Minimal Planning. Almost everyone has an “estate”. An “estate” is the property a person owns and controls. Estate planning concerns the management and distribution of that property when the owner is no longer able to do so. This is most often at the time of the owner’s death but can be before death if the owner becomes incapable. A good estate plan addresses distribution and management of the owner’s property in both circumstances. Although not concerned with property, most estate plans also include some provision dealing with medical matters. A minimal plan often consists of a will, a power of attorney and an advance health care directive.
- A will specifies who is to receive the owner’s property at the owner’s death and who will be in charge of the process. Parents of minor children should nominate the person or persons of their choice to serve as guardians for their children. In the absence of a will, state statutes specify you will own the deceased’s property, who will control the process of settling the deceased’s affairs, and puts the probate courts in charge of designating guardians for any minor children without the parents’ nominations.
- Powers of Attorney. A power of attorney can authorize a person (sometime referred to as an “attorney-in-fact” or “agent”) to manage the owner’s property while the owner is still alive. If a property owner becomes incapable prior to death without a plan in place, probate court premature control of the owner’s property is the likely outcome.
- Advance Health Care Directives. Any competent person can documenting his own medical care. By executing a document called an advance health care directive (sometimes called a “living will” or a “death with dignity document”) a person can direct his or her future medical care if the person becomes terminally ill or permanently comatose and is no longer able to direct his or her medical care. A written designation of a health care representative can authorize a person or persons to make medical decisions for someone who is no longer able to do so. The advance health care directive and the designation of a health care representative are often combined in a single document.
More Extensive Planning. Considerations of planning concerns and objectives may result in addressing planning issues that go beyond a minimal plan. Some of the more common concerns and objectives are briefly noted below. This list is not comprehensive and not a substitute for competent professional advice.
- Beneficiary Designations. Most life insurance policies, individual retirement accounts (IRAs), annuities with death benefits, and retirement plans, are controlled by beneficiary designations and not by a person’s will. Sometimes securities and other assets are controlled by payable on death designations or survivorship provisions. A good estate plan involves consideration of all such post mortem transfers and careful coordination with the person’s will.
- Credit Shelter and Family Trusts. If assets are likely to exceed estate tax exemption amounts, good planning can reduce or eliminate those taxes. Trusts are often used for this purpose and can be set out in a will or a living trust instrument. Married persons can often double the available transfer tax exemption equivalents through the use of a “credit shelter trust” or “family trust” at the first death. Caution, be alert to advertisements and claims that expensive estate plans are needed for this purpose. Increases in estate tax exemption equivalent amounts in recent years have made the need for complex transfer tax planning unnecessary for all but the very wealthy. Simplification of such plans is generally advisable and more cost effective than keeping them in place for most people.
- Designation of Conservator. Connecticut law allows a competent person to designate the person or persons her or she wants to handle their affairs in the event of future incapacity. By signing a properly drafted designation document, the signer, rather than a probate judge or family members, can select the person or persons to act under court supervision to handle the signer’s affairs. That document can also reduce court expenses by excusing bond in for the designated conservator in appropriate cases.
- Irrevocable Life Insurance Trusts. Wealthy individuals seeking to maximize transfer tax savings to beneficiaries can sometimes benefit from placing life insurance policy ownership in an irrevocable life insurance trust (sometimes referred to as an “ILIT”). These trusts often are effective for wealthy married couples who purchase second-to-die life insurance if the spouses are not likely to need the cash value of the policies during their lifetimes.
- Living Trusts. Living trusts are useful to provide for management of a person’s affairs while the person is alive as well as to provide for distribution to the person’s beneficiaries at death. The person establishing and funding the trust is commonly referred to as the “settlor”. A trustee can act much like an attorney-in-fact under a durable, general power of attorney. Living trusts have the advantage over durable, general powers of attorney by allowing the settlor to specify guidelines and requirements for handling his or her affairs rather than relying solely on the discretion of an attorney-in-fact. Caution, be alert to advertisements and claims touting living trusts as providing probate court avoidance. In Connecticut the assets of a living trust must be included in a Connecticut estate tax return at the settlor’s death. The estate tax return must be filed in the probate court and the court fee is calculated as a percent of the settlor’s assets including the value of all the assets in the settlor’s living trust.
- Management Trusts. If there are beneficiaries who are immature, unsophisticated or senile, trusts can provide the needed management and control for assets an owner wants to give them. These types of trusts are sometimes referred to as “support trusts” or “spendthrift trusts”. The can offer a measure of protection from the creditors of beneficiaries.
- Marital Agreements. Premarital and post marital agreements are often advisable for persons marrying for a second or third time. They can help provide for children by previous marriages and honor commitments that may have been made to previous spouses.
- Special Needs Trusts. The quality of life for recipients of governmental benefits can oftern be improved while keeping the recipients eligible for their benefits through special needs trusts (sometimes referred to as “supplemental needs trusts”). These trusts allow trust funds to be used to supplement what benefits are available through governmental programs but do not to replace or substitute for those benefits.