Friday, May 26th, 2017

FAQ – Estate Planning


Click here to listen to a webinar led by Felicia Seaton on estate planning for U.S. citizens living in Israel.

Disclaimer: Please remember that this information is provided in the spirit of public education, not as legal advice. If you require legal advice for a particular situation, you should consult an attorney directly and privately regarding your own specific situation.

What is “˜probate’?

Probate is the legal process that happens after death to distribute a person’s (the deceased) property and find placement for the deceased’s minor children. The probate process occurs whether a valid Will was executed or not.

Typically, the probate process involves the following steps:

  • proving that the deceased’s Will is valid, or if there is no Will only proving that the deceased has died;
  • collecting and identifying the deceased person’s property and determining its value;
  • paying outstanding debts and taxes such as hospitalization costs, outstanding debts, Federal and State Estate Taxes, probate court fees; and
  • distributing the remaining property per the Will or state law.

Probate generally lasts close to a year before all the property is distributed, and incurs Court and other costs. The Court often charges a fee (up to 5-15% of the value of your property) to probate your estate, whether you have a Will or not.

The deceased’s loved one (Executor or administrator) obtains the information necessary to file forms with the Court and maintains contact with all necessary financial institutions and guardians as needed. In some states, a few routine court appearances are required; in others, the whole procedure is handled by mail.

Why would I consider avoiding probate?

All of the following is relevant, whether you have a Will or not. It can all be avoided through further estate planning, beyond a mere Will.

Probate costs money: The Court assesses a probate fee, which is a percentage of the value of the estate on the date of death. This fee can be up to 15% of the value of the estate on the date of death. Yes, that is the value on the date of death, not the increase in value.

Probate takes time: The average smooth probate process can take up to one year. Therefore, your beneficiaries may not be able to use the family funds for this period of time. Your loved ones will be dealing with paperwork, bureaucracy and costs at a time when they are grieving and need to be taking care of themselves.

Probate is public: Everything that happens in probate court is available to the general public. A complete stranger can look up your records, and see which assets – including account numbers, institution names and branch names – were in your estate and which beneficiary received them.

Please note that avoiding probate does not eliminate estate taxes. It simply streamlines the process and reduces the costs of death by eliminating probate fees.

Define: A Will

A legal document that states your plan for your property and the placement of your children, upon your death.

A Will lets you:

  • designate who will inherit which of your assets;
  • name a guardian for your children;
  • specify when your children or grandchildren (or other beneficiaries) will receive what;
  • authorize the sale of some of your assets during probate administration, because sometimes such a sale is necessary to raise money needed to pay taxes and expenses related to death;
  • permit your business to continue operating.

A Will is only valid after death.

What happens if I do not have a Will?

If do not have a valid Will when you die, the Inheritance or Intestacy Law of the State in which each asset is located in the U.S., will apply. This law lists who inherits your wealth upon your death. It defines what is included in your estate and what is not yours at the time of your death. The Inheritance Law is different is every US state, and those are different from the law in Israel.

Define: A Power of Attorney

A General Durable Power of Attorney is typically used to circumvent the need for a guardianship, at the time when a person loses the ability to make financial decisions. The agent can then take over and make these decisions with the ease of presenting the Power of Attorney, rather than having to appear in Court and file for guardianship. A guardianship fee which is a percentage of the value of the assets is assessed annually to be paid to the Court for the Court’s role in the guardianship. If a Power of Attorney is executed, this fee need not be paid.

A power of attorney is a document that appoints someone to act as your agent. An agent is a person (or persons or corporation or bank) who has authorization to act for someone else. The one who appoints the agent is the principal (you); the agent is also called the attorney-in-fact (but does NOT have to be an attorney). If you have appointed an agent by a power of attorney, acts of the agent within the authority spelled out in the power of attorney are legally binding on you, just as though you performed the acts yourself. The power of attorney can authorize the agent to perform a single act or a multitude of acts repeatedly.

The power of attorney is only valid until death. Then the Will or trust or inheritance law takes over.

Define: A Trust

A Trust is a legal arrangement by which you transfer ownership of your property into the trust, in which an individual (the trustor/grantor/donor) gives fiduciary control (a special type of trusted legal control) of property to a trustee who is a person or a financial institution, for the benefit of any person or any group of people or charity, who are the beneficiaries.

A Trust Agreement specifies what the Trustee is permitted to do with the property and names the beneficiaries. It also sets forth when the beneficiaries will receive the property and in what increments. The person establishing the trust has broad discretion to create their own plan for the distribution of their wealth.

A Trust also provides a way for you to provide for yourself and your care when you are no longer capable of making your own financial decisions. The Trust Agreement states all of the terms for use of the family’s wealth when the heads of household can no longer make decisions regarding the funds.

What is the U.S. Federal Estate Tax?

If you are a U.S. citizen, your estate is required to pay the U.S. Federal Estate Tax on all of your assets, wherever located, worldwide. All assets are counted, including real estate, bank accounts, life insurance, retirement accounts, pensions, jewelry, art work and any other investment. It does not matter how the assets are titled, including if they are owned jointly with others.

As of January 1, 2011, U.S. citizens have a large exemption from the tax: $5 million. Anything over that amount shall be taxed at a rate of 35% of the value of the assets on the date of death.

States also have estate taxes at a rate of 7%-12% of the value of the assets located in that state on the date of death, which must be paid in addition to the Federal Estate Tax. The state estate tax is due only if a Federal Estate Tax was due.

Non-U.S. citizens who own assets located in the U.S. on the date of their death are also required to pay the U.S. Federal Estate Tax and the state estate taxes. Their exemption is only $60,000.

All estate taxes can be avoided by simple estate planning.

Do I need a U.S. estate planner?

The following questions will help you determine whether you need to meet with an estate planner regarding your U.S. assets. If you reply “yes” to any of these questions, I advise you to consult with a U.S. estate planner.

  • Do you own anything that is located in the U.S. (bank account, real estate, investment)?
  • Do you want to decide what is done with your money when you can no longer make decisions whether due to incapacity or death? Do you have a specific plan in mind for your assets?
  • Are you concerned with a prolonged process denying access to the family’s wealth after your death?
  • As a family, do you own (worldwide) more than $5 million?
  • Do you wish to avoid the fees and time involved in the probate process?
  • Do you wish to avoid the fees and delay involved in the guardianship process?

Contact Felicia M. Seaton, Esquire for a consult today.

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