Estate Planning

Huntsville, AL Estate Planning Attorney

Estate planning is an essential process that involves preparing for the management and distribution of your assets upon your death. Estate planning helps ensure the transfer of wealth to loved ones, minimize taxes, and protect assets from creditors. A knowledgeable estate planning attorney will go over with you the key components of estate planning in Alabama, including the legal requirements and common strategies used to protect and distribute assets.

Last Will and Testament

The first (and foundational) step in estate planning is to create a will. A will is a legal document that allows you to control how your property and assets will be distributed after your death. It is important to note that a will must be executed according to Alabama state law to be considered valid. This means that the person creating the will, known as the testator, must be at least 18 years old and of sound mind at the time of its creation. [cite] This is a bit unusual as the usual age of majority in Alabama is 19, but you only have to be 18 to make a will. Additionally, the will must be signed by the testator in the presence of two witnesses, who must also sign the document.

You can use a will to:

1. Distribute your assets according to your wishes. Perhaps the most obvious benefit of writing a will is that it allows you to determine how your assets will be distributed after your death. Without a will, your assets will be distributed according to statute of intestacy [cite], which may not align with your preferences. By writing a will, you can ensure that your assets are distributed in a way that reflects your wishes and provides for your loved ones.
2. Appoint a guardian for your minor children. If you have minor children, it's important to consider who will take care of them in the event of your death. Writing a will allows you to appoint a guardian for your children, ensuring that they will be cared for by someone you trust.
3. Avoid family conflict. In some cases, disagreements over the distribution of assets can lead to family conflict and even legal battles. By clearly outlining your wishes in a will, you can help minimize the risk of conflict and ensure that your loved ones can focus on grieving and healing rather than arguing over your estate.
4. Save time and money. Creating a will can actually save time and money for your loved ones after your death. Without a will, the process of distributing your assets can become complicated and drawn out, requiring additional time and resources. With a will in place, the process can be streamlined, making it easier and less costly for your loved ones to carry out your wishes.

Trusts

Another important aspect of estate planning in Alabama is the use of trusts. A trust is a legal arrangement that allows a person, known as the grantor, to transfer assets to a trustee who will manage the assets on behalf of a beneficiary.

Testamentary Trusts

This type of trust is created as part of a person's last will and testament and can provide numerous benefits for both the individual and their beneficiaries. Testamentary trusts are an important tool that individuals can use to ensure their assets are managed and distributed according to their wishes after they pass away.

What is a testamentary trust?

A testamentary trust is a type of trust that is established as part of a person's last will and testament. It is often used to hold property in trust until a beneficiary reaches a certain age or to control the disposition of property for the entirety of the beneficiary’s life. It comes into effect after the individual passes away and is designed to manage and distribute assets according to their wishes. The terms of the trust are included in the individual's will, and the trust is typically administered by a trustee who is appointed by the testator.

There are several benefits of a testamentary trust, including:

• Control over asset distribution: One of the main benefits of a testamentary trust is that it allows the individual to maintain control over how their assets are distributed after they pass away. They can set specific terms for the trust, such as when beneficiaries receive distributions, how much they receive, and under what circumstances.
• Protection for beneficiaries: A testamentary trust can also provide protection for beneficiaries, especially if they are minors or have special needs. The trustee can manage the assets and ensure they are used for the benefit of the beneficiaries, rather than being spent frivolously or misused.
• Privacy: Unlike a living trust, a testamentary trust is not established during the individual's lifetime, so it is not subject to public disclosure. This can provide greater privacy for both the individual and their beneficiaries.

How do I establish a testamentary trust?

To establish a testamentary trust, you must include specific language in your last will and testament that outlines the terms of the trust. They must also appoint a trustee to manage the trust and distribute the assets according to their wishes. The trustee can be a family member, friend, or professional trustee such as an attorney, bank, or trust company, depending on the individual's preference.

Revocable Living Trusts

A revocable living trust is a popular type of trust that allows individuals to manage their assets while they are alive and distribute those assets to their beneficiaries after their death. Assets held in a revocable trust are not subject to probate, so your heirs will not have to go through the court system to access them. This can save time and money, and it can also help to keep your affairs private.

Other Types of Trusts

Trusts can be used for a variety of purposes, such as asset protection, tax planning, and charitable giving. There are several types of trusts available in Alabama, including revocable trusts, irrevocable trusts, and special needs trusts.

Irrevocable Trusts

Irrevocable trusts are trusts that cannot be changed or terminated once they are established. There are many different types of irrevocable trusts, each with its own unique benefits and requirements. Some common types of irrevocable trusts include:

• Special Needs Trusts: These trusts, which are typically irrevocable but not always, are designed to provide financial support for individuals with disabilities without jeopardizing their eligibility for government benefits. Special needs trusts are also known as supplemental needs trusts.
• Charitable Trusts: These trusts allow individuals to donate assets to a charity while also receiving certain estate tax benefits. These include charitable lead trusts and charitable remainder trusts.
• Life Insurance Trusts: These trusts are used to hold life insurance policies and provide financial support to beneficiaries after the policyholder's death.
• Asset Protection Trusts: These trusts are designed to protect assets from creditors and other potential liabilities. Alabama recently enacted an asset protection trust statute. [cite]. Before the enactment of this statute, self-settled trusts in Alabama did not have creditor protection.

Power of Attorney

In addition to wills and trusts, estate planning in Alabama also involves the use of power of attorney instruments. A power of attorney is a legal document that grants someone else the authority to act on your behalf in various matters. In Alabama, a power of attorney is an important tool that can provide numerous benefits for individuals and their loved ones.

What is a power of attorney?

A power of attorney is a legal document that allows someone else to act on your behalf in various matters. The person who grants power of attorney is known as the "principal," while the person who is granted authority to act is known as the "agent" or "attorney-in-fact." The agent can be granted authority to act in a specific matter, such as signing a document or making a decision, or in a broader capacity, such as managing the principal's financial affairs or making healthcare decisions.

Why is a power of attorney important?
There are several reasons why power of attorney is important, including:

1. Ensuring your affairs are taken care of: If you become incapacitated or unable to make decisions for yourself, having a power of attorney in place can ensure that your affairs are taken care of by someone you trust.
2. Avoiding court intervention: Without a power of attorney in place, if you become incapacitated, your loved ones may need to go to court to establish a guardianship or conservatorship, which can be time-consuming and expensive.
3. Providing peace of mind: Knowing that you have a trusted agent in place to handle your affairs if you are unable to do so can provide peace of mind for both you and your loved ones.

What are the types of power of attorney in Alabama?
In Alabama, a power of attorney can be general or limited:

• General power of attorney: This grants broad authority to the agent to act on behalf of the principal in various matters.
• Limited power of attorney: This grants authority to the agent to act on behalf of the principal in limited or specific matters.

And the power of attorney can be either:

• A durable power of attorney: the POA remains in effect even if the principal becomes incapacitated.
• Or a springing power of attorney: the POA only becomes effective when a certain condition, such as incapacity, occurs.

A power of attorney in Alabama is presumed to be durable unless it expressly states otherwise. 26-1A-104. So, a general durable power of attorney grants broad authority to the agent and is effective even if the principal becomes incapacitated.

How do I create a power of attorney in Alabama?
To create power of attorney in Alabama, you will need to follow certain legal requirements, including:

1. “A power of attorney must be signed by the principal or in the principal's conscious presence by another individual directed by the principal to sign the principal's name on the power of attorney.” Ala. Code 26-1A-105.
2. “A signature on a power of attorney is presumed to be genuine if the principal acknowledges the signature before a notary public or other individual authorized by law to take acknowledgments.” Ala. Code 26-1A-105.

Is a copy of a Power of Attorney valid?
Yes. Under Alabama law, “a photocopy or electronically transmitted copy of an original power of attorney has the same effect as the original[.]” Ala. Code 26-1A-106.

Healthcare Power of Attorney

A durable power of attorney for healthcare is a legal document that allows individuals to appoint someone to make healthcare decisions on their behalf if they become incapacitated. This document allows individuals to choose a trusted family member or friend to make medical decisions for them.In a healthcare power of attorney, your agent can:

1. Consent to medical treatment, surgical procedures, diagnostic procedures, etc.
2. Consent to medication
3. Have access to medical records
4. Authorize your admission or discharge to a hospital, nursing home, or rehabilitation center
5. Contract for healthcare services on your behalf

Advanced Directives for Healthcare

Advanced directives for healthcare are legal documents that allow individuals to express their healthcare preferences and make decisions about their medical treatment in the event that they are unable to do so themselves. In Alabama, advanced directives are an important tool for ensuring that individuals receive the medical care that they want and that their wishes are respected.

This document can provide guidance to healthcare providers and family members regarding an individual's preferences for end-of-life care, such as whether they want to be kept alive through artificial means.

In an advanced directive for healthcare (also known as a living will) you decide the following questions:

1. Whether you want to have life sustaining treatment if you are permanently unconscious.
2. Whether you want to have artificial food and hydration if you are permanently unconscious.
3. Whether you want to have life sustaining treatment if you are terminally ill or injured.
4. Whether you want to have artificial food and hydration if you are terminally ill or injured.

An advanced directive is sometimes called a living will – although this is not the preferred term as it is often confused with a Last Will and Testament.

There are many benefits to having advanced directives for healthcare in place. One of the main benefits is that these documents allow individuals to have control over their medical treatment and ensure that their wishes are respected. Without advanced directives, decisions about medical treatment may be left up to family members or healthcare providers, who may not be aware of an individual's preferences.

Another benefit of advanced directives is that they can help reduce conflict and confusion among family members during times of medical crisis. When there is a clear understanding of an individual's preferences regarding medical treatment, family members are less likely to disagree about what course of action to take.

Tax Planning

Another important aspect of estate planning in Alabama is tax planning. However, the estate tax threshold for 2023 is $12.92 million ($25.84 million per married couple). But this historically high threshold is set to be reduced at the end of 2025 to $5 million per individual indexed to inflation. For estates that are ensnared by estate taxes, they can be a significant burden on an estate, reducing the amount of assets that are passed down to beneficiaries. However, there are several strategies that can be used to minimize or even eliminate estate taxes. For example, gifts made during a person's lifetime can reduce the value of their estate, thereby reducing the amount of estate taxes owed. Additionally, the use of trusts and other estate planning tools can help minimize taxes and protect assets from creditors.

Regularly Review your Estate Plan

It is important to regularly review and update estate planning documents in Alabama. Life events, such as marriage, divorce, and the birth of children or grandchildren, can have a significant impact on estate planning. As a result, it is important to regularly review and update wills, trusts, and other estate planning documents to ensure that they accurately reflect a person's wishes and goals.

Estate planning is a critical process that can help ensure the proper transfer and management of assets and properties in Alabama. Through the use of wills, trusts, power of attorney documents, and tax planning strategies, individuals can protect their assets, minimize taxes, and provide for their loved ones. It is important to work with an experienced estate planning attorney to develop a comprehensive estate plan that meets your unique needs and goals.