The Importance of Wills and Trusts for Small Estates

Wills and trusts play a crucial role in protecting the assets of small estates. At the Law Office of Peter A. Carbutt, P.C., we specialize in helping individuals establish comprehensive estate plans. Our experienced team will guide you through the process, ensuring your wishes are carried out and your loved ones are provided for.

Estates & Probate

With a focus on small to mid-sized estates, I work with individuals and families optimizing essential estate documents to protect your final wishes, health care and financial protection. With your wishes in mind, I personally design and optimize a plan customized to you and your needs. My goal is to help you protect you and your property, support your needs, or to pass property on to family. This means to prepare for long term health care needs, to navigate the federal (Medicare) and the state (Medicaid or Mass Health) health care systems. I help families effectively work together to manage the health care and probate process.

Estate Planning Overview: Estate planning has many purposes and goals, the most important of which is to direct the manner in which your assets are controlled both during your life, if something were to happen to you, as well as after your death. Estate planning seeks to make sure that the people you want to make decisions are in fact the ones in charge. It also expresses your instructions concerning disposition of assets, to make sure that the people you wish to benefit are actually the ones who get your assets.

The main advantage of good estate planning is the avoidance of confusion, expense, and unnecessary disputes among members of your family. If you don't have your own plan established, the state has established law that will determine what will happen. The chances are the choices the state will make for you, in the absence of your direction, are not the one you would make for yourself. Further, when you have not expressed your own desires in advance, you have also assured that the proceedings will be more expensive, and open to problems. You will have missed the opportunity to avoid probate. You will have missed the opportunity to avoid taxes. You will have maximized the cost and confusion of the proceedings.

The basic estate plan considers the following documents: Last Will & Testament, Durable Power of Attorney, and a Health Care Proxy & Directive (Living Will). Trusts are also frequently used with a Will to solve specific problems, to save taxes or to avoid probate or manage a beneficiary’s affairs. Estate planning may also involve planning opportunities during your life such as, transferring assets, adding names to a Deed, providing for nursing or home health care needs, and even protecting assets from creditors during your life with a simple declaration of homestead.

What happens if you don't have a basic estate plan established? Chances are nothing will happen n the way you would have wanted. The laws of the state dictate what will happen to you and your property.

Probate And the Probate Process: Probate law is the handling of an estate when someone passes away. These are the laws that make sure that the creditors are paid properly and that assets are properly distributed to the “heirs,” or the descendant. Probate is the process by which a fiduciary, or agent who acts on your behalf, petitions the courts to open the estate and is approved or appointed by the Probate Court to administer your estate. Due to the time and complexity involved, the use of an Attorney is recommended.

One important role of Estate Planning is to protect personal assets and to avoid the probate process. The following are typically not subject to probate:

• Jointly owned property passes to the surviving owner.

• Property "payable on death" such as certain bank accounts.

• Life Insurance avoids probate if payable to a named beneficiary. If all beneficiaries have died, then the proceeds may pass through the Will and becomes part of the probate estate.

• Trust property will pass by the terms of the trust.

• Retirement assets such as IRA's, 401(k) and other plans pass to the named beneficiary, if living.

Even if you think everything you own is not probate property, there is always the possibility that other assets will appear. Unanticipated inheritances, new items you purchase, payments from a lawsuit, and lottery winnings can create surprising probate problems.

Most of us think of Estate Planning as simply making a Will, deciding where our property should go and figuring how to pay the least amount of estate or inheritance taxes at death. However, this is a mistake and ignores a crucial element of estate planning, MENTAL INCAPACITY or DISABILITY. What happens if we do not die, but are legally incapable of handling our own affairs? The 3 basic documents anyone should have include your Will, a Durable Power of Attorney and a Health Care Proxy

THE BASIC ESTATE DOCUMENTS:

LAST WILL & TESTAMENT: is a document which directs what happens to assets at the time of your death. Why make a Will? A Will allows you to leave property to friends and organizations that you select, or to omit relatives who would otherwise be entitled to a share of your estate. You appoint the person you want to administer your assets and estate. You select which person or assets will be responsible for bearing the costs of taxes, debts and expenses. A Will is also the place in which you may appoint guardians for your children.

Wills and trusts may also provide for control over assets. It is possible to restrict the terms and timing of distribution of assets to children or beneficiaries. This is particularly important for children who are not good with money, or who have problems with creditors, ex-spouses, alcohol, or for any other reason need to be protected from themselves or others.

A Codicil is a method of legally modifying your Will at any time without changing the entire document. Typically, Amendments made by a codicil may add or revoke a few small provisions (e.g., after something is sold or a new asset has been bought that you want to gift), or may completely change the majority of the devises and bequests.

Taxes and a Will (possibly with a companion trust) may also include provisions designed to protect assets from estate and other taxes. Without a proper plan, it is highly likely that your children and estate will pay the highest possible estate and inheritance taxes. For example, if you and your spouse collectively have assets of over $1,000,000, then you are ideal candidates for tax planning. Estate taxes start at 41%. Without tax planning, estate taxes would take $435,000 from a married couple's $2,000,000 estate to go to the government. With tax planning the estate tax could be reduced to zero.

TRUSTs: A Trust is a fiduciary arrangement that works in conjunction with a Will and allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways specifying exactly how and when your assets will pass to the beneficiaries. Since trusts usually avoid probate that is public, you protect your privacy and beneficiaries may gain access to these assets more quickly than they might if you had only a Will, saving time, and court fees. Other benefits of a trust include:

• Control of your wealth. You can specify the terms of a trust precisely, controlling when and to whom distributions may be made. You may also, for example, set up a revocable trust so that the trust assets remain accessible to you during your lifetime while designating to whom the remaining assets will pass thereafter, even when there are complex situations such as children from more than one marriage (revocable).

• Minimize Estate Taxes. A properly constructed trust can help protect your estate from your heirs’ creditors or from beneficiaries who may not be adept at money management. The drafted specifics of this type of trust is dependent on your wealth (revocable).

• Protect Property. Specific trusts can property from creditors such as MassHealth. If one has a health plan on retirement, losing property to the state is lessened. Other types of trusts do not protect against this type of creditor. For this to be effective it must be Irrevocable. Meaning once the property title goes into the trust, you cannot take it back. Putting property, you are going to sell may not be wise (irrevocable).

POWER OF ATTORNEY & HEALTH CARE: A Power of Attorney and Health Care Proxy protect you if a physical or mental illness should cause us to be in a state of legal incapacity. These help establish someone to help take care of routine day to day events and our health care wishes.

Power of Attorney: Under Massachusetts law, a person over 18 years of age may appoint another adult, or adults, to be their legal representative and handle all matters pertaining to property and finances by signing a Power of Attorney. The person appointed is usually called the Agent or Attorney-in-Fact, and the person doing the appointing is the Principal. How this is worded determines when the appointment takes effect and how long it may last. The words used are what differentiate between what we all know as a Power of Attorney and the Durable Power of Attorney

Besides being a relatively straightforward - and totally private - way to assure continuity of your care and management of your finances, the Durable Power of Attorney can be a very useful aid to your overall estate planning wishes. You can use it to express funeral or burial wishes or to state limitations on how your property is to be used. The Durable Power of Attorney is often used to transfer property to a trust, in the event the trust creator becomes incompetent before making the transfers himself.

Proper Durable Powers of Attorney are not cookie-cutter documents and should be prepared by a lawyer. Because there are many possible uses and applications for the Durable Power of Attorney and differing client circumstances, it is not a good idea to execute an "off the shelf" form you buy at a store. You should also discuss with your attorney the significance of which of the quoted clauses you choose for your Durable Power of Attorney.

Massachusetts Health Care Proxy & Medical Directive: While the Durable Power of Attorney gives an agent authority to manage money, property and things, the Massachusetts Health Care Proxy or Health Care Directive, commonly known in other states as a living will, is a document by which you, a Principal, names an Agent to implement all your medical wishes, including withholding life sustaining treatment if you are terminal.

Very basic Massachusetts Health Care Proxy forms are available in hospitals and nursing homes. Some doctors also have forms at their offices. A generic healthcare proxy often contains no specific expression of the Principal's wishes. Instead, the law assumes that the Principal will talk with the Agent about his wishes, so that the Agent can then make the medical decision as if he were the Principal himself. The duty of the Agent is to do what the Principal would want, even if the Agent does not agree with that choice. Only if the Agent has no idea what the Principal would want, the Agent decide what is in the "Best Interest" of the Principal. A good health care proxy exactly specifies your wishes.

CONCLUSION: A little advanced planning can go a long way to avoid complications in the future. If you are thinking of where your property will go upon your death, don't stop there. By executing three documents, a LAST WILL & TESTAMENT, a DURABLE POWER OF ATTORNEY and the HEALTH CARE PROXY, you can provide for the smooth continuation of your final wishes, care and support in the event you outlive your own physical or mental capacities.