ESTATE PLANNING

WILLS AND TRUSTS

WHAT IS A WILL?

A will is a written document that directs the distribution of your property after your death, states who will care for and distribute the property and recommends someone to care for minor children. The laws of the state of Kentucky require:

You, the maker of the will, must be at least 18 years of age.
You must be of sound mind.
The will must be in writing.
Your name has to be subscribed to the will.
If the will is typewritten or made by someone else for you, it must be witnessed in the special manner provided by law.
At your death the will must be probated in court according to probate law and estate litigation.

WHAT IF YOU DIE WITHOUT A WILL?

If you die without a valid will, your real and personal property are distributed by a rigid formula fixed by probate law. You may think that if you have no will, your wife or husband will get all of your property. The husband or wife will only get one-half of the property and the other half will be distributed as follows:

To the children and their descendants; if there are none,
To the father and mother, if living; if there are none,
To the brothers and sisters and their descendants; if there are none.

If you fail to make a will, the inheritance statute determines who gets your property, not you. Of course, the law does not permit you to exclude your spouse entirely from sharing in your property.

When there is no will, the court appoints an administrator to manage your estate from persons designate by law. Oftentimes, the cost of administrating your estate is greater than if you had planned you estate with a will.

MAY A PERSON DISPOSE OF HIS PROPERTY IN ANY WAY HE WISHES IN A WILL?

While any real or personal property may be transferred by a will, there are some restrictions of law that may limit completely free transfers. For example, you do not have an unqualified right to exclude your spouse as a beneficiary.

Another example is joint property owned with a right of survivorship which will generally go to the surviving owner.

DOES A WILL INCREASE PROBATE EXPENSES?

No. If there is property to be administered or taxes to be paid, or both, the existence of a will does not increase probate expenses. If there is property, the District Court has jurisdiction and must either pass on the will or determine who are the legal heirs. Therefore, even if you have no will, your heirs must go to court to probate you estate.

By your will, you can waive the requirement of a bond for the personal representative who handles your estate, and thereby save the bond premium expenses. By a well-drawn will, you can sometimes reduce taxes and cut other expenses.

CAN A WILL BE CHANGED?

A will is valid upon death, but as long as you remain mentally competent you can change the will at any time. However, all of the requirements for a legal will must be met. In addition, under the law a will is ordinarily revoked by divorce or a subsequent marriage.

Changes in circumstances after the making of a will, such as tax law amendments, deaths, marriage, dissolution of marriage, birth of children, or changes in the nature and extent of property owned, may suggest reasons for a new will.

ARE THERE SUBSTITUTES FOR A WILL?

A will disposes of your entire property and unless you have only one parcel of property there is no total substitute for a will. A few partial substitutes follow:

Life insurance is one type of property that passes directly to the beneficiary. A will has no effect on the proceeds, unless the policy is payable to the estate.
Right of survivorship of real property or savings accounts generally goes to the surviving owner, and they get title to the property. A will has no effect on such property. Joint real property, unlike a will, can only be changed with the consent of the joint owner. Joint tenancies should be used with a great deal of care, since they may involve gift tax problems and other state and federal tax problems.

WHEN SHOULD YOU MAKE A WILL?

A will should be made while the make is in good health, free from emotional stress. A prudent person does not wait for a catastrophe or other compelling reason in making a decision. If you have children and you and your spouse die, do you want to name the guardian of your children, or do you want the court to appoint one? If you do not have a will, the court, by law, will appoint the guardian.

IS A WILL EXPENSIVE?

An elder law attorney or estate litigation lawyer charges for a will according to the time spent in preparing a will. A few hours of an attorney's time may mean great savings in taxes and probate expenses. Usually, the cost of the surety bond, required by the court for the personal representative to qualify in administering the estate, exceeds the lawyer's charge for making a will.

MUST A PERSON LEAVE HIS CHILDREN AT LEAST ONE DOLLAR EACH?

No, not at all. This popular misconception arises from the fact that when a will fails to make provision for a child, the probate law "presumes" that the testator merely forgot. To circumvent this, the draftsman of the will in olden times frequently gave "To my son, John, the sum of one dollar." Today, an accepted provision is "I have intentionally made no provision for my son, John."

WHAT ARE SOME OF THE BENEFITS THAT CAN RESULT FROM A WILL?

A trust may be created in a will, whereby the estate or a portion of the estate will be kept intact with income distributed or accumulated for the benefit of members of the family or others.
The expense of bond premiums often required of the person managing your estate (if there is no will) can be avoided.
The testator may name the executor of his will as he chooses. An executor is one who manages an estate, and may be either a bank with trust powers, or a trust company, subject to certain limitations.
Minors can be cared for without the expense of guardianship proceedings.
Real estate and other assets may be sold without court proceedings, if your will adequately authorizes it.
The testator may make gifts, effective at or after the death, to charity.
Significant inheritance and other tax advantages can be achieved.

You decide how your property is to be awarded, rather than the courts.

An individual can still control what they want to accomplish in their estate plan and who they want to enjoy their hard earned assets. Many individuals put off estate planning because it is either an area they do not want to think about or believe they are too young. You are never too young to have an estate plan because unforeseen circumstances happen to individuals of all ages. Skeeters, Bennett, Wilson, & Pike has been helping and assisting individuals with their estate planning for over 35 years. Our elder law attorneys and estate litigation lawyers are competent in all areas of estate planning including wills and trust litigation. We will also help you form family limited partnerships and family limited liability companies when appropriate to carry out your estate plan. To assist our clients with their estate planning, we work with trust litigation officers, insurance agents, and accountants to complete our clients plan.

We draft and prepare various trust agreements in an effort to carry out our clients wishes including irrevocable life insurance trusts, family trusts, marital deduction and credit shelter trusts, qualified personal residents trusts, and trusts for challenged children and adults. Please contact our attorneys for a consultation to discuss this very important and private area of your life.

ADVANTAGES AND DISADVANTAGES OF REVOCABLE LIVING TRUSTS

The revocable living trust has become such a popular estate planning tool that there is a danger that people are establishing them without thoroughly understanding all of the consequences of doing so.

Advantages: A revocable living trust entails an individual's transfer of assets to a trustee who is appointed in the trust instrument. The individual retains the powers to revoke or amend the trust, and he will normally receive the income generated by the trust for the period of his life. The chief advantages of such a trust are that (1) it establishes an estate plan for the individual ("settler") while he is still living, thus securing professional management of his assets during his life, with a smooth transition at his death since, at that time, the trust will serve as the equivalent of a will; and (2) the cost and delay of probate are avoided because, unlike assets passing under a will, assets passing at death under a revocable living trust are not subject to probate. At the settlor's death, the trustee of a revocable living trust can continue his management of the assets without interruption and can start carrying out the trust's post-death directions without the need for notice or court approval.

Another advantage is gained if any individual owns real property outside of his home state and transfers it to a revocable living trust. If the individual died owning such property without having transferred it to a revocable trust, it would almost certainly be necessary for his executor to open what is known as an ancillary administration in the proper court of the state in which the out-of-state realty is located. Such action is not needed if the realty has been transferred to a revocable trust.

Steady management of the settlor's assets can be maintained where the settlor, who typically is the initial trustee, becomes incapacitated. The revocable trust can provide that the successor trustee is to assume his trustee status upon the settlor's incapacity. Such a provision can eliminate the need for a court proceeding and the appointment of a guardian. After the settlor's death, there would be no delay in the transfer of assets to the ultimate trust beneficiaries. Therefore, there would be no need for the beneficiaries to take actions such as hiring an attorney, filing court papers, or petitioning the court for temporary living expenses pending probate.

Disadvantages: Disadvantages associated with a revocable living trust primarily involve the formal changes that must be made in order to fund the trust. Because legal title to all of the property to be transferred to the trust must be in the trustee's name, stocks must be reregistered and title to promissory notes, real estate, partnership interest, and any other assets must be placed in the trustee's name even where the settler is the initial trustee. Such a process can be burdensome.

Because the trust will be operated both during the settlor's life and after his death, it is likely that the total cost of an estate plan centered on a revocable living trust will exceed an estate plan that takes effect only at death. A professional trustee will usually charge on an annual basis, while an executor's fee will normally be a one-time charge. Of course, if the settler acts as the sole initial trustee, trustee's fees could be greatly reduced.

A revocable trust does not alter the tax liability of the settler or his estate. Since the settler will normally be the income beneficiary of the trust, he will be taxed on that income. The settlor's power of revocation will cause the trust fund to be included in the settlor's estate for federal estate tax purposes. Thus taxation is a neutral factor in deciding whether to execute a revocable living trust. Still, the numerous factors that do affect such a choice must be weighed carefully. The assistance of a skilled attorney is recommended.

Alternative Solutions: In Kentucky, a revocable living trust in most cases is not necessary. In the northeastern States, the court charges a probate fee based on a percentage of the total assets of the probatable estate. These percentages range between 5% and 15%. Therefore, on a $100,000.00 estate, a 10% probate fee would be $10,000.00, which would be paid to the court. In Kentucky we do not have a probate fee based on the percentage of the probatable estate. At the present time the probate fee paid to the court is approximately $80.00. Therefore, it is not necessary in Kentucky to have a revocable living trust to avoid large court probate fees. Revocable living trusts are recommended in special circumstances such as couples with challenged children. To solve the problem of owning real estate out of State and having to have ancillary probate in that State, the out of State property can be placed in joint names and probate is not necessary. If an individual becomes incapacitated, then that problem can be solved by a power of attorney given to a spouse or children prior to the incapacity. In most cases, the costs of preparing a living trust and transferring all of the property into the trust is more expensive than the costs of probating an estate.