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More About Estate Planning
 
Again, estate planning is the process of thoughtfully and efficiently preparing for the financial consequences of your death. An estate plan can help ensure that your loved ones are properly provided for and minimize the tax consequences related to your death. Estate planning should begin with a discussion of your goals and a review of your assets and should involve the preparation of a will and maybe the creation of one or more trusts.
Recall, that a will is a legal document that directs how your assets are distributed when you're no longer here. The author of a will may be any person of sound mind who is free from improper influence and 18 years of age or older. A will takes effect upon the death of the testator (or testatrix). Until that time a will may be changed, and the beneficiaries acquire no rights under the will. A will should be written, witnesses and signed strictly in accordance with the North Carolina Statutes, passed by the North Carolina General Assembly. Neither a beneficiary under the will nor the beneficiary's spouse should act as a witness. Handwritten Wills (called Holographic Wills) are recognized in North Carolina as long as the statutory requirements are fulfilled. Invariably, attorneys are asked, who should have a will? If you want to determine who gets your assets when you die or minimize the tax implications of your death, you should have a will. It is particularly important for anyone with minor children or substantial assets to have a will. Additionally, a will may be changed as often as the testator or testatrix desires. Changes can simply and easily be made by drafting a new Will or by the addition of an amendment called a "codicil." However, any change or codicil must comply with the same laws that apply to the making of a Will.
What Happens When One Doesn't Draft A Will? One who dies without a will is said to have died "intestate." That person has no control over who receives their assets. Their assets are distributed by a formula established by the North Carolina General Assembly. One who dies intestate also loses the opportunity to appoint an executor, trustee, guardian for minor children, and to have in place valuable tax planning. The exact distribution will be dependant on whether one is married and the number of children involved, and the property of a intestate decedent passes according to North Carolina General Statute § 29-14,-16. Below are a few variations on how the intestate statute could play out: If decedent is survived by a spouse, no lineal descendants, and no surviving parents: If the decedent left no child, no lineal descendant of a deceased child, and no parent, the surviving spouse will receive the entire estate, both real and personal property. If decedent is survived by a spouse, no lineal descendants, and surviving parents: The surviving spouse will receive one-half interest in the real property, and the first $50,000 of personal property, plus one-half interest in the remaining personal property. The surviving parents will receive one-half interest in the real property and the personal property in excess of $50,000. If decedent is survived by a spouse, one surviving child, and surviving parents: The surviving spouse will receive one-half interest in the real property and the first $30,000 of personal property, plus one-half interest in the remaining personal property. The surviving child will receive one-half interest in the real property and one-half interest in the personal property in excess of $30,000. The surviving parents will receive nothing. If decedent is survived by a spouse, two surviving children, and surviving parents: The surviving spouse will receive one-third interest in the real property and the first $30,000 of personal property, plus one-third interest in the remaining personal property. The surviving children will receive two-thirds interest in the real property and two-thirds interest in the personal property in excess of $30,000. The parents will again receive nothing.
How Long is a Will Valid? A properly drawn and executed Will remains valid until it is changed or revoked. However, changes in circumstances after a Will has been made, such as tax laws, marriage, divorce, birth of children or even a substantial change in the nature or amount of a person's estate, can affect the adequacy of the Will or change the manner in which the estate will be distributed. All changes in circumstances require a careful analysis and reconsideration of all the provisions of a Will and may make it advisable to change the Will to conform to the new situation. It is a good idea to review your Will at least every four or five years to be sure it is still appropriate.
Does a Will Increase Expenses at Death? No. It usually costs less to administer an estate when a person leaves a Will than when the person does not. A properly drafted Will may reduce the expense of administration in a number of ways. Provisions can be placed in Wills which take full advantage of the "Marital Deduction" section of the federal and North Carolina tax laws. This example illustrates only one of the ways a properly drafted Will can save money for you and your family.
How Large an Estate is Necessary to Justify a Will? Everyone who owns any real or personal property should have a Will regardless of the present amount of the estate. Your estate grows daily in value through the repayment of mortgages, appreciation of real estate, stocks and other securities, inheritances from relatives and other factors.
We Have Young Children Do We Still Need A Will? Yes. If there are any children under 18, the estate property cannot be delivered to them and a guardian must be appointed for them. A guardian will entail considerable expense and could create legal problems that might have been avoided with a Will. Most important, however, for mothers and fathers is not the disposition of their property after death, but rather the proper care and custody of their minor children. Grandparents, other family members and godparents do not automatically receive custody of children who do not have a surviving parent. Your Will should specify the individuals, as well as alternatives; you would like to designate as guardians of your children. This decision on your part will be of great assistance to the court in determining who will receive the custody of your children.
May a Person Dispose of Property in Any Way? Almost, but not quite. For example, a married person cannot completely exclude a spouse. Insurance proceeds, jointly owned property and retirement benefits may be controlled by other provisions of the law.
Who Will Manage Your Estate? If you make a Will, you may name the person who you want to manage the administration of your estate. If you do not make a Will, then the Probate Court will appoint someone, whom you may or may not know, to handle the affairs of your estate.
Does a Will Avoid Estate Taxes? A properly drafted Will after consulting with a Certified Financial Planner may reduce the amount of taxes that have to be paid. Many Wills written without consideration of recent federal and North Carolina tax laws should be re-examined.
What Happens to Property Held in the Names of Both Husband and Wife? Joint bank accounts and real property held in the names of both husband and wife usually pass to the survivor by law and not by the terms of the deceased's Will. There are many cases, however, in which it is not to your advantage to hold property in this manner.
Is a Life Insurance Program A Substitute for a Will? No. Life Insurance is only one kind of property which an individual may own. If a life insurance policy is payable to any individual, the Will of the insured has no effect on the proceeds. If the policy is payable to the estate of the insured, the payment of the proceeds may be directed by a Will. A prudent individual will have an attorney and life insurance counselor work together on a life insurance program, particularly in the complex area of estate planning.
What if I have a will that was made in another state? Wills are governed by state law. You should have your out-of-state reviewed by a North Carolina attorney to be sure it will operate effectively in North Carolina.
What Assets Are Covered By A Will? A will directs the disposition of personal property (including automobiles, household furnishings, jewelry, etc.) as well as real estate. Property that is held "with right of survivorship" (such as marital property and certain bank accounts) is not subject to a will. Life insurance proceeds usually do not pass by a will. Property that is not subject to will may nonetheless have an impact on estate planning because of tax and administration issues.
What is a trust and do I need one? A trust is a sort of holding company for certain assets. The property is held for the benefit of the beneficiary and is managed by the trustee. A trust created during your life is called an inter-vivos trust, and one created at your death is a testamentary trust. Many people use a trust to ensure that their minor children will be cared for if they die. A trust can also be an excellent tax-avoidance tool. Many people with substantial assets or minor children can benefit from a trust.
Living Wills
 
What is a Living Will? A living will is a document which allows you to retain control over whether your life will be prolonged by certain medical procedures if you are diagnosed as being terminally and incurably ill or in a persistent vegetative state (i.e., a sustained complete loss of self-awareness). In North Carolina, this is called "A Declaration of a Desire for a Natural Death." A living will allows you to authorize the withholding of extraordinary means of keeping you alive (for example, respirator care) and may authorize the withholding or discontinuance of artificial nutrition of hydration. You may make different choices as the level of care to be withheld or discontinued depending whether your medical condition is terminal and incurable or you are in a persistent vegetative state. Alternatively, if you are capable of making health care decisions, you may do so by executing or acknowledging any instrument of revocation, executing a subsequent living will or health care power of attorney, or by any other manner by which you care able to communicate your intent to revoke. The revocation will become effective only upon communication to the attending physician and to each health care agent named if a health care power of attorney is to be revoked. These documents should be reviewed periodically, especially in the event of divorce, death or disability of a named agent, to ensure that they continue to reflect your desires about health care decisions.
What Is The Purpose Of Living Wills? Modern advances in science and medicine have made possible the prolongation of the lives of many seriously ill individuals, without always offering realistic prospects for improvement or cure. For some individuals the possibility of extended life is experienced as meaningful and of benefit. For others, artificial prolongation of life may seem to provide nothing medically necessary or beneficial, serving only to extend suffering and prolong the dying process.
In order to assure respect for patients previously expressed wishes when the capacity to participate actively in decision making has been lost or impaired; to facilitate and encourage a sound decision making process in which patients, health care representatives, families, physicians, and other health care professionals are active participants; to properly consider patients interests both in self-determination and in well-being; and to provide necessary and appropriate safeguards concerning the termination of life-sustaining treatment for incompetent patients as the law and public policy of this State allows.
The North Carolina General Assembly has enacted Advance Directives for Health Care Acts and the A Declaration of a Desire for a Natural Death. North Carolina recognizes the inherent dignity and value of human life and within this context recognizes the fundamental right of individuals to make health care decisions to have life-prolonging medical or surgical means or procedures provided, with-held, or withdrawn. North Carolina recognizes the right of competent adults to plan ahead for health care decisions through the execution of advance directives, such as living wills and durable powers of attorney, and to have their wishes respected, subject to certain limitations.
Health Care Power Of Attorney
 
What is a Health Care Power of Attorney? A health care power of attorney is a document by which you may appoint another person who may consent to or refuse medical care, including mental health treatment, on your behalf if a physician or eligible psychologist determines that you are unable to make or communicate these decisions yourself. You may authorize the designated person (the "health care agent") to consent to the withholding or withdrawal of life sustaining procedures in the event you are determined to be: (1) terminally ill, (2) permanently in a coma, (3) suffering from severe dementia, or (4) in a persistent vegetative state.
Life-sustaining procedures are those which only serve to artificially prolong the dying process and may include mechanical ventilation, dialysis, antibiotics, artificial nutrition and hydration, and any other medical treatment (other than care to provide comfort or alleviate pain). In addition to making decisions in "life and death" situations, your health care agent also may be authorized to make routine medical decisions for you (for example, to consent to X-rays or surgery). You may include instructions to your health care agent to refuse any specific types of treatment that unacceptable to you for religious or other reasons. In the event of death, you may authorize your health care agent to donate your organs and authorize an autopsy.
A health care power of attorney will not be effective if a court appoints a guardian to act on your behalf. However, you may indicate in the document your choice of guardian in the event guardianship proceedings are commenced.
How Should a Living Will or Health Care Power of Attorney Be Drafted? The forms used to make a living will or health care power of attorney may be obtained from an attorney. A living will and a health care power of attorney must be witnessed and signed in accordance with North Carolina law and must be certified by a notary public. At least two witnesses are required for a living will and a health care power of attorney. Witnesses cannot be related to the person signing the documents or be potential heirs to the person's estate. Nor may an attending physician or employees of the physician or health care institution be witnesses for these documents; however, such employees may notarize the document. Because they are not employees of the physician or health care institution, volunteers may witness the execution of a living will or health care power of attorney. Witnesses can have no claim against the individual.
You should carefully consider the implications of executing these documents, both as to the course of your future medical care and as to the effect of your decisions on your loved ones. It is strongly suggested that you consult with family members prior to executing these documents.
Can I Have Both a Living Will and a Health Care Power of Attorney? Yes. You may have a living will indicating your choice of health care in the event you are unable to make those decisions in the future, and you also may have a health care power of attorney designating an individual to act on your behalf. However, if you are in a condition not covered by your living will, then the health care power of attorney will govern. In the event of a conflict between the wishes expressed in your living will and a decision made by your health care agent, your living will takes precedence.
Can I Change My Mind Once I Sign a Living Will or Appoint a Health Care Agent? Yes. You may revoke a living will at any time that you are able to communicate health care decisions. You may revoke a health care power of attorney if you are also capable of making health care decisions. You may do so by executing or acknowledging any instrument of revocation, executing a subsequent living will or health care power of attorney, or by any other manner by which you care able to communicate your intent to revoke. The revocation will become effective only upon communication to the attending physician and to each health care agent named if a health care power of attorney is to be revoked. These documents should be reviewed periodically, especially in the event of divorce or death or disability of a named agent, to ensure that they continue to reflect your desires about health care decisions.
If I Do Not Have a Living Will or Health Care Power of Attorney, Who Will Make These Decisions for Me? If any individual does not have a living will or health care power of attorney, the decisions will be made by the patient's spouse or next of kin, unless a court has appointed a guardian. Under the provisions of North Carolina statutes, such individuals may consent to withdrawal of medical care of patients or terminally and incurably ill or in a persistent vegetative state after confirmation of this condition by physicians.
Life Insurance
 
Does a Will Control who gets my Life Insurance Proceeds? By default Life Insurance is a non-probate asset, which means it does not pass by your Will. Instead the beneficiary designated on the Life Insurance policy is entitled to the proceeds.
What Happens if my Life Insurance Beneficiary is a Minor? In many families we see a situation where the spouse is named the primary beneficiary, and the children are named secondary beneficiaries.
Unfortunately, under this arrangement the children will have full access to the money when they turn age 18. Typically in our Wills we draft a testamentary trust that specifies a later age for the children to have full access to the funds you leave them. If you would like a similar arrangement for life insurance proceeds there are several options: * A simple, but risky way to achieve this is to name your estate as the beneficiary instead of the minor child. The existing trust in your Will then handles the insurance proceeds. This is risky because the life insurance proceeds become part of the estate and therefore are available to creditors. * If you don't have a Will you can specify a UTMA custodial trust for the life insurance proceeds. A UTMA custodial trust is a simple trust, defined by North Carolina statutes, in which you name a custodian for the funds and those funds become payable to the beneficiary at age 21. * If you have a Will that creates a testamentary trust you can bypass the estate and leave the funds directly to that trust.
Are Life Insurance Proceeds Taxable? Insurance agents frequently describe life insurance proceeds as "tax free", referring to the fact that the proceeds are usually not subject to income taxes. However, for estate taxes purposes life insurance proceeds are taxable if you have any incident of ownership in the policy. An example of such an "incident of ownership" is the ability to change the beneficiary.
In this case your life insurance proceeds, regardless of whether paid directly to a beneficiary or the estate, are included in the gross estate and thus should be considered when evaluating whether your estate is over the exclusion amount ($1,000,000 in 2002 - 2003, $1,500,000 in 2004 - 2005 and $2,000,000 in 2006 - 2008).
Durable Power Of Attorney
 
Why A Durable Power Of Attorney? A power of attorney gives someone the legal authority to act for you. You are the "principal" and the person you give the power to is your "attorney-in-fact." You may name your spouse, an adult child, a relative or trusted friend to be your attorney-in-fact. Actions of your attorney-in-fact (authorized by your power of attorney) are legally your actions. A regular power of attorney ends if you become incapacitated or mentally incompetent. A durable power of attorney is effective immediately upon execution, even if you are competent. A durable power of attorney is also effective if you become incapacitated or mentally incompetent. If you do not give someone your durable power of attorney, a court may need to appoint a guardian for you if you become incapacitated or mentally incompetent. A durable power of attorney avoids putting you and your family through a long and expensive guardianship proceeding. (Portions of the above text have been used with permission from the North Carolina Bar Association, located in Cary, North Carolina).
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