Estate Planning: Introduction
The Efficient Transfer of Property And Assets
Estate planning involves the efficient transfer of property and assets to your intended beneficiaries. Your beneficiaries can be any person that you want to leave your assets and property to -- most often this is your spouse, your children or other family members. It could also include a charity. The key phrase here is efficient transfer. A properly drafted estate plan should transfer all assets and property without the need to go to probate court to re-title and transfer assets and property. The probate process is time consuming and expensive. All potential heirs need to be notified and they must also consent to any transfers. In some circumstances probate court may be desired where a heightened supervision of assets is at issue. An estate plan should also seek to minimize all forms of taxes. In order to accomplish these goals, it is critical to gain an understanding of all assets and property that you currently own. The current estate tax threshold in Vermont is $2.75 million. The federal estate tax threshold is much greater. A federal tax filing is required for estates with combined gross assets and prior taxable gifts exceeding $5,490,000 in 2017. In addition, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption ("DSUE") to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse.
Another critical estate planning goal is planning for incapacity. This involves your property and assets as well as your health care decision making and end of life wishes. This should not be delayed. It involves executing documents where you name an "Agent" to make those decisions for you when you are unable to do so yourself. In a financial durable power of attorney, this is often called an “Attorney-In-Fact.” In an Advance Directive For Health Care or health care proxy document this person is often referred to as “Health Care Agent.” As a practical matter, you should also name an alternate agent in both of these documents in case your named agent is unable or unwilling to serve. By choosing the right person to serve as your agent, and by executing these documents now, it may eliminate the need for your family to file for a guardianship in probate court.
While Medicaid planning may not be necessary, it is wise to have a discussion about this important topic during an estate planning consultation. We can review your options to pay for nursing home care should that become an issue. In Bennington County, Vermont, nursing home costs can run between $6,000.00 - $10,000.00 per month. Through proper planning, many Vermonters are able to qualify financially for Medicaid benefits to pay for nursing home (long-term) care.
Our Approach to Estate Planning – a Three-Step Process
Step One – Gathering Information
The first step in the process is to gather information about your assets, how they are owned, the value of those assets, how much they originally cost and if they produce any income. We will provide you with a questionnaire designed to capture all of the information that we need. We may also require you to obtain back-up documents, such as designations of beneficiary for your retirement accounts and life insurance policies. We also need to review any existing estate planning documents that you may have. If you own your own home, we will go to the Town Clerk’s office to obtain your current deed and property tax bill. We may recommend that you change your current deed to what is known as an Enhanced Life Estate Deed (“ELED”) a/k/a “Ladybird Deed”. This is a cost-effective estate-planning tool for Vermonters that will exempt your primary residence from Medicaid transfer penalties and from Medicaid estate recovery.
In short, if you own something, even if held jointly with someone else, we need to know about it. We will then meet with you to review your assets and property and to discuss estate-planning options for you. We will also discuss your estate plan goals. The most common responses are to avoid probate court (see Introduction), estate tax issues, and to protect assets from nursing home costs. There may also be special circumstances in your family that we need to discuss such as providing for a disabled child.
Appointment of Fiduciaries
We will need to have you identify people who are qualified to serve as your fiduciary. A fiduciary is a person specially appointed to serve as your “Health Care Agent,” your “Attorney-In-Fact” for financial affairs, and as the “Executor” who will administer and settle your estate at your death. If you have a Trust of any kind, your “Successor Trustee” is also considered a Fiduciary. This must be a person whom you trust implicitly with your financial affairs and to enforce your health care decision-making. You can appoint several people.
The person(s) you choose must be someone whom you trust implicitly and who does not have a history of financial dishonesty or active substance abuse or gambling addiction. In many cases, more than one person needs to be appointed to fulfill all of these duties. When it matters, being a fiduciary can be a full-time job. Therefore, we must take great care to pick the most appropriate person for the job
Recommendations For Your Estate Plan
Once we have a good idea of what your life is like and what is important to you, we will make a variety of recommendations. As with many things in life, there will often be trade-offs. In making recommendations, we will point out these trade-offs and together we will come up with a unique plan that meets your specific goals. Thus, the planning phase is really a joint effort.
Sometimes the Planning Step can be completed in a single meeting. Sometimes it takes several meetings, and/or a combination of meetings to complete this important phase. Our goal is to do "whatever it takes" to make you feel comfortable with your estate planning decisions.
STEP 2: Estate Planning Documents
Basic estate plans include a Last Will and Testament, Durable General Power of Attorney (for financial affairs), Advance Directive for Health Care and unique to Vermont, an Enhanced Life Estate Deed a/k/a “Ladybird Deed” for your primary residence. A living trust may also make sense for you depending upon the nature of your assets and overall estate planning goals. Trusts are often necessary when dealing with potential estate tax issues.
TYPES OF ESTATE PLANNING DOCUMENTS:
Last Will And Testament
Everyone should have a Will. A Will states how you want your property and assets distributed. Your Will does not transfer assets held in joint names or that have a designated beneficiary listed. This is why it is important to review all of your assets with our office. Your Will also appoints the Executor you select who will be responsible for your estate.
Married couples with minor children should consider additional protections that a Will can offer. If both parents are deceased or unable to be a legal guardian, your Will can named a Guardian for your minor children who would be appointed by the probate court, assuming your proposed guardian is qualified.
Also, a Testamentary Trust can be drafted into the Will. This would place some or all of your assets into a Trust appoint a trustee who would oversee your children’s assets until a certain age. The trustee would be accountable to the probate court.
The use of Testamentary Trusts is often over-looked as a Medicaid planning tool. It is the one of the only types of trust that is exempt from Medicaid transfer penalties and estate recovery. It can be a very effective tool for married couples when one of them may need nursing home care.
Trusts – Revocable By You during Your Life
Living trusts (a/k/a “revocable trusts” or “inter vivos trusts”) can be an efficient way to transfer property and assets. However, for many people, a trust is not necessary. Whether a trust is beneficial depends upon each client’s particular assets, property and wishes.
Some of the factors in favor of having a trust are:
Estate Taxes. Are the assets near the Vermont estate tax limit of $2.75 million? If so, a credit shelter trust and marital trust would result in a tax savings.
Is there out of state real estate that could go into the trust and prevent the need for an ancillary probate estate?
Are there any privacy concerns? If so, a trust is going to be more private than using a will to transfer assets.
Our office can also counsel you on specialty trusts, such as trusts for the care of your pets (“PET TRUSTS”) or firearms (where federal law and regulations may apply) a/k/a “GUN TRUSTS.”
If you and your lawyer decide a Living Trust is right for you, then you will need to select a successor Trustee. The financial duties of a Trustee are similar to the duties of the Executor. The Trustee is required to manage the assets of the Trust, to pay all of the debts of the Trust and to make distributions to beneficiaries pursuant to the terms of the trust.
Durable General Power of Attorney
The durable general power of attorney for financial affairs is another critical estate planning document that should be executed in nearly all estate plans, regardless of a person’s age.
Even if you decide to not prepare a will, we would advise you to execute a power of attorney document as soon as possible. This assumes that you have identified a proper person to serve as your attorney-in-fact. See the section above on Fiduciaries.
Advance Directive For Health Care/HIPAA Authorization
As Vermonters we are fortunate to have a progressive and comprehensive law that allows us to name a health care agent to advocate for our health care wishes and end of life choices. The Vermont Advance Directive for Health Care document memorializes this. After they are signed, we will send copies to your primary care physician, the hospital and to the national registry, so a medical provider can access it if you are traveling.
In addition to the advance directive document, we will also prepare a HIPAA (health information) authorization so that your health care Agent and others whom you designate will have access to your health care information if needed.
Enhanced Life Estate Deed
This is a cost-effective estate-planning tool for Vermonters. We will convert your existing deed (for your primary residence only) to a deed where you still own your property for your life (for spouses, both lives). The main purpose for this deed is ensure that Vermont Medicaid does not count it as an asset and it is not considered a transfer within the 5 year (60 month) Medicaid penalty period. If you transfer it to your children, grandchildren or to a revocable trust, there is no Vermont transfer tax owed when the deed is recorded in the town land records.
Other Estate Planning Tools
In certain circumstances, we can discuss the topics below if any of them apply to you:
Designations of Beneficiary for qualified accounts such as IRAs and Transfer of Death documents for non-qualified accounts
Estate tax considerations
Wealth transfers with the use of life insurance
Family limited liability companies and/or partnerships
Business succession planning for business owners
Income tax considerations
Pet Trusts when desired
Gun Trusts for privacy and compliance with federal firearm laws
STEP 3: Implementation
Once we have drafted the agreed upon documents for your estate plan, we will either send them to you to review, or you can review them in our office with the assistance of an experienced estate planning attorney.
We will then schedule a signing. Once the documents are signed, we will begin the implementation phase. Deeds will be recorded and the town clerk’s office contacted so that your homestead exemption is not disturbed because of any deed transfers. If a trust has been created then most likely it should be funded with intended assets.
Your will can be deposited in the Probate Division for safekeeping if you wish. Currently the cost if $30.00 per will. You may also store it in your own safe deposit box or safe. The Advance Directive for Health care document will be filed with your physician’s office and hospital. It will also be sent to the national registry.
All other lose ends will be followed up on such as designations of beneficiary and life insurance policies.
With your consent, we will also send copies of the above documents to your fiduciaries. We will send you the original documents for safekeeping.