Many people are confused about Probate. This confusion is increased by all the gossip or advice other people hand out when the topic comes up. In fact, many people are scared of Probate and feel as though they need to spend thousands of dollars to create a Trust in an effort to avoid it. However, in some situations, Probate may be an acceptable method of disposing of your estate. And in many situations, there are easy and inexpensive ways to avoid Probate altogether without having to be burdened by the high costs of a Trust. And of course, in other situations, a Trust is the best option.
To determine what option would be best for you, it is important to determine how you want your property and money to be “handled” upon your death. Further, the value of your estate needs to be ascertained to determine whether a Trust could have tax benefits. At that time, we can present all options, along with the costs, risks and legal effect each one will have in your specific situation.
For a small consultation fee of $150.00, we can sit down and educate you about all your options. Should you decide to hire our firm, we will apply the cosultation fee against the costs of representation. In some cases, a short consultation may light the way and provide you with the “know how” to avoid certain pitfalls without the need of hiring our firm. At a very minimum, you will have greater peace of mind by knowing what options are out there and available for you.
A Will is a legal document that when drafted and executed correctly, devises all property in accordance to the desires and wishes of the decedent. In order to properly execute a valid Will, several things must be followed:
The testator must clearly identify himself.
The testator must declare that he revokes all previously-made wills and codicils. Otherwise, a subsequently-made will revokes earlier wills and codicils only to the extent that they are inconsistent. However, if a subsequent will is completely inconsistent with an earlier one, that earlier will be considered completely revoked by implication.
The testator must demonstrate that he has the capacity to dispose of his property, and does so freely and willingly.
The testator must sign and date the will, usually in the presence of at least two disinterested witnesses (persons who are not beneficiaries or related by blood). It is best that a notary is used for all witnesses, including the testator.
After the testator has died, a probate proceeding may be initiated in court to determine the validity of the will, i.e., whether it satisfied the legal requirements, and to appoint an executor. If the will is ruled invalid in probate, then inheritance will occur under the laws of intestacy as if a will were never drafted.
In some instances, family members may divide property pursuant to a Will without the need for filing Probate. There is no requirement that a Will and the estate addressed in such be submitted to Probate. However, if property or title has not passed properly, a Probate proceeding will need to be filed. However, in most cases, the Probate proceedings are relatively inexpensive UNLESS an heir contests the Will or any aspect of the proceedings.
Of course, without a Will, one’s Estate will have to go through Probate so it can be divided pursuant to Oklahoma Statute. It is important to note that the Court will divide the assets based on blood lineage only to the exclusion of all others, including those you love and care about (friends, partners, churches, charities, etc.) who are not related to you.
For these reasons, and many others, a Will is something everyone should consider, especially since the legal costs are inexpensive and affordable to all.
A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. Different types of trusts may be created to accomplish specific goals. Each kind may vary in the degree of flexibility and control it offers.
The common benefits that trust arrangements offer include:
Providing personal and financial safeguards for family and other beneficiaries;
Postponing or avoiding unnecessary taxes;
Establishing a means of controlling or administering property; and
Meeting other social or commercial goals.
Living trusts can be “Revocable” or “Irrevocable.”
In a Revocable Trust, the trustor may change the terms or cancel the trust.. Upon revocation, the trustor resumes ownership of all trust property. In general, a revocable living trust is used when the trustor does not want to lose permanent control of the trust property, is unsure of how well the trust will be administered, or is uncertain of the proper duration for the trust. With a properly drafted revocable trust, you may:
1. Add or withdraw some assets from the trust during
2. Change the terms and the manner of administration
of the trust; and
3. Retain the right to make the trust irrevocable at
some future time.
The assets in this type of trust will generally be includable in the trustor’s taxable estate, but may not be subject to probate.
An Irrevocable Living Trust may not be altered or terminated by the trustor once the agreement is signed. There are three distinct advantages of irrevocable trusts:
1. The income may not be taxable to the trustor;
2. The assets may not be safe from execution of
3. The trust assets may not be subject to death taxes in
the trustor’s estates.
However, these benefits will be lost if the trustor is entitled to (1) receive any income; (2) use the trust assets; or (3) otherwise control the administration of the trust in a manner that is inconsistent with the requirements of the Internal Revenue Code.
It is important to note that once a grantor transfers property to an Irrevocable Trust, he can no longer take the property back.
SPECIFIC TYPES OF TRUSTS
Testamentary Trusts are created as part of a will and must conform to the statutory requirements that govern wills. This type of trust becomes effective upon the death of the person making the will (the “decedent”) and is commonly used to conserve or transfer wealth. The will provides that part or all of the decedent’s estate will go to a trustee who is charged with administering the trust property and making distributions to designated beneficiaries according to the provisions of the trust.
Before the trust property becomes subject to the testamentary trust, it will normally pass through the decedent’s estate. When the estate is probated, those trust assets will be subject to probate. The assets, which will form the corpus of a testamentary trust, also are potentially subject to an estate and generation-skipping transfer tax at the time of the decedent’s death.
A testamentary trust gives the trustor substantial control over his or her estate distribution. It also may be used to achieve significant savings in the future. For example, by using a testamentary trust, a trustor can provide for a child’s education or can delay the receipt of property by a child until the child gains financial maturity. Moreover, given the proper form of trust, property may be exempted from death taxation on the later death of a trust beneficiary. However, a generation-skipping transfer tax may still apply.
*IT IS IMPORTANT TO NOTE THAT TESTAMENTARY TRUSTS ARE AN INEXPENSIVE OPTION AS COMPARED TO CREATING A TRUST AND DO NOT REQUIRE THE PERSON TO IMMEDIATELY TRANSFER ASSETS INTO THE TRUST, NOR DO THEY REQUIRE TRUSTEE EXPENSES UNTIL THE DATE OF DEATH.
Special Needs Trust: Established for a person who has received governmental benefits. Ordinarily when a person is receiving government benefits, an inheritance or receipt of a gift could reduce or eliminate the person’s eligibility for such benefits. By establishing a trust that provides for luxuries or other benefits that otherwise could not be obtained by the beneficiary, the beneficiary can obtain the benefits from the trust without defeating his eligibility for government benefits.
*IT IS IMPORTANT TO NOTE THAT FEDERAL LAW NOW HAS A FIVE “5” YEAR LOOK BACK PROVISION WHEREIN THEY WILL LOOK BACK AT THE TRANSFER OF ASSETTS. IF THE TRUST WAS CREATED DURING THAT TIME PERIOD, THE GOVERNMENT COULD REQUIRE THE ASSETS BE EXPENDED BEFORE GOVERNMENT MONEY IS USED. THIS INCLUDES MEDICARE AND NURSING HOME COSTS.
Spendthrift Trust: Established for a beneficiary in order to protect him from selling or pledging away his interests in the trust. Such trusts are beyond the reach of the beneficiaries creditors, until such time as the trust property is distributed out of the trust and placed in the hands of the beneficiary.
POWER OF ATTORNEY
A Power of Attorney is a document that allows you to appoint a person or organization to handle your affairs while you’re unavailable or unable to do so. The person or organization you appoint is referred to as an “Attorney-in-Fact” and is authorized to perform any act that you authorize in the Power of Attorney document. For instance, if authorized, a Power of Attorney can open bank accounts, sign checks, sell property, convey title, etc. Therefore, as you will note, a Power of Attorney document is a very powerful tool and what is authorized and who you appoint must be given great consideration.
General Power of Attorney – authorizes your Agent to act on your behalf in a variety of different situations.
Special Power of Attorney – authorizes your Agent to act on your behalf in specific situations only.
Health CarePower of Attorney / Advanced Directives allows you to appoint someone to make health care decisions for you if you’re incapacitated.
“Durable” Power of Attorney -The general, special and health care powers of attorney can all be made “durable” by adding certain text to the document. This means that the document will remain in effect or take effect if you become mentally incompetent.
Revocation of Power of Attorney – allows you to revoke a power of attorney document.
Nearly all Power of Attorney Documents created by our office cost between $200-$400. Our office handles all copying, filing and provides witnesses and a notary at no additional cost to the client.
IMPORTANT MESSAGE ABOUT TAXATION
The use of a trust or any estate planning tool may help you achieve certain goals, such as reduction of taxes. However, while trusts can offer a number of tax advantages, tax avoidance should not be the sole motivation for using this estate-planning tool.
It also should be recognized that the laws governing trusts and their taxation are complex and subject to constant and abrupt change.
For these reasons, you should always consult a licensed tax professional to determine whether or not a specific estate planning tool is best for you and your family.