PLANNING TERMS EXPLAINED

Wills
PROBATE is the legal process that takes place after someone dies (typically within 30 days). It cannot be completely avoided, but the confusion, duration, and hassle can be significantly mitigated by designing a trust-based estate plan.
WHAT’S THE PROCESS?
  • After you die, the first step is for your loved ones to locate and read your will (assuming you have one).
  • If you die without a will, the process will begin by filing the necessary documents with the appropriate circuit court so that they can appoint a personal representative to carry out these next tasks.
  • If you die with a will, the person you name as Executor must begin the process of listing/inventorying your property, your debts, and who is to inherit what you’ve left behind.
  • Your executor must find, secure, and manage your belongings throughout the probate process, which commonly takes six to eighteen months.
  • Your relatives and creditors are officially notified of your death.
  • If your will is contested by your heirs, your Executor must prove your will is valid.
  • Depending on the contents of your will, and on the number of your debts, the executor may have to decide whether or not to sell some or all of your property (real estate and personal belongings). For example, if your will makes a number of cash gifts but your estate consists mostly of valuable artwork, your collection might have to be appraised and sold to produce the money necessary to make those cash gifts. Or, if you have many outstanding debts, your executor might have to sell some of your property to pay those debts before they can give any of your property to those you named in your will to receive it.
  • Once taxes, debts, and legal fees are paid, the court will grant your executor permission to divide what’s left of your property among the recipients you named in your will.
A last WILL and testament is a legal document that specifies how your assets will be passed to your heirs after your death. It may also legally nominate permanent guardians for your minor children. The will must also name a personal representative (also known as an “Executor”) who will be responsible for processing your will through probate.
Wills can create testamentary trusts by directing that a trust be formed out of the will. This type of trust does not form until death and is irrevocable upon formation.
WHAT HAPPENS IF I DIE WITHOUT A WILL?
If you don’t have a valid will when you die, the circuit court will appoint a personal representative to oversee your estate and your property will be distributed according to the state of Virginia’s intestacy laws. None of your property is protected from creditors. Whatever is left of your property after creditors and court fees are paid will pass to your surviving spouse unless you have children from a previous relationship, in which case 1/3 of your property will pass to your spouse, and the other 2/3 will be divided among your children. If you are not married at the time of your death, your estate will be distributed among your children. If you have no children, then it will go to other relatives, starting with your parents and moving on to your siblings, nieces and nephews, grandparents, and so on. 
If you are a widow with children and you die without a will, you will not have legally nominated anyone to be the guardian(s) of your children. Instead, the circuit court will appoint a guardian for them, which may place them with the authorities of children’s services.
A TESTAMENTARY TRUST is a trust that is created by a will at the time of someone’s death. It does not take effect until death and is irrevocable upon formation. A TESTAMENTARY TRUST still requires the court process of PROBATE.
A POUR-OVER WILL is used when people make revocable living trusts to avoid probate. The POUR-OVER WILL directs that if any property passes through the will at the person’s death, it should be transferred to (“poured into”) the person’s trust and then distributed to the beneficiaries of that trust. This keeps the property from having to go through the court process of probate.
Trusts
A TRUST is a legal entity employed to hold property. Keeping your property in a trust is generally safer than leaving it in the hands of a family member; even a loved one with the best intentions could face a lawsuit, divorce, or other misfortune that would put that property at risk to creditors. 
Trusts can be used to determine how a person’s money should be managed and distributed while that person is alive or passed on to beneficiaries after their death.  In this way, it can dictate the terms of a beneficiary’s inheritance much like a will, but without the hassle of probate and with greater financial protection and control.
Trusts can also be used to provide for a beneficiary who is underage or has a mental disability that may impair their ability to manage finances. Once the beneficiary is deemed capable of managing their assets, they will then gain access to the trust property in part (controlled by a trustee) or in full (given outright).
WHY WOULD I NEED A TRUST? I’M NOT RICH.
  • To avoid probate
  • For privacy
  • To protect presently owned or inherited property from creditors
  • To provide for and protect your spouse from unnecessary taxes and creditors
  • To plan for underaged beneficiaries
  • To protect and preserve the inheritance for adult beneficiaries who are financially immature or compromised by substance abuse or gambling addiction
  • To protect your children’s inheritance in a blended family or remarriage scenario
  • To support your pets after you’re gone
  • To support a child or adult with special needs
  • For Medicaid planning
  • For retirement planning
  • For life insurance planning
  • For business succession
  • For tax planning
WHAT TYPES OF TRUSTS SHOULD I CONSIDER?
  • A Separate trust is a trust typical for unmarried people (and often best for married people, too, for various reasons) to avoid probate and protect some of your property from taxes and creditors.
  • A Joint Trust is usually typical of first-marriage couples as a way to consolidate property to pass onto their children, avoid probate, and protect some of their property from creditors and taxes. A separate trust might be better for remarried couples for various reasons.
  • After your death, a Marital Trust is used to take care of your spouse for the rest of their life and then transfer your property to someone else (your children) when your spouse passes.
  • A Family Trust is simply any trust you set up to benefit your family members. 
  • A Family Credit Shelter Trust is an estate planning strategy married couples use to keep property out of the surviving spouse’s “taxable estate.” At the time of the surviving spouse’s death, the property held in trust for them now transfers to other named beneficiaries and is not counted as property owned by the surviving spouse at the time of their death—it bypasses their estate.  This type of trust is also known as a “credit shelter” trust.
  • Marital QTIP Trust is an estate planning strategy married couples use to keep property out of the deceased spouse’s “taxable estate” by taking advantage of the federal “unlimited marital deduction.” At the time of the first deceased spouse’s death, the property is held in trust for their surviving spouse and will be counted in the surviving spouse’s “taxable estate” at the time of their death, but it will also transfer to other named beneficiaries chosen by the first spouse to die. This is especially advantageous to blended families who want to ensure their surviving spouse and their separate children are both taken care of. 
  • A Qualified Domestic Trust (QDOT) is a marital trust for foreign spouses.
  • Generation Skipping Trust is a trust often used to transfer property to grandchildren, but can be used to transfer property to anyone more than one generation younger than you.
  • An Incentive Trust is a trust that requires beneficiaries to achieve certain goals set by you before your trust property will be distributed to them. Examples of this could be the beneficiary must graduate college, achieve certain professional level, or that they could only use the trust property to buy a house or start a business.
  • Spendthrift Trust is a good idea for transferring your property to beneficiaries that are not capable of managing their own money, may have problems with addiction, or any other reason they might be susceptible to waste the property you have left them. A Spendthrift Trust can provide options for limiting their access to and control of assets left to them.
  • A Special Needs Trust is a trust designed to support a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security, Supplemental Security Income, Medicare, or Medicaid.
  • A Charitable Remainder Trust is an irrevocable trust designed to reduce your “taxable estate” by dispersing income to the named beneficiaries of the trust for a specified period of time and then, when that time is up, donating what’s left to a designated charity.
  • A Spousal Lifetime Access Trust is an irrevocable trust executed during your lifetime to remove property from your “taxable estate” and provide it to your spouse to use during their lifetime (your spouse will not pay an “estate tax” on these funds at the time of their death either). This type of trust can also indirectly benefit you while you are alive because your spouse will usually be the trustee and will likely use the property for the benefit of you both.
  • Qualified Personal Residence Trust places your home in trust for a period of time (while you live in it) before passing it to your named beneficiaries. This also removes the home from your “taxable estate.”
  • An Irrevocable Life Insurance Trust is an irrevocable trust designed to hold a life insurance policy and protect it from creditors and taxes. It is another powerful tool in reducing your “taxable estate” and the insurance proceeds distributed to the beneficiary also will not be taxed.
  • A Stand Alone Retirement Trust is a trust designed to receive your remaining retirement funds and hold them in trust for your chosen beneficiaries. This trust allows you to design the resulting trust for your beneficiaries however you choose rather than distribute their share of your retirement funds outright. This is particularly beneficial for underage beneficiaries or those who are not capable fo managing their own money.
  • A Horse Trust is essential for responsible horse ownership. It is a separate trust designed to transfer ownership of your horse to a trusted individual and may provide financial support for your horse after your death.
  • A Pet Trust is essential for responsible pet ownership. It is a separate trust designed to transfer ownership of your pet(s) to a trusted individual and may provide financial support for your pet(s) after your death.
Your trust can only protect and control the property you put into it. Therefore, the most important aspect of owning a trust is ensuring that your property is titled in the name of the trust and therefore “in” the trust. TRUST FUNDING & ASSET ALIGNMENT is the process of transferring ownership of your property from you to your trust. To do this, you physically change the titles of your property and accounts from your name(s) to the name of your trust. For example, putting your home “in” your trust requires retitling the deed to the name of your trust. For property and accounts that require a beneficiary designation (life insurance, transfer on death accounts, etc.), your trust would be designated as the primary or secondary beneficiary.
Once ownership is transferred, the trustee of the trust will have control of the property. Depending on your design goals, you can be the trustee of most types of trusts while you are still living.
 
TRUSTEE is a “fiduciary” who is responsible for the administration, management, and distribution of the property held in a trust. A trustee can be an individual or an entity (like a corporation or a trust company). Trustees have many obligations and duties defined by law and the trust document itself. 
FIDUCIARY is a person, company, or organization that acts on behalf of another person or persons. They must always put their clients’ interests ahead of their own and preserve good faith and trust with those they serve. Being a fiduciary requires being bound both legally and ethically to act in the best interests others.
FIDUCIARY DUTIES OF A TRUSTEE INCLUDE:
  • Loyalty to beneficiaries
  • Impartiality between beneficiaries
  • Confidentiality
  • Avoidance of conflicts of interest
  • Proper handling of trust property 
  • Prudent investment of trust property
  • Accounting of trust property
  • Informing and reporting to beneficiaries regarding the status of trust property
  • Paying taxes
  • Defending against claims by third parties
TRUST PROTECTOR is the watchdog of a trust. It’s a person or entity (like a trust company) who is appointed by the trust beneficiaries or the trust document itself to watch over a long-running trust to ensure that it isn’t adversely affected by changes in the law or circumstances of the parties. A TRUST PROTECTOR has the abilities named in the trust document itself, which might include powers like trustee removal and replacement, updating or terminating the trust, adding or removing beneficiaries, etc.  
The UNLIMITED MARITAL DEDUCTION is the unlimited amount of property you can leave to your spouse at the time of your death without imposing estate taxes on that property. This is a good estate planning option, however, it offers your spouse no creditor protection and places all of that property in their “taxable estate” to be imposed at the time of your spouse’s death. Although this is the easiest way to distribute your property at the time of your death, there are many better options available to provide for and protect your spouse after you are gone.
The TAXABLE ESTATE is the total value of a person’s property that is subject to taxation at the time of their death. This includes investment holdings such as cash, stocks, and bonds, as well as real estate and property such as cars, buildings, and collectibles. Expenses like funeral expenses paid out of the estate, debts owed by the deceased at the time of death, and the value of the property passed on to the deceased’s spouse are deducted from the estate’s value before taxation. Deductible debts may include credit card debt, lines of credit, mortgages, and personal loans. Administrative costs for settling an estate also count as deductions. The taxes imposed on the estate are then paid out of the estate itself. Federal estate taxes are ONLY due on the amount of your estate that exceeds the current federal exemption threshold, which is currently $11.7 million (but is subject to change at the direction of the presidential administration in power at the time of your death). Virginia DOES NOT have a state estate tax. 
Critical Documents
LIVING WILLS and ADVANCED DIRECTIVES are written, legal instructions regarding your preferences for medical care if you are unable to make decisions for yourself because you are unconscious, unable to speak, or otherwise impaired. These documents guide your doctors and caregivers on what you want for yourself if you become terminally ill, seriously injured, are in a coma, in the late stages of dementia, or near the end of your life.
LIVING WILLS and ADVANCED DIRECTIVES and  aren’t just for older adults. Unexpected end-of-life situations can happen at any age, so it’s important for all adults to prepare these documents. By planning ahead, you can get the medical care you want, avoid unnecessary suffering, and relieve caregivers of difficult decision-making during moments of crisis or grief. These documents also help reduce confusion or disagreement about the choices you would want your HEALTHCARE POWER OF ATTORNEY to make on your behalf.
FIVE WISHES® is an easy-to-use legal advance directive document written in everyday language. It helps all adults, regardless of age or health, to consider and document how they want to be cared for at the end of life. It is America’s most popular living will with more than 35 million copies in circulation.
FIVE WISHES® is unique among all other living will and healthcare agent forms because it speaks to all of a person’s needs: medical, personal, emotional and spiritual. Five Wishes also helps to guide and structure discussions with your family and physician, making conversations easier.
HEALTHCARE POWER OF ATTORNEY is a legal document signed by you to empower another person to make decisions on your behalf about your medical care when you are unconscious, unable to speak, or otherwise too impaired to make decisions for yourself. A HEALTHCARE POWER OF ATTORNEY works hand-in-hand with your LIVING WILL and ADVANCED DIRECTIVE. The term refers to both the legal document and the specific person you have empowered with this legal authority.
FINANCIAL POWER OF ATTORNEY is a legal document signed by you to empower another person to make financial decisions on your behalf when you are unconscious, unable to speak, or otherwise too impaired to make decisions for yourself. Your FINANCIAL POWER OF ATTORNEY need not be the same person or persons as your named HEALTHCARE POWER OF ATTORNEY. The term FINANCIAL POWER OF ATTORNEY refers to both the legal document and the specific person you have empowered with this legal authority.
HIPPA RELEASE is a legal document signed by you to authorize the release of your medical records, which are otherwise protected under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). The release names the people and entities you authorize to receive protected medical records, despite the privacy protections of HIPAA
Those you name as your HEALTHCARE POWER OF ATTORNEY should also have a signed HIPAA RELEASE authorizing them to be informed and included in your medical treatment and care.
A HIPAA RELEASE is helpful to unequivocally allow your loved ones to be informed and included in your medical treatment and care. If you (or your children age 18 years and older) are unconscious and unable to offer verbal consent, a HIPAA RELEASE can provide that consent.
Dependent Stability Planning
SHORT-TERM GUARDIANSHIP is established by a document stating who you would like to take immediate care of your children if you and your spouse are suddenly hospitalized (and you cannot speak) or killed. The trusted individual(s) you choose to act as short-term guardian(s) should be local to your children so that they can intervene before the authorities place your children under the care of child services. This can be an (adult) babysitter, well-known neighbor, or nearby relative. You will want to choose someone your children know well so that they can be comforting in a time of uncertainty and potential trauma.
LONG-TERM GUARDIANSHIP is established by a document stating who you would like to take care of your children after your and your spouse’s (if applicable) death or in the event of a long-term hospitalization where you cannot speak to advocate for your children. The trusted individual(s) you choose to act as long-term guardian(s) should be available to collect your children from their short-term guardian(s) and care for them for the long haul. Your LONG-TERM GUARDIANSHIP documents will include in-depth instructions on how you want your children raised. The long-term guardian(s) you choose should be the same guardian(s) you named in your will.
CONFIDENTIAL GUARDIAN EXCLUSION documents can be prepared to deliberately name anyone who you are certain you don’t want to care for your children, but who could be called to do so by the court based on familial ties. For example, confidentially excluding your brother because you do not want his wife (your sister-in-law) raising your children because her values directly conflict with your values.
A DEPENDENT HEALTHCARE POWER OF ATTORNEY is a legal document signed by your dependent to empower you to make decisions on their behalf about their medical care when they are unconscious, unable to speak, or otherwise too impaired to make decisions for themselves.
A DEPENDENT FINANCIAL POWER OF ATTORNEY is a legal document signed by your dependent to empower you to make financial decisions on their behalf when they are unconscious, unable to speak, or otherwise too impaired to make decisions for themselves.
A DEPENDENT HIPPA RELEASE is a legal document signed by your dependent authorizing the release of their HIPPA-protected medical records to you.

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