OUR BUSINESS IS YOUR BUSINESS
By Douglas B. Marks
Are you wondering whether you need to get a will or trust in place and why it matters in Idaho? Are you wondering what it costs and how the process with an attorney works? I’m going to try to answer those questions in this article.
Question 1: Do I Need a Will in Idaho?
Question 2: Do I need a trust?
Question 3: Do I need a financial power of attorney?
Question 4: Do I need a healthcare power of attorney or healthcare directive?
Question 5: Who should I appoint as my personal representative?
Question 6: Who should I appoint as my power of attorney?
Question 7: How much does it cost to do all those things?
Question 8: Do I need an attorney to help me? Can I do it on my own or with an online service?
Question 9: What property can pass to my heirs without a will or trust?
The quick answer is, “You probably do.” In some cases, it’s OK to die without a will. Your property may pass just the way you intended it. But in some cases it’s absolutely critical that you do have a will. Let’s discuss that further.
Idaho has a law called the “intestacy law” that governs what happens to your property when you die without a will (intestate). The intestacy law tries to guess who you would want to give your property to. In general, if you don’t have a will, your community property (money and property you acquired during your marriage) will go to your surviving spouse, andif you have no surviving spouse, it will go to your surviving children in equal shares. Your separate property (property you received as a gift or inheritance or property that you brought to the marriage) will go half to your surviving spouse and half to your children.
This is a huge over-simplification, but that’s the general idea.
While dying intestate (without a will) isn’t the end of the world for most people (well, actually, I guess it is), there are many reasons that people do need to have a will. Here are just a few of those reasons:
1. You want to designate who you want to administer your estate (your personal representative). You may not like who the intestate law would appoint as your personal administrator, and if you don’t leave a will, the person designated by the law will have the right to serve, regardless of your wishes.
2. You may wish to disinherit a child. If that is the case, but you don’t leave a will, that child will get his or her statutory share, regardless of your wishes, and regardless of what you may have told that child or your other children. (Nothing you say before you die matters—only what you put in your will matters.)
3. You may have a child from a prior spouse that you want to treat differently than the law provides.
4. You may have given some property to one of your children during your life, and in order to be fair, your inheritances need to take that gift into account.
5. You may want to leave a list of specific items to give to specific people. You can do that in conjunction with a will, but you can’t do it if you don’t leave a will.
6. You may wish to leave some of your property to your church or other charity. None of that can happen if you don’t leave a will.
7. You absolutely do need a financial power of attorney and healthcare power of attorney and healthcare directive, and those are often prepared in conjunction with a will (often for very little charge). If you don’t leave a will, you likely also won’t leave those documents, which will leave your children in the dark when you are disabled or otherwise are not able to act on your own behalf.
When you die, you aren’t around anymore to determine what happens to your property. (Remember how I said that dying actually is the end of the world?) Therefore, the law has created a method for you to indicate, before you die, what you want to happen with your property after you die. That document is called a will. (A trust does the same thing, but we’ll talk about that next.)
When you die without a will, your family has to figure out what the intestacy law says about how your property passes and who will administer the distribution of that property. That probably involves a lawyer. Then (in terms that are way over-simplified), your family goes to a court and gets court orders that dictate what happens to your property under the intestacy laws.
When you die with a will, the individual whom you have appointed as your personal representative takes your will to court and gets the court to acknowledge that the will is valid. Then the personal representative carries out the terms of the will by distributing the property to the people indicated in the will. That process is called “probating” the will and “administering” the will.
The personal representative (PR) can determine how formal she wants the process to be and how involved the court will be, but in essence, the more involved the court is, the more final the administration will be and the harder it will be for creditors to get into the estate after it is administered. But that’s an article for another day.
Here are some of the other benefits of having a will:
A will allows an individual to communicate directions as to how surviving children should be cared for. Guardians for your minor children can be designated, and a testamentary trust (one that is included in the will) can even provide for how the children’s expenses are to be satisfied after your death. Without a will, the courts will have to decide who gets custody of the children and how they are to be supported.
In a will you can also describe how your remains are to be handled (cremated or buried), what expenses you have already paid (such as for a burial plot), and how you would like your funeral to proceed. You can also express final thoughts, beliefs, and hopes to your children and grandchildren.
The process of preparing a will can also be very beneficial in the sense that you will think through your assets and plan for their disposition. In some cases, this will prompt you to title property differently or to take other action (such as setting up a trust) to help you avoid taxes.
As you can see, most people will benefit significantly by executing a will. If that’s what you’re thinking, you might be thinking, “OK, maybe I do need a will. But do I need a trust?
Let’s talk about what a trust can do for you.
1. Privacy: First of all, a trust protects your privacy after you die. When you create a trust, you transfer your assets into the trust in your lifetime, so that when you die, your assets don’t have to be listed individually in the probate records of the state in which you live, which are usually a matter of public record. Some people find, for example, that when they have received an inheritance through the probate process (the process of administering the estate of a person who has died and distributing the assets), their old creditors discover a renewed interest in them. The creditors may have learned, through the probate records, that the individual has received an inheritance. With a trust, the assets in your trust don’t need to go through the probate process, and you need not tell anyone what is in the trust. If you are disabled or die, the trust keeps the same ownership and gets administered under the terms of the trust. No publicity is necessary or required.
2. Control: A trust can also give you a great deal of control over what happens when you die. For example, you can designate when assets are distributed from the trust to your heirs, whereas with a will, the assets are distributed as soon as the estate is probated.
When you have a trust, you can insert a great deal of detail about how your assets will be administered during any period in which you are disabled. This gives you a great deal of flexibility, as compared to a financial power of attorney. For example, while a financial power of attorney can appoint an individual to take action on your behalf, that person is left on their own to determine what to do. In a trust, by contrast, you can actually give very specific directions on what is to happen with your assets, and the trustee will have to follow those directions.
This is especially important when you want to take action that is not necessarily for your own financial benefit. When an individual has a power of attorney for you, they have fiduciary obligations on your behalf, and they must act in your interests. That does not necessarily include benefitting your children. But you may actually want your assets to be managed in a way that benefits your children, not you. A trust allows that kind of disposition, while a power of attorney does not.
3. Creditor Protection: A trust can also include provisions that protect your heirs from being pursued by their creditors. For example, in a trust you can designate how much will go to which children, how it will go, and when. And you can specifically include terms that make your trust impenetrable to creditors of your heirs (and to individuals who may wish to take advantage of your heirs). Once property is distributed to your heirs, it is subject to creditor claims, but by controlling the timing of distributions, you can limit that risk.
4. Tax Consequences: As a rule, revocable trusts do not protect your assets directly from taxes, since you are still in control of the assets in a revocable trust. In some circumstances, however, an irrevocable trust can be structured to avoid tax consequences. Not many people use trusts to avoid death taxes anymore, because the estate tax exclusion is well over $11,000,000 for each spouse, meaning a person can pass that much property to an heir without paying any taxes (at least until 2026, when it will revert to just under $6,000,000 each, depending on inflation).
5. Control Through Generations: A trust can be structured so that your heirs can either receive outright distributions or a certain amount of income from your trust, and you can even create cascading trusts, so that each child of your heirs can have the same protections of a trust.
6. Flexibility: A trust gives you amazing flexibility. For example, if you have a blended family (his, hers, and ours), you can provide that your spouse gets the income from your property for the rest of their life, but upon their death, the property goes in trust to your children (not your spouse’s children). Almost any conceivable way of handling property can be accomplished in a trust, within certain limitations.
7. Attorney Fees Savings: Finally, a trust can actually save you a lot of money in the long run, since administration at death just follows the terms of the trust instrument and the assets aren’t subject to court proceedings and decisions. However, it usually costs a good deal more to set up a trust than to execute a will, because you need to make and record many more decisions for yourself (which would be made for you if you executed a will or had no will at all). And you need to be sure to fund the trust by moving assets into the trust. That need not be overly expensive, but you need to be sure to do it. If you don’t move assets into your trust, they will be probated the same as any of your other assets. Generally, it is wise to go ahead and prepare a pour-over will to capture assets that aren’t transferred into the trust before you die, and that pour-over will would need to go through probate. It would just be a much simpler process.
8. Revocable versus Irrevocable: In almost every case, if you need a trust, you will create a revocable living trust. That means you can take things out of your trust at any time. Because you retain complete control over your assets, your trust doesn’t have any separate existence for tax purposes. Once you die, your trust becomes irrevocable, and the assets in the trust at the time of your death are administered under the terms of the trust. But during your lifetime, you are free to move things in and out of your trust.
That is not the case with irrevocable trusts. When you move assets into an irrevocable trust, those assets are there to stay, which will have tax consequences. Few people need irrevocable trusts anymore, and they should be formed only with expert legal and tax assistance.
A financial power of attorney gives an individual the right to act in your behalf when you are disabled or unable to communicate your desires regarding your property. It only has effect until the moment you die, when your will kicks in. With more people living beyond what they did in years past, a financial power of attorney becomes an important document. Most people would be wise to execute one, since it allows them to choose a person they trust to act on their behalf.
If you don’t have a financial power of attorney for finances, you will be forced to get the court to appoint someone to act on your behalf, which can be expensive. It can also create conflict and other difficult situations.
You need a healthcare power of attorney for essentially the same reasons as you need a financial power of attorney. If you are unable to communicate your own desires regarding your healthcare, you will be happy to have appointed somebody to act on your behalf. Otherwise, your caregivers may be forced to go to a court to get decisions made on your behalf.
The healthcare directive is different. A healthcare directive tells medical professionals what you want to have happen if you cannot communicate your desires and are, in essence, in a persistent vegetative state. (Again, I’m over-simplifying, but you get the idea.) Your directive tells the doctors whether you want to be kept alive at all costs or whether (and under what conditions), you want them to cease medical intervention. This avoids a great deal of turmoil for your surviving children, who will be forced to make that decision if you don’t tell them what you want.
Most people who are working on wills or trusts appoint their surviving spouse as their first choice for personal representative or successor trustee. (People usually appoint themselves as trustees during their lifetimes.) So it’s really the successor where that consideration comes into play.
I usually advise people to think of a PR or trustee who has some financial capability and stability. You also need to appoint somebody you can trust. This is not a time to think about the feelings of your children. You need to appoint somebody who can handle it. In fact, in some instances, appointing a professional trustee or personal representative can be wise.
Many of the same considerations apply to the choice of your power of attorney. You want somebody who will be stable in a difficult time. This is an item to discuss with your attorney.
1. Pricing: Attorneys charge varying amounts when it comes to wills and trusts. It’s easy to get hooked on a low rate for a will and then get charged extra for the ancillary documents (powers of attorney and healthcare directives). I don’t ever do wills without the ancillaries, because I consider them even more important than the wills, so I just quote one rate for the group together.
Every client has different needs, so I always meet with clients to get an idea of what needs to be done for them before quoting my rates. I am happy to quote a flat fee if clients would prefer. Or, if the clients prefer an hourly rate, I am happy to do that as well. Funding of a trust is never included in a flat rate, since that varies so wildly from client to client.
2. Process: I have an initial free consultation with each client (or couple). I inform each couple before beginning, that I will disclose whatever they tell me to the partner, since that is required by my ethical rules. (If a partner ever wants to hide something from a partner, he or she needs to get a separate lawyer.)
As part of our discussion, we discuss a tentative plan on how to structure their wills or trusts and their other documents. If they want to move forward, I e-mail them an engagement letter and questionnaire, both of which they can fill out and submit using my secure forms online. I also request that they pay the flat rate amounts for their plan up-front into my trust account.
Once my clients fill out and submit the online engagement letter and questionnaire and deposit their retainer into my trust account, I draft the documents and send discussions drafts. We work through revisions via e-mail and via telephone, and then we get together in person to execute the documents.
3. Records: I do not keep originals of wills, trusts, and ancillaries. I always give the originals to my clients. However, I do scan and keep electronic copies of the executed documents, which I convey electronically to my clients, so they can easily forward those copies to their children, PR’s, and other interested individuals.
You can do all this yourself or with the assistance of an online document preparer. However, there are important reasons you should consider talking with an attorney who can meet you face-to-face and help you personally. Here are a few:
1. Capacity: If somebody challenges your will after you die and alleges that you lacked the necessary capacity (understanding what you were doing) to make a will, it will be helpful to be able to have an attorney testify that you were totally aware of what you were doing and capable of making informed decisions. You can’t get this from an online document preparer.
2. Specific Advice: When you use an online document preparer, you will have a set of questions to answer, but you will not have an opportunity to ask questions of your preparer. And if the preparer does give you an opportunity to ask questions, you will be charged for the time spent helping you. If that is the case, you would do just as well talking to somebody in person.
3. Execution: An online document preparer cannot help you execute your will and ancillaries. Different documents require different methods for execution. In Idaho, we can use self-proving wills (wills that can stand up for themselves in court because of the combination of witnesses and notaries), but they have to be done correctly. An attorney can tell you which people may not serve as witnesses and how the execution needs to occur in order for the will to be effective. An online service may send you instructions, but they cannot supervise the process.
4. Standing By Our Work: Whenever you hear a commercial for a document preparer, you are likely to hear the words, “We are not a law firm,” as if that were something positive. But what that really means is that they do not have to stand behind their work. They likely have no malpractice insurance and are not personally responsible for any mistakes they might make. When you hire an attorney to do estate planning for you, he or she is required to carry malpractice insurance to protect you in case a mistake is made.
Clients often have heard that they can pass their property by simply putting it in their child’s name. That is true in many cases. For example you can put your money in a bank account that gives your child a right of survivorship, which means you don’t have to go through the probate process for that asset.
You might also have retirement accounts, life insurance, and other types of accounts that automatically pass ownership to the survivor without going through probate. But each type of asset needs to be reviewed individually to be sure the transfer is effective and that you aren’t creating any tax or other liabilities.
Sometimes people also wish to transfer their real estate into their child’s name. Again, that can work in some cases, but there are significant concerns there. For example, what happens if your child is in an accident and gets sued? Or what if he or she gets divorced? Will you be able to stay in the home that you have conveyed to your child?
Your child might also be missing out on important tax benefits that he or she would get by letting the property pass at your death. For example, as a rule, when you convey property to a child as a gift during your life, your basis (the amount you paid for the property) will pass unchanged to your child. So when the child sells that property, she has to pay tax on the gain from the time you purchased the property (the difference between the basis and the sales price). If the property passes at your death, on the other hand, the child gets a “stepped-up” basis equal to the market value of your property at your death. So when your child sells the property, she only pays taxes on the gain that occurs between your death and the sale, since the basis will have been stepped-up at the time of your death. This can be a very large difference. It simply makes sense to consult with a professional when you are considering these matters.
Any advice I have offered in this article is intended for general information purposes only and should not be acted on without consulting with a lawyer about your specific circumstances. I have hugely over-simplified almost everything I’ve said in this article, for purposes of brevity and understandability.