Trusts and Estates
Estate planning is the process of accumulating and disposing of an estate to maximize the goals of the estate owner. The various goals of estate planning include making sure the greatest portion of the estate passes to the estate owner’s intended beneficiaries, paying the least amount of transfer taxes and avoiding or minimizing probate court involvement. Additional goals typically include providing for and designating guardians for minor children and planning for incapacity.
The tools involved in estate planning include the will, various types of trusts, beneficiary designations, powers of appointment, various forms of property ownership (Joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety, etc), gifting, and powers of attorney, specifically durable financial powers of attorney and durable medical powers of attorney also known as advance medical directives.
A major factor in trusts and estates law may be to minimize one’s tax exposure. After an applicable exempt amount, the United States federal estate tax very quickly approaches 50% of one’s taxable estate. The proper use of trusts may reduce one’s tax burden. The applicable exempt amount is $2 million in 2008. The exempt amount is scheduled to increase to $3.5 million in 2009, after which the estate tax is temporarily repealed for one year in 2010. The year after, the estate tax is scheduled to be reinstated, with the 2001 exemption amount of only $1 million. A carefully drafted trust will make the assets of a married couple, particularly, available for the support of the survivor without subjecting those assets to unnecessary estate taxes on the death of the survivor.
Special needs trusts may be designed to ensure that beneficiaries who are developmentally disabled or mentally ill can receive inheritances without losing access to essential government benefits.
Trusts may also enable you to control the management of the assets of the trust. For example, a trust could be used to manage the inheritance of a young person who may not be mature enough to handle money, but permit the funds to be used for the youngster’s health, education, support and maintenance of until he or she attains a certain age or level of education or training, at which time the remaining income and principal may be distributed. One can also distribute one’s assets for charitable purposes by creating an irrevocable charitable trust that may distribute the principal or the income of the trust much in the same manner as a private foundation with commensurate tax benefits.
In some states, estate administration is difficult, complex and expensive. So much so, in fact, that many estate planners in those states recommend the transfer of all of their clients’ assets into revocable living trusts in order to avoid probate altogether. However, the creation of these trusts, the transfer of assets and maintenance of the trusts during your lifetime is also complex, tedious and expensive. And, unless you are diligent about maintaining your assets in the trust, the plan can easily fall apart over the course of a lifetime.
Fortunately, Virginia’s probate process is relatively inexpensive and easy to maneuver with a well-drawn will that takes advantage of all of the tools that our General Assembly has made available for use in keeping estate administration as simple as possible. For this reason, we do not generally recommend that you use a trust solely for the purpose of avoiding probate. In most cases, it is just not worth the time, effort and expense. With a little guidance from us, most of our clients are able to administer the estates of their loved ones on their own. Other estates are more complex because of their sizes, the nature of the assets involved or the family dynamics at work. In these cases, we can do as much or all of the work necessary for the lawful and efficient transfer of assets to succeeding generations.