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Estate Planning Principles Memorandum

Estate Planning Principles Memorandum

January 11, 2014 21:24:00
By Winstone Group Inc. | Attorney Salazar, Alberto

Asset protection is a major part in both business and estate planning. It is an important part of arranging your assets in a way that will preserve the value of your assets from attacks by creditors and governments.

The purpose of this memorandum is to provide a brief overview of principles that you should know about in preparation of protecting your assets for your family and grandchildren. The relevant parts include: the durable power of attorney, payable on death (POD), transfer on death (TOD), etc.

A US Trust could shield your assets from compliance reports and protect your funds from non-US governments. The POD / TOD will protect your funds. The Durable Power of Attorney is required no matter the situation.

In a nutshell, the Will is easy and cheap to set up. However, the lawyers and court will capture 20 to 30 % of the total value of your estate during the probate court proceedings. Your estate value is the fair market value of all of your worldwide assets. The lawyers charge a minimal fee to draft your Will with the anticipation of getting their excessive fees at the back-end, once you are deceased. Your estate must go through probate if you have assets, including real property such as residential rental property, in the US.

In order to avoid losing a huge part of your estate to the lawyers and administration costs, the revocable trust is to be used in protecting your estate for the benefit of your spouse and your children (next generation skipping provisions). Once you establish the trust, the assets fund the trust. In other words, the Trust will be funded with your US assets and US real property. The title of the property will be changed from your name to the Trust name at the time the Trust is established. Upon your demise, there is NO PROBATE in any court. The real property and other assets are transferred pursuant to your instructions as noted in the Trust, namely to the successor beneficiaries without any court proceedings and without any interference by third parties.

In conjunction with the Trust, you must have a durable power of attorney and a Pour-Over Will. The Pour-Over Will ensures that any assets you have obtained after the establishment of the Trust but before your death, will pour over to the Trust.

Here are the important items you should consider:

ESTABLISH THE POUR-OVER WILL. This testamentary device is used in conjunction with the Trust. The client decrees in the Pour-Over Will that the property in his estate at the time of his death shall be distributed to the Trustee (Successor Trustees = the surviving spouse and or the children) of the Trust. The U.S. courts recognize the Pour-Over Will in the event the client had not put all of his assets into the Trust for reasons of liquidity, convenience, or simply because he did not get around to do so before his death. A Pour-Over clause gives probate property to the Successor Trustee by "pouring" such assets into the Trust. The Pour-Over clause protects the client's property not previously placed in Trust by pouring it into the previously established Trust.

DURABLE POWER OF ATTORNEY. The Durable Power of Attorney (also known as an Enduring Power of Attorney) is a legal document that ensures the client's attorney-in-fact (spouse/child) continues to hold power to manage assets on behalf of the client even if the client were to become incapacitated, unconscious or lost.

HEALTH CARE POWER OF ATTORNEY. A health care power attorney, an advance directive also referred to as a health care proxy, is a medical power of attorney that allows the client to grant another person, the client's spouse as proxy, the right and authority to handle matters related to client's medical care. An advance directive is a legal document giving direction to health care providers about treatment choices. This document empowers the proxy to make all medical and health care decisions in the event the client becomes incapacitated.

Such powers include the power to consent, refuse consent or withdraw consent to any type of medical care, treatment, service or procedure. It is important to understand a Living Will does not appoint another person to make health care decisions. It only applies to decisions regarding "life-sustaining treatment".

The Health Care document allows the proxy to make decisions regarding personal care, medical treatment, hospitalization, health care and medical procedures during a period of incapacity. A durable document continues in effect and or takes effect when client is incapacitated.

PAYABLE ON DEATH (POD) ACCOUNTS. For an individual with funds held in US banks and credit unions, the POD arrangement ensures swift distribution of assets to your heirs because there is no probate. POD accounts are created by completing the proper forms with your banker. The POD allows for the transfer of all checking and savings accounts, security deposits, savings bonds and other deposit certificates. It's important to understand that the POD should be used in conjunction with a Durable Power of Attorney (DPA). The DPA is triggered at the time you become incapacitated. The POD is only activated at the time of your death.

TRANSFER ON DEATH (TOD) ACCOUNTS. For an individual with funds held in US financial institutions, the TOD arrangement ensures swift distribution of assets to your heirs because there is no probate. TOD accounts are created by completing the proper forms with your broker or investment adviser. The TOD allows for the transfer of all stocks, bonds, mutual funds or other assets to the designated beneficiaries upon your death. You maintain complete control of your assets during your lifetime. Your named beneficiaries have no access to or control over your assets as long as you are alive. It's important to understand that the TOD should be used in conjunction with a Durable Power of Attorney (DPA). The DPA is triggered at the time you become incapacitated. The TOD is only activated at the time of your death.

Nothing contained in this memorandum is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This memorandum is intended for educational and informational purposes only.

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