Frequently Asked Questions
Another important document during incapacity is a Durable Power of Attorney for Health Care. This is where you name someone to make your medical decisions for you if you become unable to make them yourself, either temporarily or permanently.
Proper planning can avoid probate and accomplish all your goals for you and your family.
Your estate plan can also provide, however, that any funds your children are inheriting are to be held in trust for them beyond the age of 18. The person named to handle your children’s funds is called a trustee. You can give your trustee specific or general directions on how you would like your money spent for your children. You can also decide at what age you would like your children to take over their funds. The trustee can be the same person as the guardian, but need not be.
Every probate estate is unique, but most involve the following steps:
- Filing of a petition with the proper probate court
- Notice to heirs under the Will or to statutory heirs (if no Will exists)
- Petition to appoint Executor (in the case of a Will) or Administrator for the estate
- Inventory and appraisal of estate assets by Executor/Administrator
- Payment of estate debt to rightful creditors
- Sale of estate assets
- Payment of estate taxes, if applicable
- Final distribution of assets to heirs
Even if you believe that that you may not be affected by the federal estate tax, you still need to determine whether you may be subject to state estate and inheritance taxes. Further, you may have a taxable estate in the future as your assets appreciate in value. You should regularly review your estate plan with an estate planning attorney to ensure your estate plan takes into account changes in the tax laws as well as shifts in your individual circumstances.
*There is currently no Ohio estate tax, but other states may have a state estate or inheritance tax.
Because of the Unlimited Marital Deduction, a married person may leave an unlimited amount of assets to his or her spouse, free of federal estate taxes and without using up any of his or her estate tax exemption. However, for individuals with substantial assets, the Unlimited Marital Deduction does not eliminate estate taxes, but simply works to delay them. This is because when the second spouse dies with an estate worth more than the exemption amount, his or her estate is then subject to estate tax on the amount exceeding the exemption. Meanwhile, the first spouse’s estate tax credit was unused and, in effect, wasted. The purpose of a Credit Shelter Trust is to prevent this scenario. Upon the death of the first spouse, the Credit Shelter Trust establishes a separate, irrevocable trust with the deceased spouse’s share of the trust’s assets. The surviving spouse is the beneficiary of this trust, with the children as beneficiaries of the remaining interest. This irrevocable trust is funded to the extent of the first spouse’s exemption. Thus, the amount in the irrevocable trust is not subject to estate taxes on the death of the first spouse, and the trust takes full advantage of the first spouse’s estate tax credit. Special language in the trust provides limited control of the trust assets to the surviving spouse which prevents the assets in that trust from becoming subject to federal estate taxation, even if the value of the trust goes on to exceed the exemption amount by the time the surviving spouse dies.
*There is now a way to prevent the unused credit from being wasted.
The FLP has a number of benefits: Transferring limited partnership interests to family members reduces the taxable estate of the older family members while they retain control over the decisions and distributions of the investment. Since the limited partners cannot control investments or distributions, they can be eligible for valuation discounts at the time of transfer which reduces the value of their holdings for gift and estate tax purposes. Lastly, a properly structured FLP can have creditor protection characteristics since the general partners are not obligated to distribute earnings of the partnership.
*There is also the possibility for a surviving spouse to use the deceased spouse’s unused exemption. If your estate is large, you should discuss this with your attorney.
There are generally two types of durable powers of attorney: a “present” durable power of attorney in which the power is immediately transferred to your attorney in fact; and a “springing” or future durable power of attorney that only comes into effect upon your subsequent disability as determined by your doctor. When you appoint another individual to make financial decisions on your behalf, that individual is called an “attorney in fact”. Anyone can be designated, most commonly your spouse or domestic partner, a trusted family member, or friend. Appointing a power of attorney assures that your wishes are carried out exactly as you want them, allows you to decide who will make decisions for you, and is effective immediately upon subsequent disability.