Estate Planning FAQ
WHAT HAPPENS IF I DIE WITHOUT A WILL?
If you die without a Will (“intestate”) and have not made alternative arrangements to distribute your money and property (your “estate”), Ohio laws determine how they will be distributed. Your estate may have to go through the Probate process, which can be more costly, time-consuming, and complicated without a Will. Where minor children are involved, the expenses of Court administration may continue for years.
A person may die without a Will because he or she never wrote one and because the Will cannot be found. A person can die without a Will even when they thought they had one. This happens most frequently with handwritten or do-it-yourself Wills that are later found to be invalid, in whole or in part. Of course, this determination is usually made after a person dies – when it’s too late to correct the mistake.
When a person dies without a Will, the Court appoints an individual (or “representative”) to pay debts, taxes, and funeral expenses, and to distribute the remainder to family members according to strict statutory guidelines. A court-appointed representative must post a protective bond before he or she can administer the estate.
If both parents of minor children die without a Will, the State may decide who will be the children’s guardian. Children or family members with special needs may not be provided for according to your wishes. In the case of a second marriage where the decedent had intended to provide for step-children, or to limit the inheritance of the second spouse, those wishes will not be carried out without a valid Will. If survivors cannot agree on how to divide up personal property between them, the Court may order a sale and divide the proceeds according to legal guidelines.
Alternatively, a Will allows you to name who will administer your estate and raise minor children; specify how, when, and to whom your property will be distributed; specifically disinherit certain individuals if you desire; make specific gifts of treasured personal property; provide for individuals who have special needs; make charitable contributions; and in some cases, plan to avoid or minimize estate and gift taxes.
WHAT PROVISIONS CAN I MAKE IN A WILL?
- Name an Executor whom you trust to administer your Estate;
- Waive bonding requirements for your Executor and avoid the expense of bond premiums;
- Express who will get your money and how much of it, including friends or charities who would not be beneficiaries under legal guidelines;
- Minimize the amount of taxes to be paid at your death;
- Specify who receives personal possessions, such as family heirlooms;
- Name a guardian for minor children if both parents are not living;
- Specify the age at which children or other young beneficiaries will receive your assets;
- Plan for children and family members with special needs; and
- Disinherit certain individuals if you desire.
IS MY OUT-OF-STATE WILL VALID IN OHIO?
Probably. But some parts may be based on legal provisions and terminology from your former home state that may differ from Ohio law. It is a good idea to have your Will reviewed by an Ohio attorney, who can advise whether changes are necessary. This is especially important when you are moving to Ohio from a Community Property State, as the laws in those states concerning property ownership can vary significantly from Ohio’s laws.
WHEN SHOULD I REVIEW OR REVISE MY ESTATE PLAN?
You should review your estate plan with an attorney when you marry or divorce, when children are born, when a spouse or primary beneficiary of your estate dies, or when any other major change in life circumstance occurs. If you receive a significant inheritance or there is a significant change in your assets, a review is also recommended. When individuals named to make decisions on your behalf during your lifetime, or to administer your estate upon your death, die, become incapacitated, or unavailable, you may need to update your document. Of course, anytime you want to make a significant changes in the provisions of your estate plan, you should discuss those wishes with your attorney. In any event, you should have your estate plan reviewed at least every three years to insure compliance with any changes in the tax and estate laws.
If your estate plan needs to be revised, NEVER make handwritten changes to legal documents, such as your Will or power of attorney. Doing so could invalidate the entire document. If you need or want to make changes, an attorney can prepare an amendment to the document so that it remains valid.
PLANNING FOR INCAPACITY
The Durable Power of Attorney (Financial and Business Affairs)
A Durable Power of Attorney (DPOA) is a document that allows you to name the person or persons you would want to handle your financial affairs (your “agent”) if you become incapacitated or incompetent. Without a DPOA, if you become mentally or physically unable to manage your affairs, the Court will appoint someone to do so (a “Conservator” or “Guardian”). Court appointment of a conservator can be a lengthy and costly process that creates stress and anxiety for your loved ones. Until the appointment of a conservator or guardian, your family members may have difficulty accessing funds necessary for your care or for their own well-being.
Your DPOA also allows you to designate the extent of the authority your agent has in the management of your property and finances. Your DPOA is good until you revoke it or until your death.
WHO WILL CARRY OUT MY HEALTH AND LIFE WISHES IF I CAN NO LONGER EXPRESS THEM? (Medical Decisions)
The Living Will
The Living Will allows you to express your wishes for medical treatment and end-of-life care if you become incapacitated. The Living Will provides advance written instructions on the types of health care decisions you would want to have made on your behalf if you are permanently unconscious or terminally ill and are unable to express your wishes. For instance, the Living Will allows you to express your wishes about life-sustaining treatment, nutrition, hydration, and organ donation.
The Health Care Power of Attorney
Along with the Living Will, you should have a Durable Power of Attorney for Health Care. In the Health Care Power of Attorney, you appoint a person or persons to make health care decisions (an agent or proxy) in the event that you are no longer able to do so. The health care agent named in your Health Care Power of Attorney must carry out the wishes expressed in your Living Will. The authority of the agent is also limited in other ways. For example, your health care agent cannot withdraw “comfort care” and cannot authorize withdrawal of life-sustaining treatment unless two physicians confirm that you are in a terminal condition or permanently unconscious state, and there is no reasonable possibility that you will recover.
CAN I AVOID FEDERAL DEATH TAXES?
Most estates are not subject to the federal estate tax, sometimes called death taxes. Your taxable estate is your gross estate minus allowable deductions. And even if tax applies to an estate, it may be eliminated or minimized by available tax credits.
Your gross estate is the amount of property and assets in your estate at the time of your death, plus life insurance proceeds, the value of certain annuities, and certain gifts you made in the last three years. In 2008, any gross estate under $2 million is not subject to federal estate tax. In 2009, the applicable exclusion amount (the amount of gross estate not subject to tax) increases to $3.5 million. And for decedents dying in 2010, there will be no tax on any estate, no matter how large. However, this tax scheme ends in 2011, at which time estate taxes are scheduled to be applied to gross estates over $1 million. Congress will likely revisit the estate tax laws before that time, but the outcome cannot be predicted.
Even for estates that exceed $2 million, allowable deductions may eliminate any estate taxes. An estate inherited by a surviving spouse may not subject to estate tax until the second spouse dies (the marital deduction). Deductions are also allowed for funeral expenses, outstanding debts at the time of death, and charitable deductions.
WHAT IS A TRUST?
A trust is one possible vehicle for managing your assets during your lifetime and/or disposing of them at your death. There are two basic types of trusts: Living Trusts and Testamentary Trusts. “Living” means that the trust is created and funded during your lifetime, rather than at your death. Testamentary trusts are incorporated into the creator’s Will, so that they are not funded until the person who created the Will dies.
WHAT IS A LIVING TRUST?
A living trust is a legal document that establishes a fund to manage your assets. Most Living Trusts are revocable, which means that at any time before your death, you can revoke or cancel the trust. You can also make changes or amendments to the trust. However, at your death, the trust becomes irrevocable and can no longer be revoked or modified.
The trust document identifies the following people:
- the person establishing the trust (the grantor or settlor), you (and if applicable, your spouse) as trustee(s) or managers of the trust property,
- the successor trustee (who takes over when you die), and
- the beneficiaries (who gets the assets in the trust).
If you are the trustee of your revocable trust, you do not need to maintain separate records or file separate income tax returns for your trust. Trust property is included on the tax return that you file under your social security or taxpayer I.D. number.
DO I NEED A REVOCABLE (LIVING) TRUST?
At your death, your revocable trust is administered “outside” of the probate process. Therefore, the primary advantage to a properly funded revocable trust is that the time-consuming and expensive probate process can be avoided. However, a revocable trust established only to avoid probate does not ensure avoidance of estate taxes (see our discussion on “death” taxes in another section).
The probate avoidance trust can include or be combined with another type of trust designed to save on estate taxes, providing for a family member with special needs, to benefit your spouse or children, or to benefit a non-citizen spouse. For example, if you are married and your estate is valued at more than two million dollars, you may wish to establish a Living Trust. After your death, your trust may pay income to your spouse, with the trust property passing to children or grandchildren when he or she dies. This type of trust allows taxes on your estate to be deferred until the death of your spouse, and minimizes taxes at that time.
In general, if your estate is not likely to be subject to estate taxes, you can establish an estate plan with a Will coupled with Will alternatives that allow assets to avoid the probate process. For instance, if your primary assets are a home, vehicles, and bank accounts, you have options for transferring these assets outside of the probate process.
WHAT IS PROBATE? (AND CAN I AVOID IT?)
There is a Probate Court in each Ohio county to supervise the administration of a decedent (the person who has died). “Probate” is the process required by the Probate Court for insuring that the debts of decedent’s estate are paid and that certain assets are transferred to the rightful beneficiaries. When people talk about wanting to “avoid probate,” they are usually talking about avoiding costs and attorneys’ fees associated with a probate estate, avoiding a long probate process, or having their financial affairs made public.
Probate assets, or assets that are included in a probate estate, include assets transferred by a Will or that require court administration because the decedent made no Will, and for which transfer by non-probate means is not available. Often, with careful planning, especially when minors are not involved, assets can be designated to pass outside of the probate process. These assets include property held in joint tenancy (such a joint checking account or a house owned jointly by husband and wife), life insurance policies and retirement plans with named beneficiaries, assets with a transfer on death designation (such as a payable on death bank account or a transfer on death house deed), and property held in revocable trusts. See the sections on this website about Will Alternatives and Revocable Trusts for more information, or consult an attorney.
WHAT WILL ALTERNATIVES ARE AVAILABLE IN OHIO?
Will alternatives are methods or legal processes for insuring that assets can be transferred “outside” of the probate process at your death. In Ohio, common Will alternatives are:
For Your Home and Other Real Estate:
– Joint with Right of Survivorship Deeds, which effect the transfer of real property to the surviving joint owner; or
– Transfer On Death Deeds, which are signed and recorded by a sole owner or tenant-in-common during his/her lifetime, and designate a beneficiary to which your real property will be automatically transferred at death.
For Your Vehicles:
– Transfer On Death Title for a specific vehicle, prepared and executed during your lifetime. Call the Ohio Bureau of Motor Vehicles or consult the bureau’s web site at www.obmv.gov.
– After death, if married, a spouse can take two vehicles outside of Probate. Tip: If you are married and own more than two vehicles, do not title more than two vehicles in each spouse’s name.
For Bank Accounts (Checking and Savings Accounts, Certificates of Deposit) and Brokerage Accounts):
– Joint with Right of Survivorship Accounts; or
– Transfer on Death designations (contact your banking institution, credit union, or broker).
For Your Life Insurance, Retirement Accounts, 401(k) Accounts:
– Designate individuals as beneficiaries. DO NOT designate your Estate as a beneficiary of any policies or accounts, unless you wish for the terms of your Will or the Ohio laws of intestacy to be followed.
WHAT IS A TRANSFER-ON-DEATH (TOD) DEED?
The transfer-on-death (TOD) deed allows you to retain title to your home during your lifetime and pass it to the person(s) who you want to receive your house after your death (the beneficiary or beneficiaries). An attorney will prepare a deed naming your beneficiaries. Then the deed is signed and recorded while you are living. After you die, the beneficiaries simply file an affidavit at the County Recorder’s office and produce a death certificate to have the property transferred to their names.
The TOD deed is a probate avoidance technique when there is only one owner for the property or the owners are tenants-in-common (each owning an equal share). If property is jointly held, it is usually not necessary or advisable to change ownership to one owner or to have a transfer-on-death mechanism until one owner dies.
Other Advantages of the TOD Deed:
- Because your home remains in your name while you are living, you can protect your property from legal actions against the beneficiaries. Beneficiaries cannot transfer, mortgage or pledge interest in the property while you are living, because they have no ownership rights.
- Under current estate tax law, this form of real estate transfer allows the “stepped-up” basis to be preserved. In other words, your house will pass to your named beneficiaries at the fair market value at the time of your death (rather than at the “original basis” or original cost as adjusted for improvements). The “original basis” is “stepped-up” to the value of the property on the date of death. No capital gains are assessed for the “step-up” in value. In contrast, if you gift your property to your beneficiary before your death, the beneficiary may be subject to capital gains taxes when he/she sells the property.
What The TOD Deed Does Not Do:
- The TOD deed does not allow avoidance of estate taxes if your estate will be subject to them.
- A TOD deed does not protect the property from your creditors because you are still the owner.
- The TOD deed provides no guarantee that there will not be conflicts between beneficiaries after your death. After the property is transferred to the beneficiaries, they will have to agree on what should be done with the property.
- Also, if a named beneficiary dies, the remaining beneficiaries will share equally in the deceased beneficiary’s share. If you intended for that share to go to the deceased beneficiary’s children, your intent will not be carried out unless you execute a new deed naming those children. For instance, if you name your three children as beneficiaries, and one of your children dies before you, the two surviving children will share the property equally. If your deceased child had children (your grandchildren) that you want to receive their parent’s 1/3 share, a new deed must be prepared. That deed must contain the names of your two living children and the names of the grandchildren who should inherit in the place of their deceased parent.
DO I NEED A LAWYER?
Although it is possible to make a valid and effective Will by yourself, doing so increases the possibility that you may make mistakes in writing or signing it. Most people require a simple Will and find that the costs of having an attorney prepare their estate plan are reasonable and well worth the peace of mind. In addition, many people have concerns or complex situations that should be discussed with an attorney. Legal assistance can help ensure that your intentions are clearly communicated and that no confusion arises after your death.
For instance, an attorney can provide advice on:
- Strategies for avoiding the Probate process after your death;
- Choosing personal representatives and agents to carry out your wishes;
- How to provide for family members with special needs;
- Minimizing estate taxes at your death;
- Achieving certain goals, such as the management and distribution of your property after your death;
- Disinheriting certain individuals; managing anticipated conflicts between your heirs; and
- Ensuring that your wishes are clearly expressed and can withstand legal challenge, such as a contest to your Will after your death.
WHAT IS A WILL CONTEST?
A Will contest is a type of litigation challenging the admission of a Will to Probate. Individuals cannot challenge a Will simply because they did not get what they wanted or do not think the provisions of a Will are “fair.” Most Will contests are based on one of the following reasons:
- A belief that the testator (the person who made the Will) was subjected to fraud, coercion or undue influence when the Will was created;
- The testator lacked mental capacity (was senile, delusional, or of unsound mind) when he or she made the Will;
- The Will is a forgery or does not conform to legal requirements; or
- The Will contains ambiguities in its provisions.
The Court may disallow only the part of the Will that was challenged or throw out the entire Will. The decedent’s property will be distributed according to the last previous Will, or if there is none, as if the person had died without a Will. An attorney can advise you on whether a Will contest makes sense, depending on the specific facts and circumstances, and what you hope to achieve.
WHAT IS MEDICAID ESTATE PLANNING?
Medicaid is a needs-based government program for individuals who are blind, disabled or over the age of 65. Medicaid covers the expenses of long-term nursing care when an individual lacks income or assets to pay for care. Medicaid Estate Planning is the process of legally making a person eligible for Medicaid. In Ohio, the Medicaid program is administered by the Ohio Department of Job and Family Services.
In determining financial eligibility for Medicaid, two factors are considered: assets and income. In general, an individual will have to use most of his/her assets before qualifying for the Medicaid program. However, a person is permitted some allowances, such as a monthly personal allowance, payments for medical insurance premiums, and payment of past medical expenses. If a spouse remains at home, he or she is permitted to keep the primary residence, a vehicle, household goods, and can maintain a minimum monthly needs allowance. Transfers of other assets or transfers to individuals other than the spouse are usually not proper unless they occur five years before a person enters a nursing facility. However, a person may, for instance, pay for funeral arrangements in advance or make improvements on the primary residence in order to “spend down” assets that would otherwise be countable in determining eligibility.
Consultation with an attorney is advised to insure proper asset transfers and full use of options under the Medicaid laws.
FREKING MYERS & REUL ATTORNEYS CAN PROVIDE OHIO RESIDENTS WITH THE FOLLOWING ESTATE, TRUST AND PROBATE SERVICES:
- Advice regarding the best estate plan for you and your family;
- Advice on how to avoid Probate;
- Preparation of your Will, Durable Power of Attorney, Living Will, and Health Care Power of Attorney;
- Preparation of Trusts to provide for probate avoidance, estate tax planning, non-citizens, minor children, grandchildren, and family members with special needs;
- Preparation of Transfer on Death deeds;
- Protecting your assets before and after your death;
- Medicaid and other planning for senior and disabled individuals;
- Estate Administration in Probate Court;
- Trust Administration; and
- Probate Litigation, including contesting a Will, challenging who has been named to administer a Will or trust, or objecting to the manner in which an Executor or fiduciary is managing an estate or trust.
For more information, contact Charles McGinnis at (513)721-1975.
The information provided on this site is not intended to provide comprehensive legal advice or to take the place of professional advice. You should consult an attorney to discuss your needs and considerations specific to your situation.