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PLANNING FOR THE FUTURE REQUIRES CAREFUL THOUGHT
Creating or updating an estate plan requires careful thought. A good place to
start is by making a will.
Everyone Needs a Will
To ensure that your property goes to the persons you want, everyone needs a will.
Did you know that in North Carolina, if you are married and have children, at your death all of your property does not necessarily go to your surviving spouse? If you die without a will, only that property
which is titled jointly in both spouses names with rights of survivorship or by the entireties will pass directly to your surviving spouse. In addition the first $30,000 of personal property, one-half of
the remainder of personal property and one-half of realty not held as tenants by the entirety will pass to the surviving spouse. The remainder of all property will pass to your children. If your
children are minors, then a guardianship proceeding will have to be instituted, a guardian appointed for the minor children, and the property will be held by Clerk of Court or in a bank account until the child
reaches the age of majority (age 18). Accountings will have to be filed with the Clerk of Court in the County where the children reside every year until the child reaches age 18. The guardian will
have to be bonded. Guardianship can be a very costly and time consuming process.
\If however, you had drafted a valid will prior to death, then your property would pass to those persons named in
your will - usually your surviving spouse if you are married. If you desire to provide directly for minor children, you could do so through a testamentary trust contained in a will, naming a guardian and
trustee for the minor children, not requiring a bond for the guardian and/or trustee, and thereby avoid the need for the costly guardianship proceeding and the Court’s involvement in your affairs. In
addition, you could provide the age at which your children would be entitled to receive the property held in trust - most 18 year olds are not ready for the responsibility of handling money or property.
Getting Started
The first thing that needs to be done to create an estate plan is to compile an
up-to-date list of all family assets, reflecting values of the property listed as accurately as possible and listing in whose name(s) the property is held.
The second thing that needs to be done is to prepare a family tree, starting with you and your spouse and
continuing down through your children and grandchildren. If other relatives or persons are to be beneficiaries of your estate, they will need to be included in the “family tree” as well.
The third thing that needs to be done is to identify your goals for those for whom you wish to
provide at your death, taking into consideration individual needs and abilities.
At this point, you can consider how your property should be divided among those for whom you wish to provide.
Not all Property is Controlled by a Will
A will controls property that is in your names only or jointly without rights of
survivorship. Property owned jointly with rights of survivorship automatically passes to the survivor at the death of one of the joint owners. In addition, a will cannot control property such as life
insurance, retirements plans, IRAs and deferred compensation as these are controlled by beneficiary designations. As part of an estate plan, these beneficiary designations can be changed to meet the needs
of those for whom you wish to provide and to minimize taxes which may be payable at your death.
Revocable Trusts
To protect property which would otherwise pass to minors or persons inexperienced with
managing money, you might want to establish testamentary or stand alone trusts. You would choose a person or firm whom you believe has the ability to manage the assets placed in trust and through the
testamentary or stand alone trust give them direction on how the money held should be maintained and used for the benefit of those named as beneficiaries of the trusts.
Fiduciaries
You will need to consider who you will appoint to be your executor, the person charged
with carrying out the terms of your will, and who you will appoint to be the trustee. You do not have to name the same person or firm for each position, although you can if you so desire. In
addition, you should choose an alternate person, if an individual was chosen, to serve in each position in the event that the primary individual chosen cannot serve due to illness, death or disability.
Life Insurance and Annuities
You will need to ensure that all beneficiary designations are current. If a
beneficiary does not survive you then these funds may be paid to your estate, making such funds available to pay claims of creditors of your estate.
You should also determine whether you have enough insurance to pay death taxes which will come due at the time of
your death or the death of your surviving spouse. You may wish to consider a “second-to-die” policy for this purpose.
If your estate is large enough, you may wish to establish an irrevocable life insurance trust for the benefit of
your children or grandchildren. The face amount of the life insurance policy is removed from your estate, and as there is usually almost no cash value to such policy at the time of transfer, there should
be no gift taxes due on the transfer.
Retirement Plans and IRAs
You will need to ensure that all beneficiary designations are current, as these plans
pass by beneficiary designation.
Gifts During Your Lifetime
During your lifetime you can reduce the size of your estate, and thereby the amount of
death taxes due, without incurring any gift tax consequences. Both you and your spouse can give up to $11,000 each per year to any person you wish and you can do this as many times as you like so long as the
amounts given to each person per year do not exceed $11,000. This amount will be indexed for inflation and should continue to increase.
The amount exempt from federal gift tax is $1,000,000. You can, however, always make a gift of any amount to your
spouse free from tax.
A unified credit is available with respect to taxable transfers by gift and at death. The unified credit amount
effectively exempts from tax transfers totaling $950,000 in 2005 and $1,000,000 in 2006 and thereafter.
Taxes on Decedent’s Estates
Congress has enacted new estate tax laws which over the next eight years increase the
property which is exempt from estate taxes from the current $1,500,000 to $2,000,000 in 2006, and to $3,900,000 in 2009. In 2010 the Estate Tax is REPEALED, however if no further action is taken by Congress, in
2011 we will revert to the current exemption amount of $1,000,000.
Other Documents Necessary to a Proper Estate Plan
It is extremely important that you prepare for the possibility of incapacity, both
physical and mental. Everyone should have a General Power of Attorney in which you choose a person who can act on your behalf and in your place should you become physically and/or mentally
incapacitated. The person you choose can do anything that you could have done if you were not incapacitated. If you have not executed a General Power of Attorney and you do become incapacitated, your
spouse or some other person will have to petition the Court to have you declared incompetent, have a guardian appointed, post a bond, and file annual reports detailing your assets and liabilities for as long as
your are incapacitated or until your death. As mentioned earlier, a Guardianship can be both expensive and time consuming and all of your financial affairs become a matter of public record.
Another extremely important document to have as part of a good estate plan is a Health Care Power of Attorney in
which you choose a person who will make health care decisions for you in the event you are unable to make them for yourself. If you desire, it is also possible to include in a Health Care Power of
Attorney, a Living Will which expresses your wishes about whether you wish to be kept alive by extraordinary means such as artificial hydration and nutrition. Of course, if you are able to express your
wishes yourself you can always override the Living Will.
Conclusion
The foregoing is just a starting place and there are numerous other possibilities for
estate planning which are available depending on you specific needs, but the foregoing information will get you started and make better prepared to discuss your needs at a meeting with the attorney of your
choice.
The North Carolina Bar Association publishes online pamphlets which discuss and further explain many of the
same issues on this page:
Living Wills and Health Care Powers of Attorney
Protecting Your Assets: Wills, Trusts and Powers of Attorney
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