Below you will find some of the most frequently asked questions regarding the Maryland Estate Planning Process. Please contact our office with any additional questions or concerns you may have.
1. What is Maryland Estate Planning?
Estate Planning is the process of considering alternatives for effective arrangements that meet your wishes in the event death or disability occurs. An estate plan has goals that are both financial and personal.
From the financial standpoint, a proper estate plan coordinates the distribution and/or control of your assets. Assets may include your home, your investments, life insurance polices, employee benefits, retirements plans and business interests. Having an estate plan assures that your assets will be directed and used in accordance with your wishes.
From a personal standpoint, a proper estate plan is a set of directions; a guide on how to carry out your wishes regarding healthcare and financial matters as well as guardianship of minor children and disabled loved ones. So that if you ever are physically or mentally unable to carry out your wishes, someone you would select would carry them out for you. A good estate plan will let you, not the courts, keep control of your assets and control your decisions about medical care and the care of your loved ones.
2. What is an estate?
An estate is everything you own and may include:
- Real property and all things attached to it (houses, buildings, etc.)
- Personal Property (Bank accounts, stocks, bonds, mutual funds, furniture, automobiles, art jewelry, etc.)
- All businesses and business interests (Sole Proprietorships, LLCs, Corporations, Partnerships, etc.)
- All assets, inventory, equipment, tools and other property of the business
- Life Insurance polices and contracts, pensions benefits, 401K's, IRA's, etc.)
- All debts and obligations owed to others and all claims or judgments you have against others
When individuals begin to total up all of their estate, it is evident that most people own more than they really think.
3. Who needs to do estate planning?
Everyone. Naturally the older you get the more you begin to think about how to transfer assets to loved ones and grown children, but families with small children must also have an estate plan. An estate plan protects and helps guide the person you choose to care for your children in the event of your death or incapacity.
Individuals who have children from previous marriages also need estate planning. Without proper planning your assets will be divided up according to the statutory laws of Maryland.
Estate planning is not merely for the wealthy; it is important for everyone who has family and/or loved ones, property they care about and concerns regarding their healthcare treatment in the event of disability or incapacity.
4. What happens if I do not plan at all?
In Maryland if one does not make any type of estate plan they will have died intestate. Intestate means without a will or other testamentary document such as a trust.
The following is an illustration of what happens when a person dies without any plan at all.
The Intestate's Will In Maryland
FIRST: If none of my children are minors, I give my spouse fifteen thousand dollars ($15,000.00).
SECOND: I give one half (1/2) of the balance of my estate to my spouse and (1/2) to my children.
(a) I appoint my spouse as guardian of my minor children, but as safeguard, I require that he/she report to the Court regularly and give an accounting of how, why, when and where he/she is spending the money necessary to care for my children.
(b) As a further safeguard I require my spouse to pay a court fee to guarantee that he/she exercises proper judgment in the handling, investing and spending of the children's money, unless my spouse can prove to the Court that such fee is unnecessary.
(c) As a final safeguard, my children shall have the right to review the financial records of my spouse pertaining to all his/her financial actions.
(d) When my children reach the age of eighteen (18), they shall have full rights to withdraw and spend their shares of my estate. No one shall have any right to question my children's actions on how they decide to spend the money.
THIRD: Should my spouse die before me or die while any of the children are minors, I do not wish to nominate a guardian for my children. Rather than nominating a guardian I prefer the court to choose for me. If the court wished, it may appoint anyone who asked the court to be a guardian and is interested in caring for my minor children.
If any child has reached the age of sixteen (16), they may ask the court to appoint the guardian of their choice.
FOURTH: Should my spouse remarry, his/ her second husband/wife shall be entitled to take 1/3 share of what my spouse possesses or 1/2 share if there are no surviving children. The second husband or wife shall have the sole right to decide who gets his or her share, even if he/she excludes my own children.
FIFTH: Under the present tax laws there are certain legitimate avenues open to me to lower death taxes for my family. I prefer that the money be used by the government as tax rather than for the benefit of my surviving spouse and children. I direct to make no effort to lower my death tax so the government can benefit substantially from my death.
SIXTH: I appoint my spouse to administer my estate and require he or she pay for a bond to do so.
SEVENTH: Unless there is court approval, I direct that the maximum funeral expenses paid from my estate is five thousand dollars $5000.00.
This illustration gives you a clear example of the need to plan for your death or disability. Without proper planning all of your wishes will be determined by state law and supervised by the Maryland Courts.
5. So how do I start estate planning?
1. Write down your goals and objectives concerning the following:
- Who do you want to receive your assets after you die and when?
- Who do you want to manage your financial affairs?
- Who do you want to make your medical decisions when you are unable?
- Who do you want to take care of your family and loved ones when you are unable to?
2. Take some time and inventory your assets, finding out how much you own.
3. Select a qualified professional to guide you through the process and prepare the documents. Be sure to select someone qualified in the area of estate planning who can utilize his or her knowledge and come up with the best plan for you and your family.
4. Have all of the legal documents prepared.
5. Follow through with any title or beneficiary changes to ensure your estate plan is complete.
6. What are the most common estate planning documents?
A Will is used to transfer property held in your name to the individuals or organizations you would like to receive it. A will also names someone whom you have selected to be your Personal Representative (or Executor). This person will carry out your instructions upon your death. A will becomes effective upon your death and after it is admitted to probate (the court process for administering a will in Maryland).
A Durable Power of Attorney for Health Care or a Health Care Proxy selects a person you choose to make decisions regarding your health care treatment in the event that you are unable to do so.
A Living Will or Advance Directive gives doctors and hospitals your instructions regarding the nature and extent of the care you want should you suffer a permanent incapacity.
A Durable Power of Attorney for Property selects a person of your choice to act or handle your financial matters should you be unable or even unavailable to do so.
A Revocable Living Trust is used to hold title and manage your property. You can select the person you want, even yourself as the trustee to carry out the instructions in the Trust. Unlike a will, a trust becomes effective immediately and continues during your lifetime even in the event of your incapacity and continues after your death. Many trusts are revocable meaning you can make future changes and even terminate them. Trusts also help minimize the expenses, delays and publicity of probate.
A living trust is also a good tool for preparing for disability. In a living trust you can name a successor or co-trustee who can manage the property for your benefit if you become incapacitated.
An Irrevocable Life Insurance Trust is a device used to move a life insurance policy out of the insured persons taxable estate. An existing policy can be transferred to a trust or the trust may purchase a new policy. Removing the policy from one's taxable estate can save a significant amount of estate taxes for individuals with large estates.
Specials Needs Trusts are used to hold the assets of a disabled person. A proper special needs trust would provide distributions as needed to enhance the life of a disabled person while protecting the assets in the trust from being viewed as assets which disqualify the person for state and federal benefits.
Charitable Remainder Trusts are created to pay income from the trust to the Grantor (or any other designated beneficiary) and distribute the remainder of the assets to a charity. By designating assets to charity the Grantor receives a tax deduction and removes those assets from his/her taxable estate.
7. What is Probate and how will it affect me?
Probate is the legal process through which the court makes certain that your will is valid, your debts are all paid, and your assets are distributed according to your will. Probate is the way to change title on an asset when a person listed as the owner has died. In Maryland , the probate process is fairly straightforward but is still time consuming and can be expensive. If you own property in other states your family and loved ones could face probate in multiple states, each state varying in law and fees.
Probate is also a public process and interested parties can see what you owned and whom you owed. The process also provides for disgruntled heirs to challenge your will.
8. Why do I need an Estate Plan if I own all my property jointly with another person?
Joint Ownership is one of the most common plans used by families. In fact, if you are married you probably own most of your assets jointly with your spouse. The type of joint ownership most people use is known as Joint Tenants with Right of Survivorship this means that when you die the survivor has full ownership of the property. Many people think that joint ownership will avoid probate when in reality it just postpones it.
For example, if A and B are married and A dies leaving B the property, no probate, the property will still go to probate when B dies, unless someone else is added onto the title of the property.
Owning assets jointly can also cause other problems. What if B remarries after A dies and holds the property as joint tenants with the new spouse. Is the new spouse under any obligation to give anything to B's children? NO, the property belongs to the new spouse and he/she can use it as he/she wishes.
Even if B states in her will that she wants the house to go to her children, it is ineffective because joint owned property passes automatically to the new spouse and is not affected by the will.
Other Problems with joint ownership are:
- If the co-owner becomes incapacitated, you could find yourself with the court as a new co-owner
- Adding a co-owner is easy but taking a person off of title is harder.
- You expose the property to the other owners' debts, so if the joint owner has a significant unpaid debt the property could be seized or sold.
9. Can't I just name my loved ones as the beneficiaries of my asset accounts instead of estate planning?
Today, many assets including, retirement, IRA accounts, insurance polices and bank accounts let you name a beneficiary. The idea is that when you die those assets pass to the named beneficiary without probate. This is not entirely true.
If your beneficiary is incapacitated when you die, the court will probably take control of the assets for that person.
If you and the beneficiary die at the same time, the assets will have to go through probate to be distributed to the rest of the estate.
If a minor child is the beneficiary the court will again get involved to protect the child's interests and disburse the funds according to statutory requirements.
So in effect, by just using beneficiary designations you leave your estate open for possible probate and court supervision of assets.
10. Do I need an attorney to prepare my estate plan? Isn't it expensive?
An attorney who practices in Maryland Trusts and Estates is able to provide you with sound advice and a comprehensive plan that encompasses all of your specific needs. Attorneys are subject to regulation by state bar associations, have continuing education requirements, and carry mandatory malpractice insurance. When dealing with your hard earned dollars and the future of your loved ones a professional should be consulted.
Often the expense of retaining an attorney and preparing an estate plan is minimal versus the money saved in taxes, probate and other administrative expenses. Tax, Estate and Property laws change very quickly and only a trained professional in the field can structure your plan correctly.
