Estate planning is the process of implementing documents to ensure personal assets are distributed according to your intentions during incapacity and after death. For some clients, estate planning also includes a designation of guardians for minor children, tax planning, and asset protection.
Standard documents included in a complete estate plan are:
- Last Will and Testament (disposition of assets at death)
- Financial power of attorney (management of assets during incapacity)
- Health care advance directive (management of health care decisions during incapacity, including living will provisions)
- Revocable or living trust (to avoid probate and provide for incapacity planning)
An executor is the person (or entity) nominated in a Last Will and Testament to collect assets for probate, pay creditors and debts of the estate, and distribute remaining assets pursuant to the law and Last Will and Testament. The executor may be an individual (including family members) or a corporate fiduciary (bank, attorney, CPA, or trust company). Most states do not require an attorney to assist in the probate process; however, an attorney will be able to assist with proper and efficient administration, while limiting liability to the executor.
A trustee is similar to an executor, in that a person or entity is nominated in a legal document to manage and administer assets. The legal document creating a trust can be incorporated in a Will or during life in a separate trust document. Unlike a Will, a trust does not have to be evaluated by a court and avoids probate.
An executor or trustee may be removed in Georgia under the following circumstances:
- When an executor or trustee does not fulfill the terms of the Will or trust
- When an executor or trustee distributes for personal gain at the expense of beneficiaries
- When an executor or trustee acts fraudulently
- When an executor or trustee fails to account to the beneficiaries for the income and expenses of the estate or trust
An advance directive for health care is a document allowing you to designate someone (known as an agent or health care proxy) to make health care decisions on your behalf following your incapacity. Advance directives include directions for your agent/health care proxy regarding the following:
- Elective surgical decisions
- Advocating for health care needs
- End of life decisions (withdrawal of life support, including nourishment and hydration), also called living will designations
- Housing and medical facility placement
This document allows the designation of someone (known as your attorney-in-fact) to make financial decisions regarding your assets and finances following your incapacity. Through this document, your attorney-in-fact is able to pay bills, sell assets, file tax returns, and contract for necessary services on your behalf.
Living trusts are typically used to avoid probate. Legally, a Will is not needed if someone were to pass away without any probate assets; however, most clients do not completely fund their living trust, resulting in assets that need to be probated and distributed via a Will.
Certain assets, like property, are often not titled into a trust prior to the grantor’s death. Some clients forget to title (fund) their property into the trust, or choose to leave it out of their trust entirely. When this is the case, a “pour-over” Will comes in handy. Any probate asset owned at the time of death will be transferred to the trust for trustee management and distribution; however, this does not avoid probate for the property left out of the trust.
If a client elects not to form a trust, or intentionally leaves assets outside of their trust, a Will is recommended to ensure probate assets are distributed consistent with their intentions. Another important reason for including a Will in an estate plan is the designation of a guardian for minor children. Wills are the simplest document that allow for direction on where minor children should go if their parents become incapacitated or pass away.
The following circumstances justify a challenge to a Last Will and Testament in Georgia:
- The testator executed the Will as a result of undue influence
- The Will was not properly executed (lacked the legal formality requirements)
- The testator signed the Will without the mental capacity to understand the process and purpose of executing a Will (lacked testamentary capacity)
Whether or not a person has a Will, assets remaining in their name will have to go through probate. If someone passes away without a Last Will and Testament, their probateable assets are distributed according to statute – usually to their spouse and kids. Although assets will pass to heirs without a Will, division and distribution may be different than intended. For example, most married clients want all assets passed only to their surviving spouse. If there is no Will, the assets are split between their spouse and children.
Estate planning documents should not be considered permanent. Changes in the law, family dynamics, and intentions all justify a review, and likely modifications, to Wills and powers of attorney. Generally, estate planning documents should be reviewed every five years or when changes dictate. Common life changes for both author and beneficiary that necessitate a review of documents include:
- Birth, death, marriage, divorce, or onset of a disability
- Large increase or decrease in net worth
- Purchase or sale of a business
- Change of residence to another state
Elder law planning is the process of preparing documents and shifting asset holdings for eventual eligibility of government benefits, such as Veteran’s Administration (VA) Aid and Attendance and Medicaid. In addition to government benefit planning, elder lawyers also assist clients with incapacity planning, general asset protection, and asset transfer strategies.
Generally, asset protection consists of structures and strategies that insulate a family’s assets from liabilities such as creditors, judgments, liens, lawsuits, etc. Asset protection strategies are unique to each client. The following is a sampling of strategies we utilize to protect families and their assets:
- Irrevocable trusts
- Business entities
- Layered holdings (shell entities)
- Division of ownership
- Property encumbrance and liens
Most government benefit programs that assist with medical expenses depend on the amount of income and number of assets. If a person has too many assets or too much income, they may not qualify for government assistance. In order to reduce their number of assets to qualify for government health care benefits (such as Medicaid), a person may spend down assets, gift or transfer assets, reduce income sources, implement a special needs trust (SNT), or swap assets.
Assets held in special needs trusts are not counted toward the asset caps the government uses to determine benefit eligibility. Assets directed to a SNT by someone other than the disabled person (e.g. a parent or grandparent) are not subject to a “pay-back” to the government for benefits received. On the flip side, a SNT funded with assets of the disabled person (e.g. settlement proceeds from an injury claim) are subject to pay-back following the death of the disabled beneficiary for what Medicaid has paid on their behalf.
Probate is perceived by many to be an expensive and time-consuming legal process. Although some situations yield a different outcome, the majority of cases are efficient and without complication. The following scenarios justify avoidance of probate:
- Property owned in multiple states
- Business ownership
- Disproportionate distribution to beneficiaries (including disinheritance)
- A special needs or incapacitated heir
- Second marriage situations (especially when there are children from prior relationships)
- Probate assets that consist of perishable property or assets requiring immediate management
- Lack of liquidity outside of the estate in which to pay for final expenses
- Minor heirs
- There are assets that require quick action and decisions following death (e.g. income producing property or business inventory)
- Importance of anonymity (trusts are private, Wills are public)
Assets are probated if not otherwise transferred at death. Examples of assets that transfer at death include beneficiary designations (e.g., life insurance and retirement accounts), payable on death provisions (designation added to financial accounts that distributes assets of the account to the named beneficiary directly upon death), joint title with rights of survivorship (financial accounts or real estate), and assets held in trust.
In Georgia, inheritances are the separate property of a child; not community or marital property. Of course, actions taken by a child after receiving the inheritance can convert separate property into community or marital property. For example, a child can receive an inheritance and transfer it into a joint bank account with their spouse (commingles the inheritance with marital assets). If a divorce follows, the commingled assets are likely to be included in the divorce settlement of assets. To avoid this outcome, a parent can place the inherited assets in a trust for the benefit of the child, to ensure the assets are not commingled and remain separate.
There are many reasons clients opt to protect their assets through the use of trusts. Properties held in a trust can be protected from the claims of creditors (a spendthrift trust), bypass the process of probate, allow for tax avoidance (such as AB or credit shelter trusts), and minimize loss resulting from a divorce contest. Additionally, trusts can also be customized to manage a client’s assets should they become ill or incapacitated. Trusts can be revocable or irrevocable, limited duration or perpetual, and testamentary (created at death) or inter vivos (created during life).