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Estate Planning Wills Trusts Insurance


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Estate Planning Wills Trusts Insurance

  1. 1. Estate Planning <ul><li>Wills </li></ul><ul><li>Trusts </li></ul><ul><li>Insurance </li></ul><ul><li>Class 8 </li></ul>
  2. 2. What is an estate? <ul><li>An individual’s “estate” is any interest the individual has in any personal or real property. </li></ul><ul><ul><li>This includes property owned solely by the individual or owned in common with another. </li></ul></ul>
  3. 3. Probate Property <ul><li>Property owned by the decedent at the time of death </li></ul><ul><ul><li>This property is distributed by the court </li></ul></ul><ul><li>Probate property includes </li></ul><ul><ul><li>Any interest in real and personal property </li></ul></ul><ul><ul><li>Life insurance that names the estate as beneficiary </li></ul></ul><ul><ul><li>Pending law suits for money damages </li></ul></ul><ul><ul><li>Debts owed by the deceased </li></ul></ul><ul><ul><li>Trusts established under a will </li></ul></ul>
  4. 4. Nonprobate Property <ul><li>Property that was owned by the decedent at the time of death that passes directly to heirs rather than going through probate </li></ul><ul><ul><li>Life estate </li></ul></ul><ul><ul><li>Living ( inter vivos ) trusts </li></ul></ul><ul><ul><li>Life insurance policies naming specific beneficiary </li></ul></ul><ul><ul><li>Community property agreement </li></ul></ul><ul><ul><li>Joint tenancy with right of survivorship </li></ul></ul>
  5. 5. Why make a plan? <ul><li>Provide for spouse or partner at death </li></ul><ul><li>Provide for minor children </li></ul><ul><li>Provide for children of a prior relationship </li></ul><ul><li>Designate specifically who – person or entity – will have benefit of one’s property </li></ul><ul><li>Avoid taxes </li></ul><ul><li>Avoid probate </li></ul>
  6. 6. Sources of Law <ul><li>Primarily statute </li></ul><ul><ul><li>In Washington RCW Title 11 is the title governing estate interests </li></ul></ul><ul><ul><li>Title 26 governs community property </li></ul></ul><ul><ul><li>Title 83 governs taxes of estates and gifts </li></ul></ul><ul><li>Some common law sources </li></ul><ul><ul><li>Appellate decisions </li></ul></ul><ul><ul><li>Restatements </li></ul></ul>
  7. 7. What happens without a plan? <ul><li>Intestate Succession </li></ul><ul><ul><li>If the individual does not provide for property distribution prior to death, the government will decide how to distribute the property. </li></ul></ul><ul><ul><ul><li>Decedent is called an intestate </li></ul></ul></ul><ul><ul><ul><li>Includes property in a will if there is a lapsed gift </li></ul></ul></ul><ul><ul><ul><li>Includes all property if will is invalid </li></ul></ul></ul><ul><li>RCW 11.04.015 </li></ul><ul><ul><li>Priority of distribution </li></ul></ul>
  8. 8. Protection of Families <ul><li>Homestead exception: A statutory provision providing for the protection of homes – exempting them from forced sale or execution. </li></ul><ul><li>Family allowance: Statutory provisions providing for an allowance in money to help maintain the family during the administration of the estate. </li></ul><ul><ul><li>In Washington, the protections for the family are set out in RCW 11.54 </li></ul></ul>
  9. 9. Escheat <ul><li>If a person dies without a will and without an heir, the estate will pass to the state. </li></ul><ul><ul><li>RCW 11.08.140 </li></ul></ul>
  10. 10. Kinds of Plans <ul><li>Prenuptial agreements </li></ul><ul><li>Community property agreements </li></ul><ul><li>Life insurance </li></ul><ul><li>Wills </li></ul><ul><li>Trusts </li></ul><ul><li>Health care directives </li></ul><ul><li>Powers of attorney </li></ul>
  11. 11. Prenuptial Agreements <ul><li>An agreement made in anticipation of marriage. </li></ul><ul><ul><li>Provide for distribution of property upon dissolution of marriage </li></ul></ul><ul><ul><li>Also provide for agreement as to distribution upon death of one spouse </li></ul></ul>
  12. 12. Community Property <ul><li>One spouse’s share in community property may be gifted by will. </li></ul><ul><ul><li>If an estate is probated all community property is subject to probate administration. </li></ul></ul><ul><li>A community property agreement can change the nature of property from separate to community at the time of death and can transfer ownership to the surviving spouse at the time of death. </li></ul>
  13. 13. Life Insurance <ul><li>Whole life – these policies are both life insurance and an investment (premiums are set at the time of purchase) </li></ul><ul><li>Universal life – also are both life insurance and an investment (premiums may vary during the course of policy ownership) </li></ul><ul><li>Term life – only insurance </li></ul><ul><ul><li>Purchased for a specified term (with renewal option) </li></ul></ul>
  14. 14. Wills <ul><li>A will is a legal expression of an individual’s wishes as to how his or her property should be distributed when that person dies. </li></ul><ul><ul><li>The person making the will is the testator </li></ul></ul><ul><li>RCW 11.12 governs the making of wills in Washington </li></ul>
  15. 15. Kinds of Wills <ul><li>Formal will </li></ul><ul><ul><li>Written, signed by the testator, witnessed by two witnesses </li></ul></ul><ul><li>Holographic (or informal) will </li></ul><ul><ul><li>Usually handwritten by the testator </li></ul></ul><ul><ul><li>These are NOT valid in Washington </li></ul></ul><ul><li>Nuncupative (or oral) will </li></ul><ul><ul><li>These are NOT valid in Washington (however there a limited exceptions) </li></ul></ul>
  16. 16. Requirements <ul><li>Legal capacity </li></ul><ul><ul><li>Must be an adult (18 in Washington) </li></ul></ul><ul><li>Testamentary capacity (of sound mind) </li></ul><ul><ul><li>Knowing what property one owns </li></ul></ul><ul><ul><li>Knowing who his or her relations are </li></ul></ul><ul><ul><li>Knowing what he or she wants to do with the property </li></ul></ul><ul><li>Voluntarily act (without undue influence) </li></ul>
  17. 17. Contents of a Will <ul><li>Exordium clause </li></ul><ul><ul><li>identifies testator, states his domicile and announces that this is his will </li></ul></ul><ul><li>Revocation clause </li></ul><ul><ul><li>revokes all prior wills, codicils </li></ul></ul><ul><li>Identification of family clause </li></ul><ul><li>Dispositive provisions (specific devises) </li></ul><ul><li>Minor beneficiary clauses </li></ul><ul><ul><li>Testamentary guardian/Trust for minor </li></ul></ul><ul><li>Simultaneous death clause </li></ul>
  18. 18. Contents of a Will <ul><li>Appointment of personal representative </li></ul><ul><ul><li>Statement of powers and duties </li></ul></ul><ul><li>Separate writing clause </li></ul><ul><li>Attestation clause </li></ul><ul><li>Self proof clause </li></ul>
  19. 19. Types of Gifts <ul><li>Devise </li></ul><ul><ul><li>Gift of real property </li></ul></ul><ul><li>Bequest or legacy </li></ul><ul><ul><li>Gift of personal property </li></ul></ul>
  20. 20. Separate Writing <ul><li>A will may refer to a separate writing that directs disposition of tangible personal property not otherwise specifically disposed of in the will </li></ul><ul><ul><li>Will must specifically refer to the writing </li></ul></ul><ul><ul><li>The writing is handwritten or is signed by the testator </li></ul></ul><ul><ul><li>The writing describes the property and the recipients with reasonable certainty </li></ul></ul><ul><li>This may be written before or after the execution of the will </li></ul>
  21. 21. Provisions for Minors <ul><li>Appointment of testamentary guardian of minor child (RCW 11.88.080) </li></ul><ul><ul><li>Only applies where one parent is deceased and surviving parent is making the appointment </li></ul></ul><ul><ul><li>Person appointed must be qualified to serve </li></ul></ul><ul><li>Establishment of a trust for minor child </li></ul>
  22. 22. Execution of the Will <ul><li>One of the few formalities left in law </li></ul><ul><ul><li>Must be signed </li></ul></ul><ul><ul><li>Must be witnessed by two witnesses </li></ul></ul><ul><ul><ul><li>Witnesses must be able to say </li></ul></ul></ul><ul><ul><ul><ul><li>They know who the testator is </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The testator was competent </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The testator was not acting under duress or undue influence </li></ul></ul></ul></ul><ul><ul><li>Testator must ask witnesses to witness; they must both be present at the time the will is signed (presence of testator and presence of each other) </li></ul></ul>
  23. 23. Self-Proving Clause <ul><li>Washington statute provides for a self-proving clause. </li></ul><ul><ul><li>Affidavit signed by the witnesses under oath. </li></ul></ul><ul><ul><li>This affidavit makes it unnecessary to call the witnesses in the probate proceeding to prove the validity of the will </li></ul></ul>
  24. 24. Letters of Instruction <ul><li>Information for the family and personal representative </li></ul><ul><ul><li>Preferred funeral arrangements </li></ul></ul><ul><ul><li>Location of assets </li></ul></ul><ul><ul><li>Location of important papers (including will) </li></ul></ul><ul><ul><li>Information about insurance policies and pension plans </li></ul></ul><ul><ul><li>List of debts, creditors </li></ul></ul><ul><ul><li>Contact information for key people (personal representative, CPA, attorney, heirs) </li></ul></ul>
  25. 25. Codicil <ul><li>A codicil is an amendment or addition to the will </li></ul><ul><ul><li>The same formalities are required for executing a codicil </li></ul></ul>
  26. 26. Revocation <ul><li>A will can be revoked by </li></ul><ul><ul><li>Writing a new will </li></ul></ul><ul><ul><li>Physically destroying the old will </li></ul></ul>
  27. 27. Trusts <ul><li>A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. </li></ul><ul><li>Common benefits include </li></ul><ul><ul><li>Providing personal and financial safeguards for the beneficiaries </li></ul></ul><ul><ul><li>Postponing or avoiding unnecessary taxes </li></ul></ul><ul><ul><li>Establishing a means of controlling property </li></ul></ul><ul><ul><li>Meeting social or commercial goals </li></ul></ul>
  28. 28. Essential Terms <ul><li>Trustor (grantor or settlor) – the person who creates the trust </li></ul><ul><li>Trustee – the person or entity who holds legal title of the trust property for the benefit of another </li></ul><ul><li>Trust Property (principal, corpus or res) – the property placed in trust by the settlor </li></ul><ul><li>Beneficiary – person to benefit from trust </li></ul><ul><li>Trust purpose – reason why trust is created </li></ul>
  29. 29. Requirements <ul><li>To be a valid trust </li></ul><ul><ul><li>Settlor must manifest an intention to create it </li></ul></ul><ul><ul><li>Trust must have assets (this may include future assets) </li></ul></ul><ul><ul><li>Trust must have legal purpose (not against public policy) </li></ul></ul><ul><ul><li>Must identify beneficiary </li></ul></ul><ul><ul><li>Must be established by written document or by operation of law </li></ul></ul>
  30. 30. Categories of Trusts <ul><li>Inter vivos or living trusts – created while trustor is alive </li></ul><ul><li>Testamentary – created as part of will </li></ul><ul><li>Revocable living trusts – trustor retains right to change or terminate the trust </li></ul><ul><li>Irrevocable living trusts – trustor gives up right to revoke after creation </li></ul><ul><li>Express trusts – intentionally created </li></ul><ul><li>Implied trusts – created by operation of law </li></ul>
  31. 31. Rule Against Perpetuities <ul><li>All interests in property must vest within 21 years of the life of someone who is alive at that time of the creation of the interest. </li></ul><ul><ul><li>Insures that someone will own the property within a reasonable time </li></ul></ul><ul><ul><li>RCW 11.98.130 </li></ul></ul>
  32. 32. Termination of Trusts <ul><li>Trusts terminate when: </li></ul><ul><ul><li>Express terms of trust instrument require termination at a specific time or upon the happening of a specific condition (child reaches age of majority) </li></ul></ul><ul><ul><li>Fulfillment of trust purpose </li></ul></ul><ul><ul><li>The same person owns both legal and equitable or beneficial title of trust property </li></ul></ul><ul><ul><li>Settlor revokes the trust </li></ul></ul>
  33. 33. Probate <ul><li>Probate is a legal procedure for settling the affairs of a person who has died and overseeing the distribution of the decedent’s property to the rightful beneficiaries. </li></ul><ul><li>The process </li></ul><ul><ul><li>Collects and protects decedent’s property </li></ul></ul><ul><ul><li>Identifies beneficiaries and creditors </li></ul></ul><ul><ul><li>Pays all debts, expenses, taxes </li></ul></ul><ul><ul><li>Distributes the property of the estate properly </li></ul></ul>
  34. 34. Probate <ul><li>Jurisdiction of the court is triggered by </li></ul><ul><ul><li>Filing Petition to Probate a Will (person died testate) or </li></ul></ul><ul><ul><li>Petition for Letters of Administration (intestate) </li></ul></ul><ul><li>Personal Representative or Administrator is appointed </li></ul><ul><li>Court’s continued involvement is to resolve disputes or interpret documents </li></ul>
  35. 35. Duties of Personal Rep. <ul><li>Notify heirs and creditors </li></ul><ul><li>Take possession of and inventory estate </li></ul><ul><li>Determine fair market value of estate assets </li></ul><ul><li>Determine names, locations of heirs </li></ul><ul><li>Collect debts owed to the decedent </li></ul><ul><li>Represent the estate in any challenges to the will </li></ul><ul><li>Complete any pending lawsuits in which the decedent has an interest </li></ul>
  36. 36. Duties of PR <ul><li>Prepare tax returns and pay all estate and income tax </li></ul><ul><li>Pay the valid claims of creditors </li></ul><ul><li>Sell property – when necessary – to pay debts and taxes </li></ul><ul><li>Transfer title to real property and certain personal property </li></ul><ul><li>Distribute the remaining assets to the designated heirs </li></ul><ul><li>File a Declaration of Completion of Probate </li></ul>
  37. 37. Estate Taxes <ul><li>One reason for making estate plans is to avoid estate taxes </li></ul>
  38. 38. Health Care Directive <ul><li>A document that expresses the individual’s desires regarding the withholding or withdrawal of life support measures </li></ul><ul><li>A helpful website discussing the issues that should be considered is </li></ul><ul><li> </li></ul>
  39. 39. Power of Attorney <ul><li>Three forms </li></ul><ul><ul><li>Durable Power of Attorney </li></ul></ul><ul><ul><li>Power of Attorney for Health Care Decisions </li></ul></ul><ul><ul><li>Power of Attorney </li></ul></ul>