Frequently Asked Questions About Estate Plans, Wills, Life Estates
Practice Area: Estate Planning
Q. What is Estate Planning?
A. Estate Planning refers to preparation of a Will, a Trust, and any other documents that will direct the handling of your assets during your lifetime or after your death.
Q. Why Do I need Estate Planning?
A. By doing estate planning, you make the choices about who receives each asset, the percentages of distribution, the timing of distribution, and the use of certain property. You make the choices as to who will have the responsibility to carry out your wishes. Also, you may be able to avoid unnecessary estate taxes.
Q. What issues will my attorney ask about?
A. Along with a review of how much of the estate will be left for each person, we will discuss special situations. There may be a child who needs to remain in the house. There may be a disabled beneficiary who needs a special needs trust. Your children may not trust each other, may be fighting, or may have creditor or divorce problems of their own. You may need an independent person or a bank to be the Executor or trustee. You may want to set up a charitable trust. All of these issues can be addressed in the Will, and in trusts set up during your lifetime.
Q. Does everyone need a Will?
A. Yes. In the Will, you decide who gets what. You can leave money to charities or to trusts for specific beneficiaries. You can divide the estate unequally among your heirs. You appoint a person of your choice as Executor to carry out your wishes, and you can specify that the Executor can serve without bond.
Q. What if a person dies without a Will?
A. The Surrogate's Court will have to appoint an administrator from among the heirs, and s/he must post a bond before being able to assume his or her duties. Then, state law will dictate how to distribute the estate. This may cause results you wouldn't like.
Q. Can't the executor put an heir's share into a trust?
A. The executor must follow the terms of the Will. If there is no Will, the Administrator must give the assets to the heir. Under certain circumstances, the Executor or Administrator could petition a court to create a trust for one of the heirs, such as a special needs trust.
Q. What is a Life Estate?
A. A Life Estate is an interest in real property that is owned by another person. The Life Tenant has the exclusive right to occupy the premises. S/he is responsible for the utilities, taxes and general upkeep. If the property is sold, s/he receives a pro rata share of the sale proceeds based on his or her age at the time of sale. The owner of the property is called the "remainderman."
Q. What happens when the life tenant dies?
A. If the life tenant gave the property to another person (such as a child) and kept just the life estate, the life estate would be a retained interest. The whole value of the property would be included in the life tenant's estate at death, when calculating the estate and inheritance taxes. The cost basis of the property then "steps up" to date of death value, which can benefit the remainderman. The remainderman owns the entire value of the property since the life estate "evaporates" at the death of the life tenant.
Q. Why do people use life estates?
A. Transfer of property to children and retaining a life estate can be a useful tool especially if the parent continues to reside in the home and the property has increased greatly in value since date of purchase. Also, by retaining a life estate, the elderly home owner preserves his or her ability to apply for a reverse mortgage, should additional funds be required to remain in the home.