Will They or Won't They? A Basic Guide to Estate Planning

This blog was part of an ongoing series of educational classes and attempts to summarize a class on Estate Planning. Nothing in this blog should be used in place of actual legal advice. Please contact an attorney if you need help with planning your estate or drafting a Will. 

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WHAT IS AN ESTATE?

An estate is everything you can’t take with you.

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ASSETS 

• Houses and land
• Vehicles
• Jewelry, art, guns, heirlooms, and all other personal belongings
• Bank accounts
• Investment portfolios / stocks & bonds
• Retirement accounts
• Life insurance
• Business assets

All of the above are examples of things we try to accumulate in life to build up our estate, and when we pass it all has to go to someone else. The question is: Who will it go to? Should it go to family? Extended family? Your estate? It’s important that you make this decision before you pass so you can be sure your assets will all go where they were intended to go after your death.

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LIABILITIES

This comprises all the debt you can’t take with you and can include:

• Mortgage debt
• Credit card debt
• Personal loans (student debt)
• Taxes
• Funeral expenses
• House bills
• Medical bills
• Other bills

As we collect our assets and add to the list of things we own in life, we also typically collect liabilities. The ones we see most often are mortgage debt and credit card debt. These are usually the highest areas of debt, so it’s important that your estate knows who is holding those things – which company holds your mortgage and who your credit cards are with. Many people hide this information and it makes it very difficult for your estate to handle your affairs when they don’t know what you have. 

Another one we see frequently is student debt; if your student debt is through the federal government it may be forgiven upon your death, but if you have a private loan then your estate would have to address that. 

When you die, you unfortunately don’t get a free tax year – you still have to pay income tax on everything you made up until you died. It becomes your estate’s responsibility to pay this. 

When collecting information for your will and estate, you can use our Will Information Sheet to keep all necessary info in one place.

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WHAT DO I NEED FOR A BASIC ESTATE?

Every estate should have 3 things:

• Will
• Power of Attorney (POA)
• Advance Directive / Living Will

It’s important to note that each state has its own rules for how estate planning is done in that particular state. This means that if you have all the above documents completed but then you move to a new state, you should absolutely make sure to have your estate documents updated with an attorney who practices in the new state. 

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SO WHAT HAPPENS WHEN WE DIE?

The easiest answer to this is that your estate will go through probate court. The English noun “probate” derives from the Latin verb probare – to try, test, prove, examine – more specifically from the verb’s past participle nominative neuter probatum, “having been proved.” This is what we do in probate court – we prove something. In the case of an estate, we are proving a will and the documents involved in the will to verify it was a valid decision made by the deceased regarding their belongings. Once proved, the state will allow you to handle the estate according to the deceased’s wishes. 

If you have a will and it gets probated, that is called a Testate Estate and it passes property according to Testate Succession. ‘Succession’ is just a fancy word for when you pass things down to your heirs. 

There are rules regarding how things will be passed down if you don’t have a will, and not having a will is called an Intestate Estate and it passes property according to Intestate Succession. It is in the government’s interest to ensure that property is passed on and doesn't get stuck without an owner, so in the event you die without a will the government will follow their own statutes on how property is passed on in order to keep society moving forward. 

Not everything needs to go through probate. Many things are created in a way that allows them to pass outside of the probated estate, and this happens most often with a married couple. Some of the things that can pass outside of a probated estate include:

• Survivorship clauses on deeds – Typically if a married couple owns a home together they will have a survivorship clause on their deed. That clause will kick in immediately upon death, so instead of having to go through the court and probate the will, all we have to do is let the court know one of the spouses has passed away through a death affidavit. This removes the deceased spouse from the deed and the living spouse is now the sole owner of the property. 
• Beneficiary clauses - These typically exist on things like stock and investment accounts, insurance, retirement accounts, etc. When these are through your employer, you’ll usually have to state a beneficiary as soon as the accounts are opened. I always recommend that you keep those beneficiary clauses up to date because they are just as important as the will itself. These are not within our control when we’re probating your estate; they are passed automatically upon death and will dictate who receives the benefit regardless of what else is stated in your will. 
• Payment on Death clauses - This usually pertains to bank accounts. You can attach these clauses to checking and saving accounts and have them pass to the next person in line immediately upon death, which could be an alternative to having a joint account. 
• Joint accounts - In this case, the surviving spouse would already have full access to the bank account and it would therefore not need to be probated. 

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TESTATE ESTATES

With a testate estate, we go to the probate court to prove a will that has been witnessed and verified. Alabama Statutes give the following requirements for a Will:

• The drafter must be 18 or over
• The will must be signed by the drafter
• The will must be written or typed – it cannot be oral
• The signing must be witnessed by two people 

These are the bare minimum requirements of a legal will in Alabama. I have seen people bring in a hand-written will that was signed and witnessed, and we have filed that in probate; this isn’t the best way to have a will done because it is usually missing many important clauses that truly benefit the estate. 

 Your personal representative is the person you choose to be in charge of your Estate. The personal representative is personally liable to your estate, so you should be sure to pick someone who is responsible and can be trusted to complete this task reliably. It is also beneficial to choose your personal representative early and let them know they’ve been chosen and where all these important documents can be found.

You can sell real estate while an estate is open, and there are lots of rules around it – you can read more about how real estate passes through an estate on our blog HERE.  

If you have minor children and you are concerned about what will happen to them when you pass, there are some things you can control with your will such as who their guardian will be upon the death of you and your spouse. Being able to choose that person ahead of time can give you a sense of ease. Whereas the guardian takes care of the daily wellbeing of the child and looks after them day to day, the conservator is in control of the money and assets that child would have received had they been older and will use it for their benefit. You don’t have to select the same person as guardian and conservator, which happens often when you want someone very caring to physically take care of the child but someone who is very financially responsible to take care of the money. Appointing a custodian in your will prevents the need to go to the court in order to ask them to appoint someone.

Having a legal will and making all these choices before your death will help with ease of process after you pass and will also help reduce costs for your personal rep, heirs, and the attorney when it comes time to file in probate. 

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INTESTATE ESTATES

In an intestate estate, the deceased did not have a will. In this case we would go to the probate court and let them know there is no will, and the court would then look to the statutes to see who is next in line to benefit from the deceased’s estate. The statutes surprise a lot of people – the assumption is that the spouse of the deceased would receive everything by default, but this is not always the case. There are succession rules, and the order of succession is as follows:

Without a Spouse:

1. Children of the deceased and their descendants
2. Parents of the deceased
3. Siblings of the deceased
4. Nieces and nephews of the deceased
5. Grandparents of the deceased
6. Aunts and uncles of the deceased
7. Anyone else in the bloodline
8. State of Alabama

If it ends up going to the State of Alabama, the State will hold it for a period of time until it eventually enters into the general fund of the State. 

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With a Spouse:

1. If deceased had no living parents and no living children, then spouse takes all.

2. If deceased had living parents but no living children:

• Spouse gets first $100,000
• Spouse gets 1/2 of remaining estate
• Parents get 1/2 of remaining estate

3. If deceased had children that were also children of spouse:

• Spouse gets first $50,000
• Spouse gets 1/2 of remaining estate
• Children get 1/2 of remaining estate

4. If deceased had children that were not the children of spouse:

• Spouse gets 1/2 of estate
• Children get 1/2 of estate

The above outline for spousal shares also includes real property that does not have a survivorship clause. This is really what shocks people. In addition to the expectation vs. reality shock, the spouse/heirs also have to follow very strict rules at the Probate Court. It is a drastic difference when someone dies with a will vs. without a will. 

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PERSONAL REPRESENTATIVE VS. POWER OF ATTORNEY

I get asked a lot if a personal rep is basically the same as a power of attorney and the answer is no. They have similar authorities and powers, but they are very different things.

Power of Attorney: A living person who can act on behalf of another living person. This includes the Principal (person who grants the power of attorney) and the Agent (person acting on behalf of the principal).

Personal Representative: A living person who can act on behalf of a dead person's estate.

A power of attorney is limited to doing the same things the principal can do as a healthy, capable, living person. For example, your agent can pull money out of your bank account or can sell your house for you in the case that you are just not physically capable of being there – you are out of the country or are unable to leave the hospital, etc. There is also a difference in a durable vs. nondurable power of attorney.

Nondurable POA: The agent can only do things the principal can also do. For example, if the principal were unconscious and unable to sign a document, the agent would also be unable to sign.

Durable POA: If the principal is living, the agent can do anything on behalf of them regardless of their physical or cognitive ability.

The default POA you’ll get when dealing with an attorney is a durable POA, one that will last through any incompetency issues that may come up. This is very important because if you ever have a family member go through a medical issue where they are unable to speak for themselves or that has left them with an inability to understand their surroundings, you won’t have to go to court to appoint a guardian to speak for them – you can use that durable POA to handle their affairs, which makes the process much easier on families. 

A personal representative, on the other hand, is a living person who represents a dead person's estate and will handle the wrapping up of their affairs. This is an important distinction – the personal representative cannot use their powers until the person is dead and a court has granted them their authority. This is very different from a power of attorney, in which case you cannot use your power anymore once the principal dies; you can use it if they are incapacitated, but not if they have died.  The personal rep is personally liable for any mishandling of the estate, so make sure you have chosen a very responsible person who is capable of handling your estate effectively.

When choosing a personal rep, I always recommend appointing two: a main one and a backup in case you outlive the first person you’ve chosen. This way there is always someone else who can step in if the first person is no longer able or willing to perform the duties.

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ADVANCE DIRECTIVE / LIVING WILL

This is what Alabama’s Advance Directive looks like. This doesn’t result in great pillow talk between you and your spouse, but it is very important to have this discussion. In my humble opinion, the advanced directive isn’t really for you even though it feels like it is; it’s really for your loved ones who will have to make very difficult medical decisions regarding how to handle your treatment at a time when you can’t speak for yourself. 

The advanced directive will first define some terms for you.

Once defined, it will ask a question or two based on those definitions; you then have to answer yes or no. This document can give your loved ones comfort in knowing they were simply acting out your wishes rather than making their own decisions that resulted in your death. There is so much peace in knowing that’s what someone wanted rather than having to guess.

The advanced directive also allows you to appoint a proxy, which is a person who can speak on your behalf to doctors. This is the person who will speak directly with doctors regarding your medical decisions and wishes, and this usually goes hand in hand with the power of attorney. We have a medical power of attorney, but oftentimes now your power of attorney will also include a medical provision already written into it. 

One thing people need to consider is that there are three different versions of power you can give your proxy on this form:

• I want my health care proxy to follow only the directions as listed on this form.
• I want my health care proxy to follow my directions as listed on this form and to make any decisions about things I have not covered in the form.
• I want my health care proxy to make all final decisions, even though it could mean doing something different from what I have listed on this form.

It’s important to read these thoroughly to really understand which one best works for you. 

The advance directive also requires two witnesses sign it. I ask that when you use witnesses you always use people who are not related to you. Do not use any witness who is related to you for a legal document. Invite your neighbor over, have a coworker sign it, or use anyone else you have a relationship with but who isn’t a direct relative.

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ESTATE TAX

Alabama doesn’t have an estate tax, so we’re just discussing the federal tax here.  In 2022, the federal estate tax will kicks in once your estate is worth $12,060,000 or more per person. 

If you predecease your spouse and your estate is worth, for example, $5M, your spouse can use something called Portability – they can reserve the $7M you didn’t use for themselves and add it to their own net worth when they die. Talk to your attorney if you want to learn more about Portability and the time requirements for claiming it. 

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IMPORTANT DOCUMENTS

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