Here are some of the common issues and documents we discuss with clients in the Estate Planning Process:
Community Property Agreements—what are they and when should they be used?
A community property agreement is a written agreement signed by spouses which provides that upon one spouse’s death all interest in the community property will automatically transfer to the surviving spouse. For many couples, a community property agreement will serve as a simple and effective tool for avoiding the costs and delays of probate upon one spouse’s death. However, community property agreements have their limitations and are not appropriate for all couples. Community property agreements will not affect real property in other states or the separate property held by a spouse. If a spouse has separate property, care must be taken in preparing a community property agreement so that the separate property is not inadvertently converted to community property. For couples with larger estates who wish to do tax planning, a community property agreement may not be appropriate. Couples with community property agreements should also execute wills to address disposition of their estates in the event both should die and disposition of any separate property or property outside Washington.
Wills—what should you think about putting in a will?
A will is a written direction for the disposition of one’s estate which must be properly signed and witnessed. It can be a few pages or many pages depending on the complexity of the testator’s estate and directives. We tailor each will to the circumstances and wishes of the client. Here are some of the issues we address in a will:
- Special bequests. Clients sometimes have heirlooms or items of personal property they want to leave to specific people or cash gifts they want to bestow upon individuals or charities. The will can provide for special bequests to carry out those wishes.
- Trusts for children and grandchildren. Wills often contain trust provisions under which all or some of the estate is held in trust for children and/or grandchildren until they reach an age at which the testator believes they will be mature enough to handle their inheritance. The trust will often allow the trustee to make distributions for educational expenses or other purposes prior to the beneficiary reaching the age when the trust will be distributed. We urge clients to give careful thought to trust provisions for their children and grandchildren who are minors or who the client believe may be too young to receive a major inheritance. We then customize the trust provisions of the will to carry out the client’s wishes for providing for children and grandchildren.
- Personal representatives, trustees and guardians. A testator will typically name in the will a primary person and an alternate to serve as the personal representative of the estate who will handle the gathering of assets, payment of creditors and distributions to heirs. If trusts are established under the will, then one or more trustees must be named. If the testator has minor children, the will provides an opportunity to nominate guardians to be appointed for them. We discuss the roles of these offices and help clients select nominees for these postions.
Estate and inheritance taxes.
In Washington, estates under $2 million are exempt from inheritance tax. There is a $5.3 million exemption from federal estate taxes in 2014, which will be increased annually for inflation. Estates that pass to a surviving spouse are exempt from both federal and state inheritance taxes. For estates that may exceed these exemptions, there are estate planning steps a person can take to minimize the estate and inheritance tax impact for estates which might exceed these exemptions. In our initial consultation with a client, we review the potential estate and inheritance tax impacts and discuss tax planning alternatives.
Living trusts or revocable trusts—their benefits and uses.
Revocable trust, or living trusts as they are sometimes called, can be useful in providing a smooth, private and cost-effective way of managing and passing on an estate. We find them particularly well suited for elderly clients whose finances are stabilized. Typically, the client is named as both the trustee and the beneficiary of the trust so long as he or she is alive, competent and willing to serve. A successor trustee is named in the trust who will step in to manage the trust estate when the client is disabled or deceased. For the trust to be effective, all of the client’s assets must be transferred to and held in the name of the trust. The assets are used to for the client’s benefit during his or her lifetime and upon his or her death the remainder of the trust assets are distributed by the trustee to the beneficiaries the client has named in the trust. The distributions are made by the trustee without the need for a court proceeding. Since the trust is revocable, the client can revoke it or change its terms at any time. For people in certain circumstances, a living trust is a very good estate planning device. Unfortunately, we see revocable trust packages being marketed inappropriately to a wide segment of the population who do not need them. Marketers of these packages offer false promises that their living trusts will protect assets from creditors and save money by avoiding costly probate. Living trusts do not allow individuals to shield their assets from their personal liabilities, and the cost of some of these packages often exceeds the cost of a simple probate in Washington, which has a fairly streamlined probate process. Thus, we are careful to counsel with clients on when a revocable trust is a good estate planning tool.
Durable powers of attorney and directives for physicians.
A part of estate planning is planning for an accident or illness which renders a client incompetent or terminally incapacitated. Durable powers of attorneys can allow others to manage the finances and medical care of a disabled principal and, thereby, avoid the considerable cost and inconvenience of establishing a guardianship. Directives for physicians can authorize the withholding of life-support in certain circumstances as directed by the principal. Both durable powers of attorney and directives to physicians are authorized by specific statutes and can be customized to the client’s particular circumstances and wishes. They are an important part of the estate planning consultation we have with our clients and the estate planning documents we prepare.