ESTATE PLANNING BASICS

Estate planning has been defined as "that branch of the law which, in arranging a person's property and estate, takes into account the laws of wills, taxes, insurance, property, and trusts so as to gain maximum benefit of all laws while carrying out the person's own wishes for the disposition of his property upon his death." An estate planning attorney will advise you as to what documents are needed to effect your goals. A basic estate plan takes into consideration the following matters. First, what happens to a person's financial affairs if he becomes incapacited? One either can leave it to a court through an expensive conservatorship proceeding to manage his financial affairs or, through the use of a financial power of attorney, he can appoint a trusted family member or friend as agent to manage his financial affairs. Second, what happens when a person becomes incapacited and unable to make health care decisions for himself? He either can leave it to doctors or courts unfamiliar with his wishes to decide or, through the use of an advance directive for health care, he can appoint a trusted family member or friend to make decisions for him. In an advance health care directive, one can provide general or specific guidance about his wishes concerning health care matters. Third, what happens to a person's estate when he dies? To whom does his property pass? Again, one can leave it to the courts to decide based on the law of intestacy and in a manner which may not reflect his wishes, or one can plan for the disposition of property in a manner which reflects his wishes through the use of a will, trust, and/or other means. Below you will find some general information about documents which often form part of a basic estate plan.

I. WILLS

A will is an instrument in which a person declares his intent regarding disposition of his probate estate at death. To have a valid will, Georgia law requires that certain formalities be followed in the execution of the will. For example, a will must be in writing and be signed by the person making the will and attested by witnesses. If the required formalities are not followed, then the will is not valid and cannot be admitted to probate. Further, even if a person has executed a valid will, certain events cause an automatic revocation of the will. For example, the birth of a child to a person after the person has executed a will causes the revocation of the will unless the will contains a provision contemplating the birth of the child or the will prrovides a class gift to the person's chldren. If a person marries after making a will and the will does not state that it was made in contemplation of marriage, then his or her spouse is entitled to receive from the estate the share the spouse would have received had there been no will. Thus, while there is not a total revocation of a will by reason of the marriage, there is in effect a partial revocation of the will.

A. DEATH WITHOUT A VALID WILL

A question often asked is what happens to a person’s property if that person dies without a will.A person who dies without a valid will in effect at the time of his or her death is said to die intestate.Contrary to what many people believe, the property of a person who dies without a valid will does not automtically pass to the government. Instead, each state has rules of inheritance that apply when a person dies without a valid will and determine who inherits the property of the intestate person. The Georgia rules of inheritance are set forth in OCGA§ 53-2-1. Under Georgia law, the spouse of a married person who dies without children or lineal descendants inherits the entire estate. (Lineal descendant refers to a person in the direct line of descent, such as a child or granchild, in contrast to a collateral descendant such as a niece.) If a person dies leaving a spouse and children or lineal descendants, then the spouse and children share equally in the decedent’s estate, except that the surviving spouse is entitled to not less than one-third of the estate regardless of the number of children. (Decedent's estate is the property, both real and personal, which a person possesses at the time of his or her death.) Lineal descendants of deceased children receive per stirpesthe share their deceased ancestor would have received if such ancestor had survived the intestate decedent. (Per stirpes means "by roots or stocks." "The term ... denotes that method of dividing an intestate estate where a class or group of distributees take the share which their deceased [ancestor] would have been entitled to, taking thus by their right of representing such ancestor, and not as so many individuals." Black's Law Dictionary.) If a person dies, leaving no surviving spouse, but leaving children or lineal descendants of deceased children, the surviving children receive the entire estate in equal shares, with the lineal descendants of a deceased child receiving the share of the deceased child per stirpes.

If a person dies leaving no surviving spouse and no surviving children or lineal descendant of deceased children, the decedent's parents share equally in the estate. If both parents are deceased, then the decedent’s surviving siblings share the estate equally, with the descendants of any deceased sibling taking, per stirpes, the share the sibling would have taken had he or she survived. However, if no sibling survives the decedent, the nieces and nephews who survive the decedent take the estate in equal shares, with the descendants of any deceased niece or nephew taking,per stirpes, the share that niece or nephew would have taken had he or she survived. If the decedent is not survived by any of the above persons, then the grandparents inherit the entire estate. If the grandparents are deceased, then the aunts and uncles of the decedent share equally the entire estate, with the children of any deceased uncle or aunt inheriting in the place of their parent. If no uncle or aunt of the decedent survives the decedent, then the first cousins who survive the decedent share the estate equally. If none of the above persons survives the intestate decedent, the heirs at law are determined by a formula set forth in the Georgia statute, counting the steps from the claimant to the closest common ancestor and from the amcestor to the intestate decedent. The sum of the two chains shall be the degree of kinship and the one or ones closest in degree are the heir or heirs at law.

Many married people are surprised to learn that under the rules of inheritance, the surviving spouse will not inherit the entire estate of his or her deceased spouse if the deceased spouse has children. Many people do not realize that, in the absence of a will, a child will inherit from the parent a share of his or her estate.If the child is a minor and inherits part of his or her parent’s estate, the appointment of a conservator of property of the child may be required.It is likely that not insignificant legal expenses will be incurred in establishing the conservatorship.Further, the conservator, even if he or she is the surviving parent of the child, will be required to file reports with the Court, and will be restricted in handling the property of the minor.

B. ADVANTAGES OF MAKING A WILL

First, the testator (i.e. person making the will) has the freedom to give his property to whomever he pleases. For example, a spouse may give his entire estate to the surviving spouse. A second advantage is that under a will, the estate owner may name the person or entity of his choice to act as executor of the estate. The executor is the person who collects assets of the estate, pays debts of the estate, and makes distributions to beneficiaries. Another advantage is that the person making the will can waive the posting of a bond and filing of any inventory (itemized list of property of the estate), appraisal, or other reports with the Court. In the absence of a will, an administrator will be appointed by the Court and a bond may be required, as well as an inventory and appraisal. Relieving the executor from posting bond can result in a savings to the estate. In the absence of such a provision, the estate would be required to pay the bond premium, which will diminish the assets of the estate. If an inventory must be filed because there is no will, then private information about a person’s assets becomes a matter of public record. Thus, maintaining some degree of privacy concerning one's estate provides an additional reason for making a valid will.

Some married people believe that they do not need a will because they have placed all of their assets in joint tenancy with right of survivorship. However, even if all the assets are placed in joint tenancy with right of survivorship, there will need to be a disposition of the assets upon the death of the survivor or in the event both spouses die simultaneously. Therefore, placing assets in joint tenancy does not make wills unnecessary.

Another advantage of making a will for a person who has a minor child or children is that he can name a guardian for such child or children. Upon the death of one parent, the surviving parent usually will have custody of the children. However, each parent’s will should reflect his choice of a guardian in the event the other parent does not survive. While the parent’s choice of guardian is not absolutely binding upon the court, it is persuasive. Since the guardian of the person is largely responsible for the upbringing of the children, the parents should carefully consider this matter.

Because a minor child (i.e., a child under eighteen years of age) is restricted in his ability to deal with property, a person giving property to a minor child may wish to establish a trust and name a trustee to manage the estate of the minor child. The trustee can be instructed to use the net income and principal for the support and education of the estate owner’s beneficiaries. Furthermore, a trust can continue after a child turns eighteen years. At the very least, a parent may wish to name a custodian for any property to which a minor child is entitled.

These are only some of the reasons for making a will. In addition to the above reasons, tax considerations may necessitate the making of a will (and have an influence on what provisions are included in the will). Tax considerations are of particular importance where the combined value of both spouses' estates exceeds the equivalent exemption of the applicable estate tax credit. 

II. GENERAL FINANCIAL POWER OF ATTORNEY

One type of power of attorney is the general financial power of attorney ("GFPA"). In a general financial power of attorney, a person (i.e., the principal) can grant to his or her spouse or a trusted family member or friend the power to manage his or her financial affairs. In contrast to the advance directive referred to in Section IV below, the general financial power of attorney is used in connection with financial transactions rather than health care matters. If the power of attorney is "durable," it remains in effect even in the event of disability. A durable general financial power of attorney may make unnecessary the appointment of a conservator for the property of an incapacitated person. For example, if a husband and wife own their home as joint tenants with right of survivorship, if one of them were to become incapacitated, the other would be required to seek the appointment of a conservator (formerly known as "guardian of the property") in order to sell the home. A conservatorship proceeding is somewhat cumbersome and costly. A general financial power of attorney may make a conservatorship proceeding unnecessary. An estate planning attorney also can assist his client in determining whether the client should place certain limits on the agent's power to act. For example, the principal may wish to limit the agent's power to make gifts. Any person concerned with the possibility of disability should consider making a general durable financial power of attorney. 

III. ADVANCE DIRECTIVES

For various reasons, including the increased cost and complexity of medical procedures, one may wish to permit a trusted person to make health care decisions which he or she is unable to make due to incapacity.Georgia law permits a person to do so in an advance directive.In Georgia, an advance directive may contain provisions similar to those formerly found in durable powers of attorney for health care and living wills.In an advance directive, one may appoint an agent to make certain health care decisions in the event of his or her incapacity.One may appoint a successor agent or agents. One may state whether he or she desires to be creamted or buried after death. One may grant or forbid permission to donate one's organs after death. In an advance directive, a person also may make a statement reflecting his or her desires concerning life-sustaining or death-delaying treatment in the event he or she has a terminal condition or is in a permanent state of unconsciousness.A person may include provisions related to his or her religious beliefs if so desired.

IV. TRUSTS

A trust is an instrument in which the person creating the trust (called a trustor or settlor) appoints a trustee to hold legal title to property for the benefit of one or more beneficiaries. Georgia law requires that an express trust shall be created in writing and have each of the following elements: (1) an intention by a settlor to creat a trust; (2) trust property; (3) except for charitable trusts, a beneficiary who is reasonably ascertainable at the time of the creation of the trust or reasonably ascertainable within the period of the rule against perpetuities; (4) a trustee; and (5) duties imposed on the trustee in writing or provided by law. In Georgia, a person has capacity to create a living trust to the extent that the person has legal capacity to transfer property during life. A person has capacity to create a testamentary trust (i.e., a trust created by last will and testament) to the extent that the person has legal capacity to devise or bequeath property by will. A trustee has the legal capacity under Georgia law to acquire, hold, and transfer title to property. In Georgia, the same person may be the trustor, the trustee, and the beneficiary of a trust. In 2010, the Georgia legislature passed "The Revised Georgia Trust Code of 2010." The Revised Georgia Trust Code of 2010 contains major revisions to the prior trust code. If you have an existing trust governed by Georgia law, you may wish to consult with an attorney in Georgia to determine whether the trust should be modified in light of the Revised Georgia Trust Code of 2010.

There are many different types of trusts and some are used in the context of estate planning. Common forms of trusts include: (1) revocable living trusts (also called revocable inter vivos trusts; (2) testamentary trusts; and (3) insurance trusts. A brief explanation of these trusts is found below.
  • REVOCABLE LIVING TRUSTS: The revocable living trust, also referred to as a revocable inter vivos trust, is a trust created during the settlor's life which, by its terms, may be revoked. The revocable living trust is one of the more widely used estate planning devices. A revocable living trust may be used to dispose of a person's estate at death. In fact, it is possible to avoid probate if all a person's assets are held by the trust at the time of his death. However, this requires transferring the assets to the trust prior to the settlor's death. Assets not held by the trust must pass through probate. In addition to being used as a means to avoid probate, a revocable living trust may be used for management of the trustor's assets and to maintain privacy. The basic purpose of this type of trust is aptly described in the book Planning an Estate by Harold Weinstock. "The essence of this device is that the estate owner, during his or her lifetime, transfers assets to a trust and reserves to the owner during the owner's lifetime all of the beneficial rights in the trust, including the right to revoke. On the grantor-owner's death, the trust typically becomes irrevocable and the trust assets are administered and dsitributed in accordance with the provisions of the trust. Because legal title to the assets is held by the trustee, these assets need not be probated." Under the Revised Gerogia Trust Code of 2010, the trustor does not have the power to modify or revoke a trust in the absence of an express reservation of such power.
  • TESTAMENTARY TRUSTS: A testamentary trust is created by a person’s last will and testament. While the will and the provisions for the testamentary trust in the will can be changed during the testator’s life, after the testator’s death, the trust is irrevocable. Commonly, provisions for a testamentary trust will be found in the will of a person who has minor children. For example, a person’s will might provide that all assets pass to the surviving spouse, but to a trustee for the benefit of minor children if the spouse fails to survive the testator. In such case, the trust never goes into effect if the spouse survives. However, if the spouse predeceases the testator, then the testamentary trust becomes effective and is funded by assets from the testator’s estate. Another testamentary trust is a credit shelter or bypass trust. A credit shelter trust is sometimes used as a means of keeping property out of the estate of the surviving spouse for estate tax purposes, which may reduce or eliminate estate taxes on the death of the surviving spouse.
  • INSURANCE TRUSTS: Insurance trusts are created for the purpose of receiving life insurance proceeds on the life of the settlor.Insurance trusts may be revocable or irrevocable. Revocable life insurance trusts generally are not funded. The revocable life insurance trust is designated as the beneficiary of a life insurance policy on the life of the settlor. On the settlor’s death, the proceeds from the policy insuring the settlor’s life are paid to the trust. The proceeds are included in the settlor’s estate for estate tax purposes. On the other hand, the irrevocable life insurance trust typically is used as part of a plan to avoid subjecting the life insurance proceeds to federal estate tax when the settlor dies. Where this is the purpose of the irrevocable life insurance trust, the trust will be the owner of the life insurance policy insuring the settlor’s life. There are many technical requirements to establish and properly maintain an irrevocable life insurance trust.
V. REVIEWING YOUR ESTATE PLAN

It is a good idea to review one's estate plan at least every couple of years. Without regard to how long it has been since one executed his estate planning documents, changes that should prompt an immeidate review review of the estate plan include the following events:
  • Death of a beneficiary
  • Marriage, divorce, or remarriage
  • Death of individual executor or merger or dissolution of corporate executor
  • Change of name by the testator or change of name of beneficiary if confusion would result
  • The desire to change the disposition of one's estate
  • A significant change in one's assets
  • Inheritance of substantial assets or the receipt of substantial assets by gift
  • The acquisition of a new life insurance policy
  • Opening a new retirement plan or account
  • Death of the agent named in a financial power of attorney, medical power of attorney, or advance directive
  • The desire to grant additional powers in a financial power of attorney
  • The desire to restrict the powers in a financial power of attorney
VI. SUMMARY

In summary, basic estate planning generally includes a will, a general power of attorney (for financial matters), and an advance directive (for health care). In addition to these documents, a revocable living trust sometimes forms part of a basic estate plan. The estate planning process also may include a review and modification of the beneficiary designations of life insurance policies and retirement plans and accounts. Effective estate planning involves more than purchasing a do-it-yourself form or computer program. Most of these forms and programs available to the general public are generic in nature and not tailored to the laws of any particular state. For that reason alone, it is risky to use such a form or program. Do it yourself estate planning ultimately may result in great trouble and expense for your loved ones. Jeffrey N. Pennell, one of the eminent estate planning experts in the United States, has written that "there is no such thing as a simple will anymore: there are short wills, and lawyers who think about wills in simple ways, but there are no simple wills." Another eminent estate planning expert, Mary F. Radford, has written: "Testators should employ competent individuals to draft wills rather than succumb to the temptation to save money by drafting their own wills, with or without the aid of the numerous 'one-size-fits-all' will kits that are available on the market. Any money saved at the initial end of the process is likely to be minimal when compared to the expense of later litigation that is often spawned by self-drafted wills. If there is anything more conducive to litigation than intestacy, perhaps it is a will drawn and executed by the testator with aid only of a few well-meaning friends." Because of the intricacies of even basic estate planning, it is wise to seek the assistance of a lawyer with knowledge of this area of the law. An estate planning attorney can help you formulate the most effective estate plan for your situation and assist you with the implementation of your estate plan. With a properly prepared will and implemented estate plan, the probate process should not be a burden on your loved ones.

IF YOU ARE A TRUSTEE

If under some type of Trust Agreement of Last Will and Testament you were named as the trustee of the trust, then you will need to know what is required of you as the trustee. (When the trust is created by the terms of a Last Will and Testament, it is referred to as a testamentary trust.) The title "trustee" invokes a sense of great responsibility. In addition to carrying out the instructions in the trust agreement or will, the trustee usually is responsible for managing, preserving, and administering another person's assets for the benefit of the named beneficiary or beneficiaries.

The document by which the trust was created (i.e., the Trust Agreement or Last Will and Testament) generally provides the trustee with guidelines related to the scope and duration of the trustee’s authority, how assets are to be managed and distributed, and when and how to work with the beneficiaries. While direction may be provided to the trustee, the document establishing the trust often may be complicated and even may have ambiguous or conflicting terms. Therefore, many trustees, including professional trustees, consult with attorneys to ensure that they carry out their duties correctly and in such a manner as to effectuate the intent of the grantor of the trust (i.e., the person who creates the trust). 

Under Georgia law, a trustee is deemed to be a fiduciary, and as such is held to a high standard of care. A trustee is accountable to the beneficiaries and, in some instances, a court. A trustee is expected to act prudently and in the best interests of the beneficiaries at all times. A trusteeship may involve a variety of duties, situations, and parties. Common examples include managing the financial affairs of an elderly person, running a business, and managing property for a minor or disabled individual.

I. A Trustee's Authority

A trustee’s authority is granted by the grantor of the trust in a Trust Agreement or Last Will and Testament. It is important that you thoroughly review the Trust Agreement or Last Will and Testament and understand the responsibilities with which you would be charged. In addition, you should understand the duration of your authority, and what you can and cannot do as the trustee. Your trusteeship generally will terminate upon the happening of some specified event (e.g., the beneficiaries reaching a certain age), or end because the assets of the trust are completely depleted.

II. A Trustee's Duties

Generally speaking, a trustee has three kinds of duties to the trust and its beneficiaries:
  • A duty of impartiality (not to favor the interest of one party over another)
  • A duty of undivided loyalty (not to put the trustee’s own interest in conflict with those of the trust)
  • A duty to administer the trust with care and prudence
In administering a trust, the trustee shall exercise the judgment and care of a prudent person acting in a like capacity and familiar with such matters, considering the purposes, provisions, distribution requirements, and other circumstances of the trust.

A trustee always must act to further the interests of the trust and the beneficiaries. The trustee should not enter into transactions in which the trustee will benefit at the expense of the trust or its beneficiaries. In addition, even if a transaction is fair and in the best interests of the trust and the beneficiaries, the trustee should avoid all self-dealing. Finally, a trustee must keep the trust’s assets separate from the trustee's own property, and the trust’s assets must be readily identifiable.

While the trustee ultimately is accountable, unless otherwise specified in the Trust Agreement or Last Will and Testament, he may employ professionals and other agents to administer the trust. Some grantors may appoint co-trustees in the Trust Agreement. Generally, each trustee remains responsible and must report any misconduct of or by a co-trustee.

In addition to the ethical duties mentioned above, a trustee has administrative duties. Administrative duties generally include the following:
  • A trustee must set up and keep complete financial records for the trust.
  • Unless the trust provides otherwise, the trustee must provide a qualified beneficiary with a report of information, to the extent relevant to that beneficiary's interest, about the assets, liabilities, receipts, and disbursements of the trust, the acts of the trustee, and the particulars relating to the administration of the trust, including the trust provisions that describe or affect such beneficiary's interest. Unless the trust provides otherwise, a trustee shall account at least annually, at the termination of the trust, and upon a change of trustees to each qualified beneficiary of an irrevocable trust to whom income is required or authorized in the trustee's to be distributed currently, and to any person who may revoke the trust. At the termination of the trust, the trustee also shall account to each remainder beneficiary. An accounting furnished to a qualified beneficiary shall contain a statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last accounting to that beneficiary and a statement of the assets and liabilities of the trust as of the end of the accounting period.
  • Most trusts (other than revocable living trusts) will have a distinctive tax identification number and will be required to file annual state and federal income tax returns.
  • A trustee has the duty to invest and manage trust property. In investing and managing trust property, a trustee shall exercise the judgment and care under the circumstances then prevailing of a prudent person acting in a like capacity and familiar with such matters, considering the purposes, provisions, and distribution requirements of the trust.
  • Unless the trust instrument provides otherwise, a trustee shall reasonably manage the risk of concentrated holdings of assets in a trust by diversifying or by using other appropriate mechanisms. The trust instrument may relieve the trustee from having to diversify investments.
  • A trustee often is required by the Trust Agreement or Last Will and Testament to make distributions to beneficiaries. The terms under which distributions must or may be made can differ greatly from trust to trust. In some trust instruments, the trustee is required to make distributions for the beneficiary’s health, education, support and maintenance. In some trust instruments, the trustee may have the discretion to make distributions for whatever the trustee deems to be in the best interest of the beneficiary. Other trust instruments may provide for a fixed amount to be paid at certain times. Under certain circumstances, a trustee may be personally liable for improper distributions, and may be compelled by a court to make a distribution at the beneficiary’s request.
III. A Trustee's Personal Liability

The trustee shall be accountable to the beneficiary for the trust property. A violation by the trustee of any duty that the trustee owes the beneficiary shall be a breach of trust. In general, a trustee may be personally liable to the beneficiaries for any loss or gain to the trust estate if the trustee:
  • Failed to exercise the care and skill of a person of ordinary prudence in managing the property of another
  • Negligently or intentionally did something the trustee ought not of have done
  • Negligently or intentionally failed to do something the trustee ought to have done
IV. Compensation and Expenses of Trustees in Georgia

A trustee is entitled to be reimbursed out of the trust property for reasonable expenses that were properly incurred in the administration of the trust. Trustees shall be compensated in accordance with either the trust instrument or any separate written agreement between the trustee and the grantor of the trust. In Georgia, if there is no provision for trustee compensation in the trust instrument and there is no separate written agreement between the trustee and the grantor relating to the trustee's compensation, (1) with respect to a corporate trustee, the trustee shall be entitled to compensation based on its published fee schedule, provided such fees are reasonable under the circumstances; and (2) with respect to an individual trustee, the trustee shall be entitled to compensation as follows: (a) one percent of cash and the fair market value of any other principal asset received upon the initial funding of the trust and at such time as additional principal assets are received; and (b) an annual fee calculated in accordance with the following schedule based upon the cash and the market value of the other principal assets valued as of the last day of the trust accounting year prorated based on the length of service by the trustee during that year.
  • 1.75 percent per year on the first $500,000 (market value)
  • 1.25 percent per year on the next $500,000 (market value) 1.00 percent per year on the next $1,000,000 (market value)
  • 0.85 percent per year on the next $3,000,000 (market value) 0.50 percent per year based on values over $5,000,000

Word of Caution

These guidelines cannot tell you everything you need to know about being a trustee, and are intended to alert you to your duties and responsibilities as a trustee. Georgia has a trust code which governs the rights and responsbilities of trustees in Georgia. Given the risks of personal liability, if you are uncertain about any of your responsibilities, rights, or powers as a trustee, you are encouraged to consult with an attorney familiar with trust law. It often is less complicated and expensive to obtain advice to prevent a problem than it is to defend a problem later.

If you need an Atlanta estate planning attorney and/or probate attorney in the metropolitan Atlanta, Georgia, area, please call the firm of Chambers, Chambers & Chambers, LLP. Our firm has served for clients as probate attorney in DeKalb County, Fulton County, Cobb County, and Gwinnett County, Georgia. We would be pleased to assist you with your estate planning or probate needs.

Disclaimer:The above memorandum provides some general information about estate planning and wills, financial powers of attorney, advance health care directives, and trustees.It is provided for informational purposes only and should not be considered legal advice.No person should act or refrain from acting on the basis of information contained herein.You should seek appropriate legal advice on your particular legal matter from an attorney licensed in your state.This content may not reflect current legal developments, and this firm disclaims all liability with respect to actions taken or not taken based on any information contained herein.

 

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