What is Estate Planning: A Guide to Understand Estate Planning

What is “estate planning”?

If you have ever wondered what the term “estate planning” actually means—good news! You are in the right place. As an Atlanta Estate Planning Attorney, I can tell you that for the most part it doesn’t have much to do with estates as we think of them in the movies—large houses with lots of land. Estate planning is the process of making sure that you, your loved ones, and your assets are protected in the event of your death or disability. This does not require owning an “estate” or even owning a house at all.

Technically whatever you own (even if it is only personal property) is your estate. Which means that literally, everyone has an estate. In fact, in Georgia, you can make a will at age 14(!).

Estate planning comes with its own “lingo.” If you would like to skip right to an Atlanta estate lawyer’s explanation of some of those terms, check out our articles on them here and here.

The three goals of estate planning

The three goals of estate planning are to protect yourself, your loved ones, and your assets. And, as a bonus, give yourself some peace of mind. (Which is coincidentally the title of my book “Peace of Mind Through Estate Planning” and you can download a free copy here or call us at (404) 736-6066 and we’ll send you one.) There are quite a few possible document choices you can make when building your estate plan, and one of the best ways to think about them is to consider who they are designed to protect and when they come into play. Your will only becomes activated after you have passed away. It is designed to protect both your loved ones and your assets. A power of attorney, on the other hand, is only in force when you are alive and its purpose is to protect you (and maybe also your assets.) The advance directive for health care is also designed to protect you during your lifetime. A designation of standby guardian protects your children during your lifetime by designating a guardian to take care of them if you are alive but cannot. A guardian named in a will doesn’t step in until the person has passed away. Trusts can actually work for all three goals of estate planning. Having your assets in a trust can allow a successor trustee to manage them for you if you are incapacitated, which protects you and protects against loss of assets. After you have passed away, your loved ones are protected by whatever rules you put in place for the spending of the assets as well as by the avoidance of probate.

What is probate and why would I want to avoid it?

Speaking of probate, and particularly of avoiding probate, one of the common techniques for protecting your loved ones and your assets is avoiding probate. In order to understand why you might want to do this, let’s discuss what probate is.

Probate is the process of paying any bills you leave behind and distributing assets to the people that are supposed to get them. The probate court oversees this procedure. It begins with filing a petition in probate court, usually with the help of an Atlanta probate attorney. There are certain people that must be notified, the natural heirs of the deceased (ex: the people who would have inherited if there was no will). Once everyone has been properly notified and given a chance to object, the probate judge will issue the letters testamentary appointing the executor of the estate and the Atlanta probate process begins. It is the executor’s job to notify creditors, file any necessary taxes, and ultimately pass the correct inheritances to the correct people. There are timelines, which often require the help of a probate lawyer to understand, and there are a lot of forms to fill out.

Probate in Georgia isn’t as difficult as it is in some places, but it takes time and energy during a difficult moment for the family. Assets cannot be accessed until the appropriate steps have been taken, and sometimes not until creditors have been paid. It costs money and it causes stress, so many people choose to consult with an estate planning attorney about how to avoid it entirely.

If you have questions about probate (or about how to avoid it), give us a call at (404) 736-6066.

What is a will?

Everyone has heard of a last will and testament and many have the mental image of an attorney gathering a family together for the reading of the will. While the will is one of the major building blocks of an estate plan, contrary to popular belief, a will does not avoid probate. It should make the probate process easier by providing instructions and possibly relieving the executor of the need to post a bond or file an inventory, but a will does go through probate. For more on this wills and probate, check out this article.

The purpose of a will is to 1) put someone in charge of handling your estate (the executor), 2) appoint a guardian for any minor children, 3) make sure people get the things you want them to have, and 4) waive the requirements for the executor to be bonded and do an inventory (unless you want those things). Don’t forget that you can include your pets in your estate planning!

Of course, one of the key times to get a will done is when you are getting married. For more on that subject check out this article. You’ll also definitely want to make sure you have a will in place as soon as you have children. And while we’re discussing taking care of beloved family members, you may want to protect your pets.

We recommend that you look over your will once a year (unless you already know something needs to be changed) and make sure that all of your choices are still valid. Every 3-5 years you should consider having your will reviewed by a Georgia estate planning attorney to make sure that there haven’t been any changes to the laws that would necessitate you making changes.

What is a power of attorney?

What happens if you are in the hospital and need someone to go to the bank for you or need someone to make time-sensitive legal decisions for you? A durable financial power of attorney is the document that gets this done. The power of attorney designates an agent (and a backup agent) who is authorized to do those things on your behalf. During an emergency, many things are time-sensitive, and having someone already authorized to act for you can make things much less stressful.

There are many options with a power of attorney. The first is whether you want it to be valid immediately or only to start once you are incapacitated. There are pros and cons to each of these, namely weighing the security of not having the power of attorney effective when you don’t need it, versus the security of knowing it will be ready to go immediately with no further steps necessary when it is needed.

There are also options available regarding which types of authority you delegate to your agent under power of attorney. Georgia law provides for general powers and a list of specific powers. Your estate planning attorney will explain the different powers to you, as well as making modifications to the powers to extend or further limit them.

The durable financial power of attorney is often overlooked because people think about estate planning in terms of what happens to their assets after death. However, a solid estate plan also makes provisions for protection during your lifetime and the power of attorney is an important part of that.

What is the Advance Directive for Health Care?

Just like the financial power of attorney gives someone the ability to help you legally and financially, the advance directive for health care authorizes health care agents to assist with your medical care. This document is popularly known as a living will or medical power of attorney in many places.

The advance directive for health care lets you choose the person or persons who you would like to be able to make medical decisions on your behalf if you were unable to. You can also make decisions about your medical treatment wishes, which is helpful both to your doctor and to your health care agent. Letting your loved ones know whether you would want to be put on a ventilator or would want to have CPR administered to you helps to make sure you receive the care you actually want to receive and allows them to be confident that the decisions being made are the ones you want.

What is the Designation of Standby Guardian?

Parents of minor children (children under the age of 18) often give a lot of thought to who would take care of their children if they died. This is dealt with in your will. An equally important question is who would take care of your children if you are in the hospital or stuck in another country and can’t get home. The last will and testament does not have any effect in this situation, because you are still alive. The designation of standby guardian is the document that governs this.

If someone needed to take care of minor children, even for a short period of time, they would need to be able to authorize medical treatment and interact with the child’s school or daycare. The designation of standby guardian makes sure that this is possible. It also makes sure that there is someone legally able to claim the minor children so that the Department of Children and Family Services doesn’t have to keep them while the situation is being sorted out.

It is important that the standby guardian be local and able to appear quickly if needed. If your family lives far away, it may be desirable to choose a local friend or neighbor for this position, even if it isn’t the same person chosen as the long term guardian in your will.

What is a Trust?

A trust is a legal entity that can own property and is governed by the rules set forth in the trust document. Because a trust is not a person, it requires a trustee to actually manage the property. However, the trustee is not the person who gets to use the property. It is the beneficiaries named in the trust that actually receive the assets placed in the trust. This can get confusing, because the grantor (the person who created the trust and placed the property in it) can also be a beneficiary of the trust AND the trustee of the trust in some cases. Some types of trusts have special requirements about whether the grantor, trustee, and beneficiary can be the same person, but revocable living trusts are often structured this way.

As the grantor, trustee, and beneficiary of your own revocable living trust, you can both choose what rules you want to put in place for the trust and continue managing your own property. Of course, you can also choose someone else to act as trustee and manage the property for you, but it is very common to start out as your own trustee.

What is the benefit of having a trust? One of the main advantages is that trusts don’t have to go through probate. As explained earlier, probate can be a long and frustrating process, so being able to skip it and immediately distribute property to your beneficiaries is a win. Another benefit is being able to name a successor trustee. This means that if for any reason you are no longer able to continue managing your own trust, there is someone who can immediately step in and do it for you. This can be a huge relief for both elderly clients and their children because it allows for an almost seamless transfer of responsibilities to the chosen trustee. There are a number of other benefits, some of which depend on the trust being structured in a specific way.

An important consideration with trusts is making sure they are funded. Only the property actually transferred to and owned by the trust is managed by the trustee. If anything is left out of the trust, the successor trustee won’t be able to manage it during the grantor’s lifetime, and it may also have to go through probate. Real property has to be transferred into the trust by changing the ownership on the deed, and a similar name change is required for other property and accounts. We always make sure to help our clients transfer assets into the trust so that this won’t be a problem for them.

What Can a Trustee Do?

The trustee is the person charged with administering trust assets. When the grantor establishes the trust, the grantor chooses both the initial trustee and the successor trustees. The grantor may choose themselves, another individual, or a company as trustee.

The trustee can manage the property as if the trustee owns it, i.e. sell it, repair it, pay taxes on it, etc. However, the trustee is not the one who benefits from the property by getting to live in the house or receiving the income, etc.

The beneficiaries of the trust are the ones that get to enjoy the trust property, however, only according to the rules of the trust. The trustee must follow any rules the grantor put in place regarding how money should be used and when it should be distributed. Sometimes a trust will leave this entirely to the discretion of the trustee, but many times the trustee will be held to something called an “ascertainable standard.” One of the more popular ascertainable standards is health, education, maintenance, and support. This means that trust money should be used to take care of those things for the beneficiaries.

Types of Trusts

There are many, many different types of trusts, and each of them are designed to do different things. These are only a few of the options that we may be able to assist you with.

Living trusts (revocable or irrevocable)

A living trust is created and funded during the grantor’s lifetime. There are many different sub-types of trusts under this category. The other main category is a testamentary trust, which is created through a will. Living trusts are very useful for avoiding probate, because property owned by the trust can be distributed by the trustee at any time and does not have to go through probate in order to be transferred. They also work well for ensuring property can continue to be managed seamlessly if someone becomes incapacitated. Another benefit of trusts is that they are private, unlike probate records, which are public.

Testamentary trusts

A testamentary trust is included inside your will and is only “activated” after you pass away. These are often used in situations where it is possible that a minor might inherit something. The will can specify certain ages and if the person is below that age, the property is held in trust, but if the person is over that age, they receive the property outright. Testamentary trusts can also be used to make sure beneficiaries are using the money wisely. The trustee can pay for legitimate expenses without fear that the beneficiary will squander the money.

Marital trusts

Marital trusts are only available for the surviving spouse. With the use of this trust, the surviving spouse can use all of the marital assets during their lifetime and only after the second spouse dies are federal estate taxes dealt with. The trust will also specify who receives the property after the passing of the second spouse, which means that because the surviving spouse does not own the property outright, they cannot change the ultimate beneficiaries. This is often a good solution for blended families where it is important to take care of a beloved spouse and of children from another relationship.

Trusts for minors

Minors should not inherit property outright, because it can create management and title issues. If the property is put into a trust for the benefit of the child, the trustee can use the money to pay for the child’s needs and once the child becomes old enough the trustee gives the remaining assets to the child. The trust can specify what age that should be. Often trusts employ tiered approaches where a percentage of the trust is given to the child at several different ages. This prevents the child from spending the money all at once.

Spendthrift trusts

Spendthrift trusts are designed to protect assets from the creditors of a beneficiary. This can come in handy if the beneficiary is generally bad with money, or is even going through a bankruptcy or divorce. With this type of trust, the trustee has discretion about whether to give the beneficiary any money at all and only does it when the trustee believes it is in the beneficiary’s best interest. This means that the money will not be available for division in a divorce, but it also means that the beneficiary is quite reliant on the trustee’s willingness to do the right thing with distributions.

Charitable trusts

Charitable trusts are used to make a difference in the world through charitable giving, while reducing the estate taxes that an estate will be subject to. This type of trust is typically used for very large estates that are subject to federal estate taxes. Depending on the grantor’s desires, these can be structured many different ways; some pay the family first and others pay the charity first. The grantor can run their own charitable foundation or the money can go to a donor-advised fund or directly to a specific charity. This is a great way to make a positive impact on your community while minimizing estate taxes.

Credit shelter trusts

Credit shelter trusts are another trust only available to a married couple. If one spouse dies, leaving property outright to the second spouse, when the second spouse dies, everything left is used to calculate whether estate tax is owed. Through the use of this trust, the first spouse can leave assets in trust, so that the second spouse can use the income but doesn’t own them outright. When the second spouse dies, only the assets actually owned by the second spouse are used to calculate that spouse’s estate tax. The assets from the credit shelter trust are then inherited by the beneficiaries designated by the first spouse.

Insurance trusts

Insurance trusts are irrevocable trusts with excellent creditor protection. The trust owns a life insurance policy, which will not be counted as part of the estate for estate tax purposes, and will also not be subject to the estate’s creditors and debts. This can be a very good way of making sure beneficiaries receive the money that you want them to have. In order to maintain the benefits of this trust, very strict rules must be followed for the trust and the insurance policy.

Qualified terminable interest property trusts

This trust is often referred to as a QTIP trust and is a specific sub-genre of marital trust. The surviving spouse does not have as much access to the trust property as in a standard marital trust, and can only use the trust income. It is also possible to allow the surviving spouse to take $5,000 or 5%, whichever is greater, out of the trust assets. This type of trust can protect from creditors, estate taxes, incapacity issues, and is often used for blended families to ensure that assets are eventually received by the children.

If you have any questions about estate planning or the probate process, or if you would like to schedule a consultation with Atlanta estate planning attorney Sarah Siedentopf, please call (404) 736-6066 or you can fill out our online appointment form.