revocable Trust avoids probate. For example, if Jacob has assets of $1 Million and transfers all of his assets into a Revocable Trust, then upon Jacob’s death, the assets included in his Revocable Trust will not be included in his probate estate. As a result, in certain circumstances probate fees can be saved. However, a Revocable Trust does not have any estate tax benefits that are not otherwise obtained by using a Will.

Second, a Revocable Trust should also provide that in the event the person creating the Revocable Trust (the “settlor” or “grantor”) becomes incapacitated and is unable to take care of his or her financial affairs, the successor trustee named in the Revocable Trust (typically a family member or institutional trustee) will use the assets in the Revocable Trust in order to provide for the health, maintenance and support of the settlor.

The Revocable Trust should provide that upon the death of the settlor, the assets remaining in the Revocable Trust should be distributed to the settlor’s beneficiaries in a manner similar to the distributions that would be made using a Will. The settlor can be the sole trustee of the Revocable Trust during his or her lifetime or may serve with his or her spouse, a trusted friend, relative or family advisor or a financial institution.

Due to the probate avoidance benefits of a Revocable Trust and the fact that a Revocable Trust can provide for the maintenance of the settlor in the event of the settlor’s incapacity, thereby possibly avoiding the need to have a guardian appointed to take care of the settlor, a Revocable Trust should be considered by anyone in their retirement years. A typical estate plan using a Revocable Trust should also include a short Will (a “Pour-over Will”), which controls the distribution of any probate assets. Typically, the Pour-over Will provides that any probate assets would “pour over” into the Revocable Trust and would be distributed in accordance with the terms of the Revocable Trust.

B. Durable Power of Attorney.

A Durable Power of Attorney is a document that all persons should consider in their estate plans no matter what age, but which is particularly important for those of retirement age. Essentially, the person giving the Power of Attorney (i.e., the principal) grants to the person named in the Power of Attorney (i.e., the attorney-in-fact) the right to take various actions on behalf of the principal, such as the right to withdraw funds from bank accounts, sell stocks, sell real estate, sign tax returns, make gifts if advantageous for the principal’s overall estate plan, etc. Although a normal power of attorney terminates if the principal becomes incapacitated, a Durable Power of Attorney remains valid in most states unless an action is brought to have the principal adjudicated incompetent or until the principal dies.

C. Death With Dignity Agreement.

Many states, including Florida, have adopted statutes which allow a person to direct, through a written instrument known as a “Living Will” or “Death With Dignity Agreement,” his or her doctor not to artificially prolong his or her life by using life support equipment or tubal feeding devices if the possibilities of any reasonable recovery are minimal. As part of the estate plan, every person should consider signing a Death With Dignity Agreement or similar document.

D. Irrevocable Life Insurance Trust.

An Irrevocable Life Insurance Trust is a trust used for estate tax purposes to own life insurance with the objective of avoiding estate tax. For example, if Ralph owns a $1 Million life insurance policy and names his spouse as the beneficiary, then upon Ralph’s death, the $1 Million of insurance is included in Ralph’s estate but his estate obtains a marital deduction for the amount passing to his wife. Accordingly, there is no increased estate tax upon Ralph’s death. However, Ralph’s wife now has an additional $1 Million in her estate that will become subject to estate tax upon her death. If instead, Ralph transferred his life insurance to an Irrevocable Life Insurance Trust and survived for three years after the transfer, it is possible that the $1 Million life insurance benefit would be excluded from not only Ralph’s estate but also from the estate of Ralph’s wife, and Ralph’s children would receive the entire $1 Million free of estate tax. The Irrevocable Life Insurance Trust could provide that upon Ralph’s death the insurance proceeds will be held for the benefit of Ralph’s wife during her lifetime; and upon her death, the assets in the Irrevocable Life Insurance Trust can be distributed to Ralph’s children. There are some complexities, but anyone having substantial sums of life insurance should discuss the benefits of using an Irrevocable Life Insurance Trust with his or her attorney. If the life insurance policy is initially purchased by a properly drafted Irrevocable Life Insurance Trust, then the anticipated estate tax benefits should be effective immediately rather than three years after the life insurance policy is transferred to the irrevocable Life Insurance Trust.



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