Frequently Asked Questions

Special needs trusts are established for individuals with developmental and/or intellectual disabilities to supplement their needs while preserving the benefits they receive from federal, state and local agencies. They can be established by a parent or a grandparent, and are often funded by an inheritance from a family member.

When an individual with developmental disabilities receives funds directly from an accident or other type of injury lawsuit, these funds can be subject to claims from health insurance companies, Medicaid and other creditors.  These self-settled trusts must comply with federal and state law, and there are reimbursement requirements.

For a more comprehensive discussion of this topic, please refer to Chapter 7 of A Layperson’s Guide to Estate Planning, which can be obtained by download at www.jalistlaw.com or by contacting The Law Offices of James A. List, LLC at 410.337.5340.

Probate means “to prove,” and it refers to proving the validity of a will. Probate is the administration of a person’s estate by a court pursuant to a will or by intestate succession (someone who dies without a will). Probate is a technical legal process established by each state with specific rules, deadlines and filing requirements.

Probate examines and rules on creditor claims, it determines who the beneficiaries of an estate are and what they are entitled to, it limits the time that someone can challenge a will, and it transfers legal title to beneficiaries.

Living trusts (sometimes called “revocable trusts”) are an alternative to a will for transferring your estate to your loved ones. During your lifetime, you transfer all assets, including homes, business interests and investments into a trust, which you then manage for your family’s benefit. At your death, a successor trustee – who can be your spouse, a child, an attorney or a CPA – manages and transfers your assets to your heirs.

Living trusts do not avoid estate taxes. However, if structured properly, they may avoid probate and any Will challenges. Living trusts can be very useful, particularly when you have complex assets such as closely held business interests or investment real estate.  When you own real property in multiple states, living trusts avoid the necessity of probate in each state. Often, these trusts are used in step-family situations and can protect children from previous marriages and provide support for surviving spouses.

For a more comprehensive discussion of this topic, please refer to Chapter 5 of A Layperson’s Guide to Estate Planning or by contacting The Law Offices of James A. List, LLC at 410.337.5340.

It depends, but probably. Life insurance has several purposes. When you are younger, it pays off major debts such as mortgages, replaces income, and can fund future education expenses. When you edge near retirement, you may consider dropping your life insurance coverage, particularly if the policy becomes more expensive as you age.

Life insurance, however, can provide a fund for other purposes, such as paying estate taxes and for equalizing estates.  It can be used to fund a prenuptial agreement for a second marriage.  If you leave a family business to one child, a life insurance policy can be used to balance that gift to other children.

A word of caution:  life insurance proceeds are a part of your taxable estate. There are ways to structure the policies in tax-advantaged ways.  Please consult with your accountant, your financial planner and your attorney when discussing this issue.

This question generally comes from young individuals without children. Some of these questions come from recently married couples or couples in committed relationships.  Again, the answer depends. If most of your assets transfer by joint ownership, like a house, or they transfer by beneficiary designation, like insurance policies and retirement accounts, then you may not need a will or revocable trust at this moment.

Still, there are several things to consider:  First, how would your assets transfer without a plan? The rules of intestate succession can be complex, and you should understand them before making a decision. Would you prefer to give assets to your nieces/nephews instead of parents? Then you may need a will or revocable trust.

Second, even if you do not need a will or revocable trust, do you have a medical directive or living will? The absence of one of these simple documents can cause tremendous angst for your family, e.g., Terry Schiavo.

Finally, when you have children, whether by birth or adoption, you need to designate guardians to raise them and trustees to manage the assets. These decisions should not be left for the courts to decide.

They are different taxes. Estate taxes are charged by the federal government. Traditionally, the IRS shares some of this revenue with the states.

The exempt amount for estates has changed significantly over the past decade. Today, an estate with less than $5.4 million has no federal estate tax due. However, many states have de-coupled from the federal system, and have instituted their own estate tax system. In Maryland, estates exceeding $3 million have state estate taxes due.

Inheritance taxes are levied on assets that pass under a will, intestate succession, a trust, or a deed to certain beneficiaries. In Maryland, transfers to children, grandparents and siblings as well as step-relations to these persons, are exempt. Transfers to closely held corporations where all of the shareholders are exempt, are free from tax as well. Transfers to other persons, e.g., nieces and nephews, or friends, are subject to a 10 percent inheritance tax on the value of the transferred assets.