Frequently Asked Questions

What is Estate Planning?

Estate Planning is planning for the disposition of your property, during you lifetime and upon your death, to those you wish to provide for, at the lowest possible tax cost. Your estate planning goals can be achieved through the use of certain documents, such as wills and trusts.

Do I have an Estate Plan?

Even if you have not executed any estate planning documents, you nonetheless have an estate plan. For example:

• You and your wife own your home as tenants by the entireties. Upon the death of either spouse, ownership of the house will vest in the surviving spouse.
   
• You and your daughter are joint owners of a bank account. Generally, upon the death of either owner, the money in that account will vest in the surviving owner.
   
• You have named your spouse as the primary beneficiary on your life insurance policy. Upon your death, the life insurance company will pay the proceeds of your policy directly to your spouse.
   
• You and your spouse have children and have not executed a will. Under Maryland’s intestacy laws, upon the death of either spouse, the surviving spouse is entitled to receive 1/2 of the deceased spouse’s probate estate, if there are minor children. If there is no surviving minor child, but there are surviving issue, including adult children and minor grandchildren, the surviving spouse receives $15,000 and 1/2 of the rest of the estate.

Is a Will necessary?

I think so. As stated above, if you do not have a Will, your property will be distributed as provided under Maryland’s Intestacy laws, which may not be how you want your assets distributed. Whereas, in a Will, you can specify to whom you want your property distributed to.

You can also designate the person you want to serve as your Personal Representative in your Will, rather than have a Court appoint a Personal Representative for you.

A Will is especially important to have if you have minor children. As stated above, if you die without a Will, your surviving spouse is only entitled to 1/2 of your estate, with the remainder of your estate being distributed to your minor children. In your Will you can also name the individual(s) who you would like to be appointed guardian of your children upon the death of you and your spouse. Although the person named must still be appointed by a Court, by naming a guardian in your Will, you may avoid disputes as to who should be appointed guardian of your children. Additionally, rather than have your assets distributed to your children when they reach 18, as required under Maryland law, your Will can include minor’s trust provisions. A minor’s trust can state the age or ages you want your trustee to distribute the income and principal from the trust to your children, and specify what purposes the trust funds are to be used for. If you married, and have children from a previous marriage, your Will can include trust provisions to ensure distribution of your estate assets to them. Your will can also make specific provisions for the distribution of your assets to a member of your family who has special needs. A will may also contain provisions, such as disclaimer, bypass and charitable remainder trusts, which minimize or eliminate the amount of federal and state estate taxes which must be paid from the assets of your estate or by the recipients of your property.

Who Should I select to serve as Personal Representative, Trustee or Guardian of my children?

It is difficult to make a proper selection without understanding the responsibilities of the position you are seeking to fill. For example, a Personal Representative is responsible for protecting and properly distributing assets in an estate. They must locate estate property, pay debts, taxes and other expenses, as well as negotiate with creditors, and if applicable, carry on a decedent’s business. A trustee has similar responsibilities. Accordingly, when choosing someone to serve as your Personal Representative or as trustee, you should consider someone who is competent, loyal, trustworthy, and familiar with the needs of the estate, the trust beneficiaries, and the assets of the estate or trust, and is willing and able to serve. Obviously, when choosing a guardian for your children, you should choose someone who is good with children, and has agreed to accept that responsibility.

Should I have a Revocable Trust?

A revocable trust, also known as a “living trust”, enables you to maintain ownership and control of your property during your lifetime, and like a Will, provides for the disposition of your trust assets to certain named individuals directly or into a trust upon your death. The revocable trust provides that in the event the creator of the trust (Settlor) becomes incapable or unable to manage their financial affairs, that a named trustee shall assume those responsibilities. It is for this reason that a revocable trust is useful for older individuals who are in poor health and in need of assistance in managing their financial affairs. Additionally, including your out of state real estate as a trust asset, may allow your Personal Representative to avoid instituting additional probate proceedings in the state where your property is located. A revocable trust may also be recommended if you anticipate that someone may contest your Will, as it is generally more difficult to challenge a revocable trust on the grounds of incompetence and undue influence. If you are considering a revocable trust because you wish to eliminate or reduce taxes, you are misguided, as revocable trusts do not save estate, inheritance or income taxes. Also if you wish to avoid the probate process, there are other means available to do so. Some individuals wish to create a revocable trust because they believe that the probate process is time-consuming and expensive. In Maryland however, there are simplified procedures for the administration of small estates, and a less time consuming modified estate administration process. Probate fees are nominal, however, unless waived, your Personal Representative is entitled to a commission, which is computed as a percentage of your probate assets.

If I transfer my property to an irrevocable trust, may I reclaim that property for my future use?

No. Unlike a revocable trust, property which you transfer to an irrevocable trust no longer belongs to you. This change of ownership is often used to obtain federal gift and estate tax savings. As example of such a trust would an irrevocable life insurance trust.

Are there other actions I can take to preserve my estate assets for my loved ones?

To preserve your assets you should consider purchasing long-term care insurance to pay the increasing cost of nursing home care. You may be able to receive medicaid benefits to pay for nursing home care, however, stringent requirements must be met to qualify for those benefits.

Should other documents be prepared as part of the estate planning process?

In almost all circumstances I recommend that estate planning clients prepare a power of attorney. A durable power of attorney generally provides that if the principal becomes unable to handle their financial affairs, the attorney-in-fact named in the power of attorney will have the authority to do so for them, without the necessity of a guardianship proceeding. Generally, you should apply the same considerations to the selection of an attorney-in-fact as you do when selecting your Personal Representative or trustee. Another important document to prepare is an advance medical directive. An advance medical directive enables you to set forth directives as to your future medical treatment in the event of you are unable to make those decisions yourself. An advance directive can include an appointment of a health care agent, and “living will” provisions specifying directing your agent as to the action they should take relative to life-sustaining procedures.

When is Guardianship necessary?

A guardianship action is usually filed with the court when an individual, because of a physical or mental illness, is unable to make informed decisions regarding their medical care or financial affairs, and there is a need for someone to be appointed over their person and/or property. A guardianship action may be avoided if the disabled person, when competent, had executed financial and health care powers of attorney, wherein they appoint someone to make their financial and health care decisions.

Is a probate proceeding always necessary?

If an individual dies owning one or more assets titled in their individual name, a probate estate must be opened, a personal representative must be appointed, and the estate administered as required under Maryland law. Assets requiring probate would include automobiles, real estate, and partnership interests titled in the decedent’s name individually, as well as life insurance proceeds payable to a decedent’s estate. Even if there is no probate estate, the custodian of a will is required to file the will with the register of wills where the decadent resided.