BASIC ESTATE PLANNING
By: Robert H. Chesley
April 30, 2009
Basic Estate Planning includes:
I. Titles to Property
II. Wills and Probate
III. Living Trusts
IV. Powers of Attorney
V. Health Care Directives
VI. Gift and Estate Taxes
VII. Long Term Care Insurance
I. TITLES TO PROPERTY
Your estate consists of all the assets you possess, including securities, real estate, interests in business, physical possessions, retirement accounts, and bank accounts. These assets are transferred according to their TITLES.
A. Real Estate:
1. Sole ownership
2. Joint tenants with right of survivorship
3. Tenants in common
4. Life estate – remainder
5. Revocable (living) trust
B. Bank Accounts:
1. Sole ownership
2. Joint accounts
3. Authorized signer accounts
4. POD (payable upon death accounts where beneficiary is named)
C. Securities:
1. Sole ownership
2. Joint accounts
3. TOD (transfer upon death accounts where beneficiary is named)
D. Life insurance and annuities:
1. Upon death, proceeds go to named beneficiaries.
2. During life, owner can access cash value.
Sole ownership vs. joint ownership – how they are treated:
A. Sole ownership requires probate to transfer.
B. Joint ownership will pass to the survivor without probate.
C. Property naming a beneficiary passes to the beneficiary without probate.
D. Trust property passes according to the trust without probate.
II. WILLS AND PROBATE
WILLS: A will is a document describing your property and naming beneficiaries of the property upon your death.
A. Must be 18 years of age and of sound mind.
B. Can make distributions of all your property.
C. Can make charitable gifts.
D. Can name a guardian for minor children.
E. Can name a Personal Representative to carry out the will.
F. Can waive any bond for the Personal Representative.
G. Can make a separate list for personal property which can be changed without changing the will.
H. Must execute it properly with two witnesses and a Notary.
A CODICIL is an amendment to the will which can add something or change something in the will.
A. Does not require drafting a new will.
B. Must be executed with all the formality of a will.
INTESTACY rules of the State of Minnesota will determine distribution of property if there is no will, trust, or joint ownership of all property.
A. A surviving spouse takes all if there are no children.
B. A surviving spouse takes all if the surviving children are of that marriage.
C. If there are surviving children of a former marriage, surviving spouse gets the first $150,000 and ½ of the rest of the estate.
D. Takers in order are: surviving spouse, descendants, parents, siblings and their dependents, grandparents, descendants of grandparents, next of kin, and ESCHEAT to the state.
PROBATE: The probate process is to present the will to the court, to appoint the Personal Representative named, to gather the assets of the estate, to pay any outstanding bills of the estate, and then to distribute the assets left.
A. Informal Probate – done by Registrar without court hearings.
B. Formal Probate – court hearings, but may revert to informal probate.
C. Supervised Probate – most formal, court intensive procedure.
COLLECTION BY AFFIDAVIT: Estate of $20,000 or less can be collected without court proceedings.
III. LIVING TRUSTS
A living trust is an agreement by the Grantor (person who sets up the trust) to give property to the Trustee (who manages the trust) for the benefit of the Beneficiary.
A. A Revocable Living Trust is set up during the life of the Grantor who may also be the Trustee and Beneficiary of the trust. Because it is revocable, the terms of the trust can be changed or the trust may be dissolved.
B. An irrevocable trust is one which cannot be changed after it is set up. This trust is often used for tax savings. A common example is the Irrevocable Insurance Trust which helps reduce the size of a large estate.
C. Advantages of a Revocable Living Trust:
1. It is set up while the Grantor is living.
2. Can be changed as desired.
3. Avoids probate.
4. Is a private document.
5. Continuity in the event of incapacity or illness.
6. Does not require a separate tax return.
D. Disadvantages of a Revocable Living Trust:
1. It is more costly than a will to establish.
2. All assets must be transferred to the trust.
3. All assets are then in the name of the trust.
A Pour-Over Will is a will which is drafted with a Revocable Living Trust to permit any property not in the trust to be put into the trust. It is subject to probate.
IV. POWERS OF ATTORNEY
A Power of Attorney is a document established under Minnesota law with a form to be used. It is very helpful in the event of incapacity.
A. It can be used for a single act such as closing on a piece of property. The power can be given to another person to do the closing, and after the closing, the power is gone.
B. The power can be given to carry out another person's financial affairs in their entirety.
C. The power can be made durable which allows it to continue during incapacity.
D. The power can be revoked if no longer needed or wanted.
E. The power can require that an accounting be made to the Principal.
F. The power can permit the Agent to make gifts to self and family of up to $13,000 per year.
G. The power ends at death, and the agent has no further ability to use it.
H. The alternative to the use of this form in the event of incapacity is a court procedure for Conservatorship or Guardianship or a Revocable Living Trust if one was created before the incapacity occurred.
IV. GIFT AND ESTATE TAXES
The items which escape these taxes are the most appealing. They are:
A. Distribution to Spouse – the unlimited marital deduction.
B. Distribution to Charity – unlimited deduction to qualified charity.
C. Annual Gift Exclusion – $13,000 to any person within a calendar year, free from gift tax. Husband and wife can do a split gift of $26,000 to any person. There is no limit to the number of persons who can receive this gift.
D. Estate Tax Exclusion – This is the amount that will not be taxed in your estate. The current amounts are:
2009 |
$3,500,000 |
2010 |
Unlimited |
2011 |
$1,000,000 |
E. The Gift Tax and the Estate Tax work together so that subtractions are made from this Exclusion for gift taxes due. The rest of the exclusion is applied to the estate and only the property not covered is taxed.
Additional information on estate planning is available at the Minnesota State Bar Association Elder Law Website: http://www2.mnbar.org/sections/elder-law/reports.htm
VI. HEALTH CARE DIRECTIVES
Minnesota has adopted the Health Care Directive which allows an individual to give health care instructions and to appoint another person as agent to make health care decisions in the event of incapacity. A Health Care Directive is valid which only appoints an agent or only gives health care instructions.
The Directive has replaced the former Living Will and Durable Power of Attorney for Health Care for all directives drafted after August 1, 1998. All Living Wills and Durable Powers of Attorney for Health Care drafted before that date continue to be effective.
To complete a Health Care Directive:
A. You must be 18 years of age or over and understand what you are signing.
B. The directive must be in writing, dated, and have your name.
C. The directive must be signed by you or an authorized person.
D. The directive must be verified and signed by a Notary or two witnesses. Only one witness can be a health care provider or an employee of a health care provider. If you appoint an agent, that person cannot be a witness or Notary on your directive.
You can authorize your agent to:
A. Have access to your medical records.
B. Start or stop life support.
C. Choose health care providers.
D. Decide where you will live.
E. Provide personal security safeguards.
F. Donate your organs and tissue at death.
G. Determine whether you will have a burial or cremation.
The Directive takes effect when your attending physician determines that you can no longer communicate for yourself. You can designate some other person to decide that you can no longer communicate for yourself.
A health care provider who does not agree with an agent's decision to terminate life support must tell the agent that the provider will not do it and document the medical record, permitting the agent to transfer care to another provider.
The Health Care Directive can be revoked if the maker still has capacity by:
A. Destroying it;
B. Verbally telling two witnesses you no longer want it;
C. Writing a statement you no longer want it, and dating that statement;
D. Writing a new directive.
Copies of your Health Care Directive should be given to health care providers, family, and friends so preferences are known when needed. Copies of the directive can be used and are valid.
The Directive should be discussed with:
A. Health care providers to be sure they will do what you want.
B. Your agent or agents to be sure they understand their responsibilities.
C. Family and close friends so they know you have a directive and who your decision-makers are.
Keep a record of the persons who have copies of your directive in case you want to change or revoke it.
If you spend a great deal of time in another state, contact an attorney in that state to see if your Minnesota directive is valid there.
VII. LONG TERM CARE INSURANCE
Questions to ask:
A. Do you have assets you want to pass on to children or other relatives?
B. What is your family history regarding longevity and ancestors contracting long-term debilitating diseases, such as:
1. Stroke?
2. Dementia?
3. Parkinson’s?
4. Osteoporosis?
C. If you contracted a long-term disease, would anyone be able to care for you at home?
D. How much is the premium? AARP suggests premiums not exceed 10% of your income.
Please contact our office to discuss your Estate Planning Needs