Estate plan: the method by which you provide for trustworthy persons to manage for your own care during life and transfer your property to persons of your choice after your death. It can include a plan for providing care for persons unable to care for themselves for whom you want to provide. One element could be asset protection.
An estate plan should include tax considerations, financial planning, healthcare, and insurance of several types: disability, medical, life and long-term care. Most people consult at least one professional in each area. Trust of various types are used more frequently as the complexity of the plan increases to include tax planning, complexity of family relationships or disability issues.
Common tools are: broad form HIPAA releases, health care powers of attorney, physician’s directives (also called living wills), general or statutory durable powers of attorney, Wills, trusts and various other documents.
Obviously, no one should be appointed by you whom you do not trust completely. Some functions to consider:
a) healthcare agent- this personal maker healthcare decisions when you cannot do so.
b) financial transaction agent- this person pays your bills, manages and or sell assets (cars, house, stocks).
c) Trustee- similar role as financial agent, but authority limited to assets placed into the trust. Banks will commonly honor the authority given to a Trustee more than the authority given to an agent in Texas.
Professional trustees, such as banks, often do not like to hold real estate, or operate a business. Banks prefer to invest funds and pay expenses according to standards in your trust agreement.
d) Executor- the person named in your will to manage your estate after your death. The executor must present the will to the probate court and be granted that authority by the court. Executors are given a form called a letter testamentary by the court clerk as proof of their authority.
e) Administrator– a person who performs the same tasks as an Executor, but is appointed by a Court when no person was named in a Will.
f) Guardian: a person appointed by the probate court to handle financial matters for a minor. The Probate Court will only appoint a Guardian for financial transactions when the minor receives property by inheritance or when given property in a poorly planned Will. In a properly planned Will one of several methods is used to hold assets for a minor until he or she reaches majority.
g) Custodian- this is the person you name to care for your minor children. The custodian is a person appointed by a Family Court to have custody and provide care for your minor children. A Family Court judge will usually honor the choice you make in your Will as to who should have custody of your children. However, the judge must follow it best interest test and may decide the person you name is inappropriate.
h) Trust: a written agreement for use of income or assets placed into the Trust. There are three roles (persons) in every trust: grantor, trustee and beneficiary. A Trust can have more than one person filling each role.
i) Settlor, trustor or grantor: a person who creates and funds a trust.
j) Trustee: a person who accepts responsibility to manage trust assets for the benefit of the named beneficiaries.
k) Beneficiaries: the person (s) who have the right to income or use of assets in a trust. Rights can be divided in many ways. Most commonly by time, income or use of principal.
It is very common for a married couple to be the Grantors who picked terms of the trust, and provide the assets, accept management as the first trustees and are the primary beneficiaries while alive. Ultimately, the assets must pass to someone else for the trust to be valid.
l) Revocable Trusts– a trust that can be terminated or changed at anytime while the person creating the trust is both alive and mentally competent.
m) Irrevocable-a trust that cannot be amended. Trust are often made irrevocable in order to make the gifts contained in the Trust final for tax purposes. A gift is not complete for tax purposes until it is final, in that the terms of the gift are stated and the property delivered.
n) Living (Inter vivos) a trust created and funded while the person creating the trust is alive. Frequently the terms revocable, inter vivos or living trust are used to mean the same thing.
o) Testamentary: a trust created and funded pursuant to terms of a Will after the death of the Testator.
p) Testator: person who signs a Will for his or her own estate, as distinguished from a witness or notary.
q) A/B Trust, also called marital/credit shelter trust. A method used to divide assets between the surviving spouse and children or other beneficiaries. This is usually done for estate tax planning purposes, but can also be used to allocate assets due to there being children of multiple marriages or other reasons.
There are many sophisticated (complicated) forms of Trusts used for specific tax and/or charitable purposes including: Grits (Grantor retained interest trusts), Grats, (Grantor retained annuity Trusts) Cruts, (Charitable retained uni-trusts) and Qualified Medicaid Trusts, etc.