Service members should grasp estate planning

| July 6, 2017 | 0 Comments

The Legal Assistance Office, Schofield Barracks, helps service members and retirees prepare a will. (Courtesy photo)

Verndal C.F. Lee
Legal Assistance Office

SCHOFIELD BARRACKS — There are many urban myths about one’s property and wills.

A lot of people think that if they die without a will, the state gets everything. This is a myth.

If you die without making a will, your property will be distributed according to the laws of your state. This process is called “intestate succession” or “intestacy.”

Who gets what depends on who your closest relatives are. The most likely recipients are your spouse, your children, your parents or your siblings.

It is easy to find out what happens to your property should you die without a will. Use a “search engine” and look for the phrase “(name of state) intestacy.” The result will be your state’s intestacy laws.

If you are not happy with your state’s intestacy law, as to what happens to your property, you need a will.

Not everything you own will pass under your state’s intestacy law or under your will. Items that are covered by contract will be distributed according to the terms of the contract.

A good example of a contract is a Soldier’s Servicemembers’ Group Life Insurance, or SGLI – or any other insurance policy. The Soldier names a beneficiary to receive the life insurance proceeds upon the Soldier’s death. This is a contract the Soldier has with the insurance company. Upon the Soldier’s death, the contract dictates who receives the proceeds – not the state’s intestacy law or the Soldier’s will.
Other assets that will pass outside a state’s intestacy laws or an individual’s will are these:

•Funds in an IRA, 401(k), or other retirement account;
•Securities held in a transfer-on-death account;
•Real estate held by a transfer-on-death deed;
•Payable-on-death bank accounts; or
•Property you own with someone else in joint tenancy or tenancy by the entirety.
These are all various types of contracts. Any distribution of the asset is according to the terms of the contract.

Living trust
A living trust is another type of contract that takes precedence over a state’s intestacy laws or an individual’s will. A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.

A “living trust” (also called an “inter vivos” trust) is simply a trust you create while you’re alive, rather than one that is created at your death.
Making a living trust work requires some crucial paperwork. To make your trust effective, you must hold title to trust property in your name as trustee. For example, if John Smith wants to hold real estate in his trust, he must prepare and sign a new deed transferring the real estate to “John Smith, trustee of the John Smith Revocable Living Trust dated June 4, 20xx.”

The same is true of other “big ticket” items, such as cars. This paperwork can be tedious.

Similar to a will, in the declaration of trust document, you name the people or organizations you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time.

Will v. living trust
A lot of individuals want a living trust because they want to “avoid probate.” Probate is the act or process of proving a will. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.
Not all wills go through probate. Most states have a small estate process. Because probate is court supervised, the documents are public records. Because probate is court supervised, the process takes time.

A living trust does not go through probate. The documents are not public records; the process of transferring property is quicker. The additional advantage of a living trust is that if an individual owns real estate in more than one state, there is no need to do an “ancillary probate” in each state in which real estate is located.

A living trust does not protect property from creditors. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name. On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they’re out of luck forever.

A living trust does not reduce estate taxes. A simple probate-avoidance living trust has no effect on state or federal estate taxes.

Keep in mind that for deaths in 2016, only estates worth more than $5.45 million will owe federal estate tax. This means that very few people have to worry about this tax. This exemption amount will increase with inflation.

Having a living trust does not mean you don’t also need a will. A will is an essential back-up device for property that you don’t transfer or forget to transfer to yourself as trustee. For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your trust, which means that it won’t pass under the terms of the trust document. This property must then go through probate – either under the terms of your will or under your state’s intestacy laws.

(Editor’s note: Lee is the chief of the Legal Assistance Office.)

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