Last time we braved through a topic no one likes to think about—what happens if we become incapacitated. In particular, we discussed what questions we should answer before we become incapacitated and the type of documents where those answers should be recorded.
In brief, we should create at least two documents: A financial power of attorney appointing someone to handle our finances and a medical power of attorney designating someone to make our medical decisions and instructing them how we want common situations to be dealt with. Doing so is beneficial both because it increases the likelihood that our wishes will be known and followed, and because it reduces intra-family conflict, especially in instances where the family cannot agree on how to handle our incapacitation.
This week we will cover an even less pleasant topic—what happens when we die.
If we do nothing, then the CNMI’s intestacy law will decide what happens to our property when we pass away. Sometimes that’s fine. Other times it means that people we don’t want to inherit our wealth will.
Not making a decision also means that some (but not all) of our property will normally need to go through probate before our heirs will officially own it. I say some, not all, because bank accounts and retirement accounts where we’ve designated a beneficiary will pass automatically. And so too does real estate in limited circumstances.
The probate process involves a person (usually one of our heirs) initiating a probate proceeding with the court. To do so, this person will ask to be appointed as administrator. Following the appointment, they will give the court an inventory of everything we own plus a list of all known creditors. They will also post a notice of the proceedings in the newspaper in addition to contacting all known creditors in person or by mail. If there are no creditors and the heirs are playing nice, the probate will wrap up within a few months. But if disputes arise, the probate can take years and tens of thousands of dollars in legal fees to conclude.
If we want more control over what happens to our property when we pass, another option is a will. Having a will does not eliminate the need for probate, but it enjoys many benefits over letting the legal system decide who gets what.
To survey some of the key benefits: First, we decide how our estate will be distributed. So, for instance, if we want one person to get more, we can do that. And if we want someone to get less or even nothing, we can do that too. This point is especially valuable if we have non-traditional families such as if there are unofficially adopted kids. In those cases, the result we want and the outcome that the law dictates will often be different.
Another advantage of a will is that it speeds up the probate process while also reducing intra-family conflict. Each result flows from the same reason: Our wishes are known. This makes the court’s job easier while reducing opportunities for our family to fight over our property.
A third benefit is that we can reduce estate taxes, which means less of our property goes to the tax man and more of it goes to our heirs. But given current estate-tax exclusions, this last benefit only applies to a wealthy few. The rest of us can largely ignore estate taxes under the present rules.
For most people, a will is enough. But some people may benefit from taking their estate planning up a notch. For these people, a trust would be better.
What kind of people should investigate whether one of the many forms of trust are right for them? First, people who want to avoid the delays and publicity of probate. Unlike passing property via a will or under intestacy rules, each of which is a matter of public record available for anyone to review, property transferred through a trust doesn’t need to go through probate. Thus, it’s normally private and faster than probate proceedings.
Second, people who own real estate in more than one jurisdiction—for example, if they own land in both the CNMI and Guam. In these cases, the estate would have to go through two probates, first in the CNMI and then again in Guam. A trust would bypass both proceedings.
Third, people who have children with more than one partner. The reason here is that children from the earlier partner(s) often get cut out of the estate by the most-recent partner. A well-crafted trust can prevent this outcome.
Fourth, people who want to protect their wealth from creditors (this concept is often called asset protection). For instance, let’s say we own an apartment building, a tenant injures themselves on the property, sues us, and wins. Because the amount won in these cases is often unreasonably high, savvy people use the law to put barriers between themselves and the lawsuit, so that it will be harder for the tenant to collect the full amount that they won in the lawsuit. Creating a trust allows us to deploy asset-protection strategies to shield our heirs and beneficiaries from a host of scenarios.
To learn more about planning your estate, and how to best tailor it to your situation, speak with a professional today.
This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.
Jordan Sundell is a lawyer primarily practicing business and real-estate law. He formerly worked for the CNMI Supreme Court and Bridge Capital and is now general counsel for several real-estate companies, including JZ Group. His columns—focused mainly on real estate and small business—are published every other Tuesday. email@example.com.