Our Approach to Estate Planning
Estate planning by its nature can be a difficult subject to approach because of the inevitable realities of life and death that must be faced. That, coupled with the perceived complexities of structuring an estate, can be a strong deterrent for many to take the necessary steps to ensure their property and loved ones are protected, both now and down the road.
At Harrison & Gammons, “planning” is the operative word. We take pride in the opportunity to come alongside our clients and guide them through challenging estate matters, advise them on the legal aspects of the probate process and assist them with planning for their own and their family’s well-being. We recognize that each client’s estate is as personal and individual as our clients themselves, and we strive to provide a comprehensive, tailored estate plan. By focusing on our clients’ goals, we utilize our years of experience to avoid unnecessary complications and efficiently meet our clients’ objectives.
What is Estate Planning?
For most individuals, proper estate planning involves the process of ensuring that the property they leave behind at their death actually goes to those whom they want to receive it. It can also include planning for more immediate needs, such as sheltering and rearranging certain assets in preparation for the need for future long-term care benefits. Accomplishing these things can run the gamut from creating a simple will to devising well-structured trusts that allow assets to pass outside the normal probate process. Whatever the need, we work closely with our clients to determine their optimal estate structure and prevent needless expenses.
Factors to Consider When Developing an Estate Plan
There are many factors that should be considered when determining the best way to structure an estate plan. Those include matters like the value of the estate and the age, special needs, or competency of the beneficiaries. Large estates may require detailed tax planning, while potential minor beneficiaries usually need simple trusts established to provide support while protecting assets until the beneficiary reaches a designated age. Beneficiaries with special needs may require more involved trusts to ensure continued care and avoid jeopardizing other forms of assistance, e.g., Social Security benefits. Other beneficiaries may need to be protected from themselves, like those with histories of substance abuse, gambling addictions, or reckless patterns of behavior. Furthermore, individuals that anticipate having to apply for Medicaid or other government assistance for future needs, such as long-term care, should begin planning for those situations well in advance of the actual need.
Methods for Conveying Property Upon Death
Property, in the estate planning context, means all of an individual’s tangible and intangible assets, ranging from real estate and bank accounts to life insurance proceeds, family heirlooms and household goods. There are three ways in which property passes at death: by operation of law, by matter of contract, or under an estate.
By Operation of Law
Property that passes by operation of law is simply property that passes outside of probate by transferring the property’s title automatically to the survivor. A common example of this is a home owned by a married couple where the deed grants each spouse the right of survivorship. When one spouse dies, the surviving spouse immediately becomes the sole owner of the home. Structuring deeds in this way circumvents delays caused by probate and allows the surviving spouse to utilize or dispose of the property as his or her immediate need warrants. This method is not restricted to spouses but can be used to pass property to other family members, loved ones, or even non-individuals, like businesses or charities. Using a life estate is another example of an immediate transfer by operation of law. It is possible for someone to convey ownership of real property to someone else, such as a child or grandchild, and still retain the equitable right to live in or use the property until the grantor’s death; this tool allows the client to continue living in his or her residence without having the full value of the asset be attributable to him/her when it comes time to apply for long-term assistance. Upon the death of the holder of the life estate, fee simple ownership is automatically conveyed to the then owner of the property without any further action.
By Matter of Contract
Like operation of law, property that passes by matter of contract bypasses the probate process and immediately vests ownership in the beneficiary. Life insurance policies are probably the most prominent example of conveying property via contract. Upon the death of the insured, the named beneficiary receives the benefits of the policy without those benefits being channeled into the estate and distributed months down the road. Other common examples are bank accounts and retirement or 401k accounts. These types of accounts often list designated beneficiaries to whom the account is payable on death or transferrable upon death. Utilizing such contracts provides loved ones and other intended beneficiaries with nearly immediate access to needed funds.
Under an Estate
There are two ways that property passes under an estate: via testate succession or intestate succession. Testate succession simply means that property passes to the named beneficiaries through a will. Intestate succession occurs when an individual dies without a will. In the latter case, the laws of that individual’s state will dictate to whom and in what portion the deceased individual’s property passes to relatives, and many times, state law runs contrary to expectation.
A last will and testament is a tool by which individuals protect their loved ones from the uncertainty and complications that arise from intestate succession. Most people are familiar with the concept of creating a will. However, far less understand the implications of having a well-drafted will verses one that is poorly constructed or even having no will at all. Fewer still understand the process by which property is distributed through a will. When an individual creates a will, that individual (called the “testator”) dictates to whom his or her property will pass and in what portion. The testator also determines when those assets will be made available and whether they will be made entirely available to the beneficiary or will be managed by another individual on behalf of the beneficiary. This determination is very important when one or more of the intended beneficiaries is a minor, has special needs, or may not be trusted with complete control of the assets.
Probating a Will
Oftentimes, when a loved one dies and leaves a will, the beneficiaries think, “The will clearly states who the property goes to, so what’s the problem?” The problem is that by itself, a will has no authority until it is validated and administered through the probate court—this process is called “probating” a will. This includes allowing potential creditors to file claims, collecting the decedent’s assets, settling liabilities, and finally, distributing the remaining property to the heirs. Furthermore, if the will is not filed in probate court within five years of the testator’s death, the will, under Alabama law, no longer governs the distribution of the estate. Rather, the deceased’s property will be distributed in accordance with state laws through intestate succession. Harrison & Gammons guides our clients through this process, allowing them to focus on the most important and immediate concerns of dealing with a loved one’s loss, while we manage the requirements of probating the estate.
Who Needs a Will?
This is an age-old question, but the answer is simple: almost anyone who has assets or property that they wish to convey to others needs a will.
There are many misconceptions about the necessity of a will, and it would be impossible to address them all here; however, some of the most common misconceptions we encounter are discussed below.
“It’s all going to my spouse or my children anyway, so why make a will?”
The reality is that without a will, assets may not go to those whom the decedent would have chosen. In Alabama, when a spouse dies, the deceased spouse’s property does not automatically pass to the surviving spouse. Generally, if the decedent leaves surviving children or grandchildren, the surviving spouse takes only about half of the estate with the living descendants taking the other half in equal portions (with exceptions based on the relation of the surviving spouse to the children). This can be extremely problematic when the surviving spouse needs to transfer or sell any of the decedent’s property because all heirs of the estate (including minor children) must legally consent to the transfer or sale. In the case of minor heirs, a court is required to appoint a guardian ad litem (GAL) to represent the interests of those minors, and that GAL must consent to each individual transfer or sale of any estate property. This process can be time consuming and expensive. Additionally, even when there are no children, if the deceased spouse has living parents, those parents may take a portion of the estate, once again complicating the use, transfer, or sale of estate property.
“I don’t have a spouse or children, so why do I need a will?”
Some of the most difficult and expensive estates to probate involve those left behind by single individuals. This situation often leads to family contention as disagreements arise over how the deceased would have wanted the property to be distributed. A will protects loved ones from the added hardship of making such painful choices, shortly after suffering the loss of a family member. In the event that the decedent leaves behind a partner or significant other, that individual will have no right to any of the decedent’s property, no matter the length of the relationship or the fairness of such a result, if there has been no legal marriage between the two parties.
“I’ll just write my own will.”
Many states, including Alabama, do not recognize holographic wills. A holographic will is one that is handwritten and signed solely by the testator. Alabama requires at least two witnesses, and while not mandatory, it is best that neither witness be a beneficiary under the will. Furthermore, if a potential heir contests the will (e.g., an individual who stands to benefit by the will being deemed void), that contest will have to be defended in court. At Harrison & Gammons, we conduct each will signing in a methodical manner designed to eliminate potentially disgruntled beneficiaries or relatives from successfully challenging our clients’ explicit wishes related to the distribution of his or her estate.
Also, while there are numerous websites that offer do-it-yourself wills, we give our clients the peace of mind that only comes from having an experienced professional guide them through the estate planning process.
“The probate process is too expensive.”
Even without a last will and testament, the decedent’s estate must usually be administered through the probate court, and the cost could be greater than it would have been with a well-drafted will. At Harrison & Gammons, we help our clients identify property that can be more easily passed outside of probate while also weighing the potential disadvantages to help them arrive at the best solution.
The Cost Savings of a Will
A well-drafted will can eliminate expensive and unnecessary legal requirements imposed by probate court. For example, a properly constructed will waives the necessity of an accounting and inventory of the estate and the requirement of a bond. When an individual dies intestate or without a well-designed will, the estate must have an accounting and be inventoried. This usually involves paying a lawyer and/or accountant to file an accounting and inventory of the estate, which can be quite costly. Additionally, in such cases, a bond must be posted with the probate court to ensure that the person responsible for distributing the estate’s property (the “personal representative”) does not steal from the estate or distribute the property in a manner contrary to the will. The cost of the bond can be hundreds of dollars, and frequently, the personal representative is also the sole beneficiary (e.g., a surviving spouse). Thus, without a well-drafted will, the personal representative will have to spend several hundred dollars just to ensure that they do not steal from themselves. Such unnecessary expenses can be easily avoided through proper planning. Similarly, without a “power to sell” clause being included in a will, a personal representative cannot simply sell any property out of the estate to pay debts and expenses of the estate. Such permission can only be given via petition to the probate court for such authority and will generally require a hearing on the matter.
Factors to Consider When Creating a Will
There are many factors that should be considered when determining the best way to structure a will. As discussed above, those include issues like the value of the estate and the age, special needs, or competency of the beneficiaries. Other considerations include allowing for a memorandum containing directions for the division and disposition of certain articles of apparel, jewelry, and items of sentimental value. At Harrison & Gammons, we discuss these considerations with our clients to effectuate a complete and well-structured will.
A trust is a vehicle by which a third party (the “trustee”) holds and manages assets on behalf of beneficiaries. Property held in trust is distributed to beneficiaries outside the probate process and can be crucial in providing beneficiaries with immediate access to essential support, and in some states, can help shorten or avoid the probate process and reduce costs. While a trust may be a useful and sometimes necessary estate planning tool, in states like Alabama, they often create needless expenses and delays. Our attorneys have extensive experience in determining whether trusts are an appropriate component of our clients’ estates.
When Does a Trust Make Sense?
The most common example of a needed trust for estate planning purposes arises when one or more of the beneficiaries under the will are minors. If a testator dies leaving property directly to a minor under the will, the court will appoint a GAL for the child. That guardian will be tasked with managing the child’s assets until the child attains the age of majority (19 in Alabama). Once the beneficiary reaches the age of majority, that beneficiary gains complete control over his or her entire inheritance. While in some circumstances this may be fine, many young people are better served by having an experienced trustee who can apply the estate assets wisely (e.g., paying for college, making investments, contributing towards a down payment on a home, etc.). Many times, this type of simple trust can be included within the will itself rather than in a stand-alone document. This is referred to as a “testamentary trust.”
Other examples of needed trusts occur when there is great risk of contention between the intended beneficiaries, or in states (unlike Alabama) where the probate process is very expensive and protracted, or in cases where an individual’s assets need to be protected from potential creditors or government agencies, like Medicaid. For these cases and many others, we apply our expertise to customize our clients’ estate planning needs and provide maximum protection for their hard-earned assets.
Pre-death Planning Matters
Preparing for asset distribution after death is very important, but there are also other matters that many people overlook, including the creation of a living will and addressing who will make financial and medical decisions if one becomes incapacitated. These matters must be addressed while a person is still healthy and competent in order to be viable documents in times of need. We help our clients prepare for such unfortunate circumstances by explaining and providing general and health care powers of attorney along with advance directives for health care.
General Power of Attorney
A general power of attorney is a legal document that authorizes an individual (the “agent”) to make certain decisions on behalf of another person (the “principal”) related to the principal’s property. A grant of general authority extends the agent’s authority to nearly all the principal’s property, while a grant of specific authority limits the agent’s authority to specified property. Whether general or specific, a power of attorney is either ordinary or durable. Ordinary powers of attorney automatically terminate if the principal is incapacitated. Conversely, durable powers of attorney remain in effect despite the principal’s incapacitation. Determining whether a general power of attorney is right for a client is a consideration we address on an individual basis, helping our clients to be proactive in preparing for future uncertainties.
Health Care Power of Attorney
A health care power of attorney is another legal document that authorizes an agent to make health care decisions on behalf of the principal in the event that the principal is unable to give directions to a health care provider regarding his or her own medical treatment. This power also allows the agent to access medical records necessary to make such medical decisions and to share those records with health care providers. Under a health care power of attorney, an agent can make decisions about which health care professionals to use, what treatment options to pursue, and may give or withhold consent for medical procedures. Unlike living wills, a health care power of attorney is normally utilized to make medical decisions for individuals who are temporarily incapacitated. We encourage nearly all our clients to execute a health care power of attorney and assist them in understanding the necessity and implications of such a document.
A living will, created by the execution of an advance directive for health care, addresses end of life decisions by stipulating an individual’s wishes regarding life-sustaining treatments in the event of terminal illness, injury, or permanent unconsciousness. Thus, living wills can help protect loved ones from being forced to make such agonizing end-of-life decisions. Executing a living will is usually a simple and straightforward process, and we encourage all of our clients to have one in place.