Estate Planning

1. Estate Planning Wills Trusts Insurance Class 8

2. What is an estate? • An individual’s “estate” is any interest the individual has in any personal or real property. • This includes property owned solely by the individual or owned in common with another.

3. Probate Property • Property owned by the decedent at the time of death • This property is distributed by the court

4. Nonprobate Property • Property that was owned by the decedent at the time of death that passes directly to heirs (or someone else) rather than going through probate

5. Why make a plan? • Provide for spouse or partner at death • Provide for minor children • Provide for children of a prior relationship • Designate specifically who – person or entity – will have benefit of one’s property • Avoid taxes • Avoid probate

6. Sources of Law • Primarily statute • In Washington RCW Title 11 is the title governing estate interests • Title 26 governs community property and property of domestic partners • Title 83 governs taxes of estates and gifts • Some common law sources • Appellate decisions • Restatements

7. What happens without a plan? • Intestate Succession • If the individual does not provide for property distribution prior to death, the government will decide how to distribute the property. • Decedent is called an intestate • Includes property in a will if there is a lapsed gift • Includes all property if will is invalid • RCW 11.04.015 • Priority of distribution

8. Per Stirpes Distribution D A B 1/3 C E 1/9 F 1/9 G 1/9 H 1/3

9. Per Capita Distribution D A B 1/3 C E 1/6 F 1/6 G 1/6 H 1/6

10. Protection of Families • Homestead exception • Family allowance • In Washington, the protections for the family are set out in RCW 11.54

11. Escheat • If a person dies without a will and without an heir, the estate will pass to the state. • RCW 11.08.140

12. What kinds of plans are there? • Prenuptial agreements • Community property agreements • Life insurance • Wills • Trusts • Health care directives • Powers of attorney

13. Prenuptial Agreements • An agreement made in anticipation of marriage. • Provide for distribution of property upon dissolution of marriage • Also provide for agreement as to distribution upon death of one spouse

14. Community Property • One spouse’s share in community property may be gifted by will. • If an estate is probated all community property is subject to probate administration.

15. Life Insurance • Whole life – these policies are both life insurance and an investment (premiums are set at the time of purchase) • Universal life – also are both life insurance and an investment (premiums may vary during the course of policy ownership) • Term life – only insurance • Purchased for a specified term (with renewal option)

16. Wills • 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. • The person making the will is the testator • RCW 11.12 governs the making of wills in Washington

17. Kinds of Wills • Formal will • Written, signed by the testator, witnessed by two witnesses • Holographic (or informal) will • Usually handwritten by the testator • These are NOT valid in Washington • Nuncupative (or oral) will • These are NOT valid in Washington (however there a limited exceptions)

18. Requirements of a Valid Will • Legal capacity • Must be an adult (18 in Washington) • Testamentary capacity (of sound mind) • Knowing what property one owns • Knowing who his or her relations are • Knowing what he/she wants to do with the property • Voluntarily act (without undue influence)

19. Contents of a Will • Exordium clause • identifies testator, states his domicile and announces that this is his will • Revocation clause • revokes all prior wills, codicils • Identification of family clause • Dispositive provisions (specific devises) • Minor beneficiary clauses • Testamentary guardian/Trust for minor • Simultaneous death clause

20. Contents of a Will • Appointment of personal representative • Statement of powers and duties • Separate writing clause • Attestation clause • Self proof clause

21. Types of Gifts • Devise • Gift of real property • Bequest or legacy • Gift of personal property

22. Separate Writing • A will may refer to a separate writing that directs disposition of tangible personal property not otherwise specifically disposed of in the will • Will must specifically refer to the writing • The writing is handwritten or is signed by the testator • The writing describes the property and the recipients with reasonable certainty • This may be written before or after the execution of the will

23. Provisions for Minors • Appointment of testamentary guardian of minor child (RCW 11.88.080) • Only applies where one parent is deceased and surviving parent is making the appointment • Person appointed must be qualified to serve • Establishment of a trust for minor child

24. Execution of the Will • One of the few formalities left in law • Must be signed • Must be witnessed by two witnesses • Witnesses must be able to say • They know who the testator is • The testator was competent • The testator was not acting under duress or undue influence • 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)

25. Self-Proving Clause • Washington statute provides for a self-proving clause. • Affidavit signed by the witnesses under oath. • This affidavit makes it unnecessary to call the witnesses in the probate proceeding to prove the validity of the will

26. Letters of Instruction • Information for the family and personal representative • Preferred funeral arrangements • Location of assets • Location of important papers (including will) • Information about insurance policies and pension plans • List of debts, creditors • Contact information for key people (personal representative, CPA, attorney, heirs)

27. Codicil • A codicil is an amendment or addition to the will • The same formalities are required for executing a codicil

28. Revocation • A will can be revoked by • Writing a new will • Physically destroying the old will

29. Trusts • A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. • Common benefits include • Providing personal and financial safeguards for the beneficiaries • Postponing or avoiding unnecessary taxes • Establishing a means of controlling property • Meeting social or commercial goals

30. Trust Terms • Trustor (grantor or settlor) – the person who creates the trust • Trustee – the person or entity who holds legal title of the trust property for the benefit of another • Trust Property (principal, corpus or res) – the property placed in trust by the settlor • Beneficiary – person to benefit from trust • Trust purpose – reason why trust is created

31. Requirements • To be a valid trust • Settlor must manifest an intention to create it • Trust must have assets (this may include future assets) • Trust must have legal purpose (not against public policy) • Must identify beneficiary • Must be established by written document or by operation of law

32. Categories of Trusts • Inter vivos or living trusts – created while trustor is alive • Testamentary – created as part of will • Revocable living trusts – trustor retains right to change or terminate the trust • Irrevocable living trusts – trustor gives up right to revoke after creation • Express trusts – intentionally created • Implied trusts – created by operation of law

33. Rule Against Perpetuities • 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. • Insures that someone will own the property within a reasonable time • RCW 11.98.130

34. Termination of Trusts • Trusts terminate when: • Express terms of trust instrument require termination at a specific time or upon the happening of a specific condition (child reaches age of majority) • Fulfillment of trust purpose • The same person owns both legal and equitable or beneficial title of trust property • Settlor revokes the trust

35. Probate • 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. • The process • Collects and protects decedent’s property • Identifies beneficiaries and creditors • Pays all debts, expenses, taxes • Distributes the property of the estate properly

36. Probate • Jurisdiction of the court is triggered by • Filing Petition to Probate a Will (person died testate) or • Petition for Letters of Administration (intestate) • Personal Representative or Administrator is appointed • Court’s continued involvement is to resolve disputes or interpret documents

37. Duties of Personal Representative • Notify heirs and creditors • Take possession of and inventory estate • Determine fair market value of estate assets • Determine names, locations of heirs • Collect debts owed to the decedent • Represent the estate in any challenges to the will • Complete any pending lawsuits in which the decedent has an interest

38. Duties of Personal Representative • Prepare tax returns and pay all estate and income tax • Pay the valid claims of creditors • Sell property – when necessary – to pay debts and taxes • Transfer title to real property and certain personal property • Distribute the remaining assets to the designated heirs • File a Declaration of Completion of Probate

39. Estate Taxes • One reason for making estate plans is to avoid estate taxes

40. Health Care Directive • A document that expresses the individual’s desires regarding the withholding or withdrawal of life support measures • A helpful website discussing the issues that should be considered is • www.agingwithdignity.org • www.atg.wa.gov/DealingWithDeath/default.aspx • www.doh.wa.gov/livingwill/healthcaredirective.htm

41. Power of Attorney • Three forms • Durable Power of Attorney • Power of Attorney for Health Care Decisions • Power of Attorney