ESTATE PLANNING is a process whereby a person creates legal documents that outline the disposition of personal and real property upon death. The most common legal tools used are the Last Will and Testament and a Living Trust. The specific documents that are necessary depend upon your personal situation.

WILLS
UNDERSTANDING THE WILL OR TRUST: It is very important to read and understand the Will or Trust so that you will know:

who the beneficiaries are;
what they are to receive and when
how many years the Trust will be ongoing; and
who, if any, are your co-fiduciaries

Does the Will or Trust distribute everything outright, or does it create new trusts (testamentary trusts) that may continue for several years, or even the lifetime of a beneficiary? Does a trust mandate certain distributions ("All income earned each year is to be paid to my wife, Nancy") or does it leave this to the trustee's discretion ("My trustee shall distribute such income as she believes is necessary for the education and support of my son, Alan, until he reaches age 25")? Are there any restrictions on distribution, such as “special needs/luxury” or “spendthrift” provisions? The document often imparts important directions or restrictions to the fiduciary (trustee), such as which assets should be used to pay taxes and expenses; and the document will usually list the fiduciary's statutory and special powers in some detail.
Most fiduciaries retain an attorney who specializes in the area of trusts and estates to assist them in performing their duties properly. An attorney's advice is very helpful in ensuring that you understand what the Will or Trust and applicable state law provides.

LAST WILL & TESTAMENT is made by an individual to provide for the distribution of assets at death. The document nominates a Personal Representative (gender-neutral term for executor or executrix) to determine and collect the probate assets, pay the bills, debts and expenses of the estate, and distribute the estate assets according to the terms set forth in the document to the beneficiaries named therein. The Will can also include the nomination of a guardian for minor children, and a trustee for assets to be maintained in trust. A Will must be submitted to probate court before it is effective.

IS PROBATE NECESSARY? Many states have a statutory requirement that the person in possession of the Last Will and Testament of a decedent must file the original Will with the Probate Court. However, there is no requirement that a Will must be probated. The necessity of probate will depend on whether or not there are assets of the estate that are found to require the probate process. The Will, by itself, provides no authority to a nominated Executor to distribute assets. The Will is essentially a “letter of instruction and intent” provided by the Testator. “Probate” is the formal legal process under which a Will is submitted to the court and is “proven” to be the Last Will and Testament of the decedent. The Probate Judge reviews the Will and Petition to Probate and appoints an Executor or Personal Representative to administer the estate and distribute the decedent’s assets to the intended beneficiaries. The laws of each state vary, so it is a good idea to consult an attorney to determine whether a probate proceeding is necessary, whether the fiduciary must be bonded (a requirement that is often waived in the will) and what reports must be prepared. Most probate proceedings are neither expensive nor prolonged.
MANAGING ESTATE ASSETS: Once appointed by the court, the Executor has a fiduciary responsibility to secure and manage of all assets of an estate. It is crucial to determine the current value of all assets as soon as possible. The usual practice is to engage a professional certified appraiser to evaluate the decedent's tangible property, such as household furniture, automobiles, jewelry, artwork, and collectibles. Depending on the nature and value of the property, this may be a routine activity, but you may need the services of a specialist appraiser if, for example, the decedent had rare or unusual items or was a serious collector. Real estate, whether it is residential, investment, or commercial property, and any business interests must also be valued. Besides providing a valuation for assets that may be reported on a court-required inventory or on the state or federal estate tax return, the appraisal can help the fiduciary to gauge whether the decedent's insurance coverage on the assets is sufficient. Appropriate insurance should be maintained throughout the fiduciary's tenure. The fiduciary also must value financial assets, including banking and investment accounts. Current (date of death) fair market value appraisals also establish the stepped-up basis for the beneficiary to avoid or minimize capital gains taxes upon sale of the asset.

HANDLING DEBTS & EXPENSES: It is the fiduciary's duty to determine when bills unpaid at death should be paid, and then pay them or notify creditors of temporary delay. In some cases, such as property or casualty insurance bills or real estate taxes, the estate may be harmed if the bills are not paid promptly. Most states require a written notice to any known or reasonably ascertainable creditors. While most bills will present no problem, it is wise to consult an attorney in unusual circumstances, as the fiduciary can be held personally liable for improperly spending estate or trust assets.
The fiduciary is responsible for a number of tax returns. First are the personal returns of the decedent: the final income tax return for the year of the decedent's death; a gift or generation-skipping tax return for the current year, if needed; and prior years' returns that may be on extension all may need to be filed. A Federal Estate Tax Return (and a State Estate Tax Return, if applicable) will need to be filed within nine months of the date of death if the assets of the estate exceed the non-taxable threshold. Currently, that Federal threshold is over $5 million per person. This exclusion amount is portable, meaning that a married couple can effectively transfer over $10 million of assets without the payment of any Federal Estate Tax.
An estate is not able to use the decedent’s SSN as a tax ID number and is required to obtain a new tax identification number (EIN) to govern any income to the estate. As a separate taxpayer a fiduciary income tax return must be filed to report any income to the estate. It is important to note for planning that the estate and the beneficiaries may not be in the same tax brackets. Thus, timing of certain distributions, such as early distribution of income producing assets, can save money for all concerned. Some tax preparers and accountants specialize in preparing such fiduciary income tax returns and can be very helpful. They are familiar with the filing deadlines and will be able to determine whether the estate or trust must pay estimated taxes quarterly.
Most expenses that a fiduciary incurs in the administration of the estate are properly payable from the decedent's assets. These include funeral expenses, appraisal fees, attorney's and accountant's fees, insurance premiums, etc. Careful records should be kept and receipts should always be obtained. Any of these allowed expenses paid out-of-pocket by the Executor would be reimbursable to the Executor from the assets of the estate.

FUNDING THE BEQUESTS: Wills often provide for specific gifts of cash ("I give my niece $50,000 if she survives me") or property ("My grandfather clock to my granddaughter Nina") before the balance, or residue, is distributed. The residue may be distributed outright or in further trust, such as a trust for a surviving spouse or for minor children. The Executor should be sure that all bills, debts, taxes, and expenses of the estate are paid or provided for before distributing any property to beneficiaries. Although it is usual to obtain a receipt and refunding agreement from the beneficiary that states that he or she agrees to refund any excess distribution made in error by the fiduciary, as a practical matter it is often difficult to retrieve such funds. In some instances you will need court approval before any distributions may be made. Where distributions are made to ongoing trusts or according to a formula described in the will or trust, it is best to consult an attorney to be sure the funding is completed properly. Tax consequences of a distribution sometimes can be surprising, so careful planning is important.

FIDUCIARY SELECTION: After an individual's death, his or her assets will be gathered, business affairs settled, debts paid, necessary tax returns filed, and assets distributed as the deceased individual (generally referred to as the "decedent") directed. These activities generally will be conducted on behalf of the decedent by a person acting in a fiduciary capacity, either as executor (in some states called a personal representative) or as trustee, depending upon how the decedent held his or her property.
As a first step, it is helpful to know the meaning of a few common terms:
Fiduciary - An individual or trust company that acts for the benefit of another. Trustees, executors, and personal representatives are all fiduciaries.

Grantor (Also called "settlor" or "trustor") - An individual who conveys property by means of a trust; the person whose wishes are expressed in the trust.
Testator - A person who has made a valid Will (a woman is sometimes called a "testatrix").
Beneficiary - A person for whose benefit a will or trust was made; the person who is to receive property, either outright or in trust, now or later.
Trustee - An individual or trust company that holds legal title to property for the benefit of another and acts according to the terms of the trust.
Executor/Executrix (Also called "personal representative") - An individual or trust company that settles the estate of a testator according to the terms of the Will.
Principal and Income - Respectively, the property or capital of an estate or trust and the returns from the property, such as interest, dividends, rents, etc. In some cases, gain resulting from appreciation in value may also be income.

As a general rule, the administration of an estate or trust after an individual has died requires the fiduciary to address certain routine issues and follow several standard steps to distribute the decedent's assets in accordance with his or her wishes. These guidelines focus on activities that occur in an estate or trust immediately after the individual has died.

The REVOCABLE LIVING TRUST (RLT) may be established by an individual or by multiple persons jointly while they are living, and may be amended and revoked at any time and from time to time during the maker’s lifetime. An RLT can be thought of as a “Will substitute” and is used primarily to provide instruction for the management and distribution of a decedent’s assets without the use of the public probate process. As with all trust agreements, this Trust requires a “Grantor” or “Settlor” – the person or persons funding the trust (conveying assets to the trust), a “Trustee” – the person/entity managing the assets held in the trust, and a “Beneficiary or Beneficiaries” – the person(s) who benefit from the assets held under the trust agreement. A basic RLT is often “self-trustee’d” and the Grantor(s) remain the current beneficiaries of the trust, and will serve as their own Trustee(s) as long as they are able. While the Grantor(s) are living the tax ID number of the RLT is the Grantor’s SSN, and no special tax filings are required. Upon the death of the last surviving Grantor, the trust becomes irrevocable, and a Successor Trustee named in the document assumes the fiduciary duties required to pay the debts and expenses of the estate, and distribute the trust assets according to the terms set forth in the document to the beneficiaries named in the document. This Successor Trustee has the same responsibilities to collect, manage, appraise, file returns, and distribute the remaining assets as described for the Executor of a decedent’s estate – the key difference being that Court approval and appointment is not required as is the case when assets are governed by a Last Will and Testament.

SEPARATE LETTER OF INSTRUCTION: Often a Will or Trust references a “separate letter of instruction” to the Executor or Trustee regarding the distribution of personal effects and other household furnishings. This letter is an informal, written communication to your loved ones and others who may serve in a fiduciary role. Under many statutes, if such a list is found it must be honored and the items listed must be distributed to the named beneficiaries. Typically, this listing will govern personal effects of sentimental value, regardless of monetary value. The referenced list may be prepared before or after the execution of the Will or Trust, and may be amended from time to time and as many times as the maker desires. This list does not need to be dated, signed, witnessed, or notarized, but should provide clear indication of the disposition of the specific items listed. This allows the maker to add, delete, and change such indications without having to constantly amend or revise the existing legal documents. It should be noted that this listing is to be used ONLY for such items of personal effects and household furnishings. Monetary gifts and gifts of real property should NOT be made on this list and must be included in the witnessed and notarized legal documents (Will or Trust).

LETTER OF SPECIAL INSTRUCTION: The purpose behind Letters of Instruction is to help your fiduciaries and family carry out your estate planning intent and administer your estate and trusts.

Your Letter of Instructions should provide clarity and critical information. It should include:

Names, titles, and contact information for your professional advisors (such as your CPA, attorney, and financial planner)
A listing of assets and debts including company names and contact information, account information, and online or telephone passwords needed to access each account
Factors and advice you would like any trustee to consider in administering a trust, such as the types of distributions you would like him or her to make (or not make) to your children.
Factors and advice you would like to the guardian(s) of your children to consider when raising them, such as facilitating visitation with family members, specifying religious or educational preferences, etc.

Please note, however, that a Letter of Instructions should not contain any information designed to specify how your assets should be divided up amongst your loved ones. That information should be provided only through your Will (and any Revocable Living Trust) and beneficiary designations, as part of a carefully coordinated estate plan. If your Letter of Instructions contains asset distribution instructions, those instructions are not legally binding, but if they contradict the instructions contained in your Will and beneficiary designations, they can create disharmony and confusion.

ETHICAL WILL: is an important Estate Planning Document, though it is not a legal document. You are the only person who can create your Ethical Will. The Ethical Will is for you to make your personal statements (in writing, on video, or both) to your loved ones. Your Ethical Will lets your friends and family know what you believe to be important in life and provides them with the benefits of your experiences and acquired knowledge. It is essentially a “non-economic” inheritance of beliefs, realizations, and knowledge you wish to pass on to your loved ones.

When preparing an Ethical Will, it may be beneficial to imagine that you only have a short time left to live. What life lessons, values, philosophical beliefs, and religious or moral issues would you like to share with your loved ones? How would you like to be remembered?

You can prepare individual Ethical Wills for different family members if you do not wish to address everyone in a single document or video. An Ethical Will can be incredibly powerful to surviving loved ones, as it can offer them comfort and reassurance after your death, effectively carrying your voice and advice to them while they are still mourning your loss. You can prepare an Ethical Will privately or with our guidance. We recommend you keep your Ethical Will with your other Estate Planning Documents.

POWER OF ATTORNEY: allows you to appoint someone you trust (your attorney-in-fact) who is authorized to sign your name on your behalf when you are unable. The powers contained in this instrument are very broad, but typically cannot be used for bankruptcy, marriage or divorce, adoption, or to change the terms of your Will or Trust, or to change beneficiaries on any instruments, including insurance policies, annuities, and qualified plan accounts. A Durable Power of Attorney is usually effective immediately, and continues even in the event you become disabled or incapacitated, but does expire on your death.

ADVANCED HEALTH CARE DIRECTIVE: allows you to appoint a Health Care Surrogate or Health Care Power of Attorney to make health care decisions for you when you are unable to speak for yourself, and can also include a “Living Will” portion to indicate your preferences regarding end-of-life treatment, organ donation, and cremation or burial.

Any TESTAMENTARY TRUST is a trust established from a decedent’s assets after they have passed. Instruction is included regarding the nomination of a Trustee, the naming of specific beneficiaries, the intended use of assets while they are held in trust for the beneficiary, and a means for the trust to be terminated. Some testamentary trusts grant broad discretion for the trustee to distribute funds to or for the benefit of the named beneficiary at the sole discretion of the trustee. Other testamentary trusts distinguish between income and principal, such as providing for income from the trust property to be distributed to a person or persons for a period of time, and principal to be distributed either to that same person(s) at a different time or from time to time, for particular purposes, or even to a different person or entity entirely upon some trigger event. For example, many trusts for a surviving spouse provide that all income must be paid to that spouse, but principal is paid to the spouse only in limited circumstances, such as a medical emergency. Upon the spouse's death, the assets remaining in the trust may be paid to the decedent's children, to charity, or to other beneficiaries.

Additionally, there are several trusts designed to protect or preserve assets for specific situations. These provisions may be included in a Living Trust and/or Testamentary Trust:

Basic Testamentary Trust: established for the care, support, maintenance and education of a beneficiary, typically with distribution at the discretion of the trustee. Final distribution and termination of this trust may be upon the beneficiary reaching a certain age, or the completion of college education.
Spendthrift Trust: allows the trustee the discretion to make distribution to or for the benefit of a beneficiary, but not if such distribution might be subject to creditor claims. Final distribution and termination of this trust may be when the trustee feels there is no longer a threat of creditor attachment of the inheritance, or upon the death of the beneficiary.
Luxury or Special Needs Trust: allows the trustee the discretion to make distribution to or for the benefit of a beneficiary, but only for such items or purposes that are not otherwise covered by benefits to which such beneficiary may be or may become entitled to receive. Allows a beneficiary to receive a bequest without jeopardizing local, state, or federal benefits eligibility. Final distribution and termination of this trust is typically upon the death of the beneficiary, or if the existence of the trust is somehow found to jeopardize any public benefit to which the beneficiary might otherwise be eligible.
Credit Shelter Trust: available for married persons; allows the estate of the first to die to shelter assets from the future estate of the survivor to reduce or eliminate potential estate tax burden. All income and principal is available for the use and benefit of the surviving spouse, but is not included in that surviving spouse’s estate. Final distribution and termination of this trust is typically upon the death of the surviving spouse.
Irrevocable Life Insurance Trust: allows a trust to “own” a policy or policies, removing the value of the policy from an individual’s estate, thereby reducing the gross value of the estate and reducing or eliminating potential estate tax burden. Final distribution and termination of this trust is governed by the specific terms included in the trust.
Charitable Remainder Unitrust: typically funded with appreciated property, allows the sale of the property with no capital gains tax due, provides lifetime income to the donor(s) and others (up to 8 lives) or for a specified period of years (up to 20), with a remainder gift at the death of the last income beneficiary or term of years expiration. Final distribution and termination of this trust is typically upon the death of the last income beneficiary of the trust.

Unless a fiduciary has experience in this area, it is recommended that he or she seek professional advice regarding the investment of trust assets. In addition to good investment results, the fiduciary should invest within the applicable Prudent Investor Rule that governs the trust or estate. A skilled investment advisor can help the fiduciary decide how to invest, what assets to sell to provide cash for expenses, taxes, or outright distributions, and how to minimize income and capital gains taxes.
During the period of administration, the fiduciary must provide an annual income tax statement (called a Schedule K-1) to each beneficiary who may owe tax on any income earned by the trust. The fiduciary can be held personally liable for interest and penalties if the income tax return is not filed and the tax paid by the due date.

The IRREVOCABLE LIFE INSURANCE TRUST (ILIT): Established to remove/exclude the value of life insurance from the gross assets of the estate in order to minimize or eliminate an estate tax burden. Trust is made to own and be beneficiary of a single life policy, multiple single-life policies, or a second-to-die-policy. Spouse and/or children of the Grantor are typical beneficiaries of the trust. The Grantor “gifts” to the trust an amount sufficient to cover the insurance premium amount; the Trustee then notifies the beneficiaries of the trust that the gift has been received by the trust through “Crummy letters”; the beneficiaries are anticipated to decline to take their share of the gift from the trust, which allows the Trustee to then use the funds to pay the insurance premium. The intent is that the beneficiaries waive their right to receive their share of the annual “gift” in exchange for the greater amount anticipated to be received by the trust as a result of the life insurance proceeds payable at the death of the insured. This trust has a separate tax ID number (EIN) and typically will not have income until after the death of the Grantor(s) when the insurance policy pays out to the trust.

CLOSING THE ESTATE or TRUST: Estates close when the executor has paid all bills, debts, expenses, and taxes of the estate; received tax clearances from the IRS and/or the state, if necessary; and all assets on hand have been distributed. Some states require a petition to be filed in court before the assets are distributed and an estate or trust can be closed. Trusts terminate when a trigger date or event described in the document occurs, such as the death of a beneficiary or the date the beneficiary attains a stated age or achieves a milestone (such as graduation from college), and all assets have been distributed out of the trust. Whether the assets are distributed from an estate or trust, it is nevertheless good practice to require all beneficiaries to sign a release document, prepared by an attorney, in which they approve of your actions as fiduciary, acknowledge receipt of all distributions due them, and make no further claim against the estate or trust. . This protects the fiduciary from future claims by a beneficiary. A final income tax return must be filed and a reserve kept back for any tax that may be due.