Advance Planning for Life Decisions: Estate Planning Basics

1. Advance Planning for Life Decisions:Estate Planning Basics Sara K. Yen, J.D., LL.M. March 24, 2012

2. Definition of Estate Planning Control my property while I am alive; Care for myself and my loved ones if I become disabled; Give what I have to whom I want, the way I want, and when I want; and Save every tax dollar, professional fee, and court cost possible in the process

3. Core Components Incapacity Planning Transferring Assets Beneficiary Protection

4. Incapacity Planning …Control my property while I’m alive, take care of myself and my loved ones if I become disabled…

5. Incapacity Strikes – No Planning “Black hole” or “control vacuum” No one has legal authority Remedy: Court-ordered guardianship or conservatorship

6. The Role of Planning:Fill the Void • Select trusted individuals • Empower “agents” or “trustees” to act • Required to follow a specific set of instructions designed to meet individual’s goals • “Lifetime control” concerns: • Financial, legal, and property matters • Personal health care and medical matters • Care and nurturing of minor children and other dependents

7. Asset Transfer Hurdles Dying can be costly and time consuming Notifications: creditors, financial institutions and other interested parties Funeral and burial arrangements Marshalling, safeguarding assets Pay off debts, liabilities Prepare tax returns Distribute property

8. Asset Transfer:Keys to Making It Work • Identifying obstacles • Unique assets, individuals, or circumstances • Using the right tool to minimize obstacles • Each estate faces different obstacles • No “one” tool works for all individuals

9. Beneficiary Protection Planning “I will do whatever it takes to ensure that when I am gone…” I actually promote family harmony; and The inheritance I leave protects, improves, and enhances the lives of my beneficiaries

10. Beneficiary Protection Planning • “Back-up parents” – provide care, love and nurturing environment; • Continuing trusts safeguard inheritances • Lifetime trusts protect against lawsuits, creditors and predators • Incentivizing activities, life styles, work ethic, etc.; • Minimizing risk of “affluenza” • Intended beneficiaries may have or develop special needs

11. Significance ofIncapacity Planning

12. Powers of Attorney • Principal authorizes an attorney-in-fact/agent to take care of business between the principal and others • Financial institutions, business associates, etc. • Power can either be “general” or “limited.” • “Durable” or “Non-durable” • Immediate or springing

13. Typical Powers Granted • General powers of attorney often include powers to deal with: • Real estate • Tangible personal property (“stuff”) • Business operations • Financial transactions (banking, investments, etc.) • Making gifts • Taxes • Providing for family

14. Healthcare Directives • Advance Directives/Living Wills and Healthcare Powers of Attorney • State specific • Scope of Agent’s Powers • Importance of Clarity • Oregon Advance Healthcare Directive is confusing

15. Advance Healthcare Directives • End of Life Issues: • Life support/ventilators • Artificial nutrition/hydration • Religious issues • Family/other emotional issues

16. Healthcare Powers of Attorney • Generally much broader than living will • Broader powers • Applicable in less dire circumstances • Focus on managing health of incapacitated principal • Preserve health/well-being of principal • Access to medical treatment, etc.

17. HIPAA Authorizations • Designed to name people authorized to receive “Protected Healthcare Information” • Most medical service providers affected • Does not include decision-making powers (information only)

18. Understanding Wealth Transfers at Death

19. Title and Beneficiary Designations • Titling is EVERYTHING • Governs how the assets legally pass at death • Greatly impacts income and estate tax liability • Beneficiary designations are EVERYTHING • Property passes by “operation of law”, regardless what the estate plan says • Coordination is greatly important

20. No Estate Plan  Intestacy • Determined by state law • Intended to reflect deceased person’s likely intent • Often provides for spouse, kids • The general rule applies to no one in particular • Many people have wishes that differ from the intestacy statutes • Does not recognize non-blood relationships

21. Will-Based Planning The Last Will is a set of written instructions to the probate court: Requesting the court to accept jurisdiction; Asserting that the Will complies with state law; Requesting the court to appoint the decedent’s nominated personal representative; and Requesting the court to validate and approve the decedent’s proposed distribution of assets

22. Will-Based Planning • Will does not control disposition of all property • Joint tenancy property • Property covered by beneficiary designations • Property in “POD” or “TOD” accounts

23. Will-Based Planning • Potentially conflicting methods of wealth transfer • Most people have property subject to beneficiary designations • Life insurance, retirement accounts • Most married people have JTWROS property

24. Will-Based Planning • Will takes effect at death only • If incapacitated, must use Durable Power of Attorney to manage property • Many financial institutions and others will not honor powers of attorney • Increased likelihood for guardianship or conservatorship

25. Dying with a Will:The Probate Process • Probate means “to prove the will.” • Makes sure document complies with local law • Court oversight process of distributing decedent’s property to: • Legal heirs or named beneficiaries • Creditors • Time consuming • Expensive • Lacks privacy

26. Probate:A Cynical (But Accurate) Definition A lawsuit you file against yourself and pay for with your own assets for the purpose of giving your property away and satisfying your creditors and heirs.

27. “Probate Assets” Ensure Probate Property titled in individual name Property without beneficiary designations Subject to probate at death Pass according to Last Will and Testament Examples: tangible personal property, real estate, stocks, bonds, mutual funds, certificates of deposit, and various bank accounts

28. Potential Drawbacks - Probate Real Estate in Multiple Jurisdictions Privacy Concerns Attorney Fees and Court Costs Control Delays

29. Probate Avoidance Techniques Beneficiary Designations Payable on Death Designations (POD) Transfer on Death Designations (TOD) Joint Tenants with Rights of Survivorship (JTWROS) TRUSTS

30. Understanding Revocable Trust Planning

31. Revocable Trust Centered Plan • Myth: • Trusts are only for rich people with potential tax problems • Reality: • Non-tax benefits of trusts are principal reason most should consider implementing • Control/predictability • Incapacity • Flexibility • Coordinated, comprehensive plan

32. Revocable Trust: Big Concepts “Bucket” that holds title to assets “Stand-by” device waiting for incapacity or death “Funnel” to distribute wealth at the right time, to the right people Makes court intervention unnecessary

33. Revocable Trust: Terminology • Revocable • Can be modified by the person who creates the trust • Living • Created during lifetime • Trust • Defines the relationship between the trustee and the beneficiaries

34. Revocable Trust: The Players • Grantor • Trustmaker • Settlor • Trustor • Primary Roles • Transfers assets to trust • Retains control (can modify the trust)

35. Revocable Trust: The Players • Trustee • Holds assets in trust for benefit of beneficiaries • Fiduciary duties to trust beneficiary/ies • Follows guidelines in trust

36. Revocable Trust: The Players • Beneficiary • Entitled to the use, enjoyment, and (often) ultimate ownership of trust property

37. Business as Usual • You initially fill all three roles for your trust • Keep full control • Controls terms of the trust (as Grantor) • Manages the property (as Trustee) • Enjoys the property (as Beneficiary) • Nothing feels different • Pay bills as usual • File taxes as usual • Only title of assets is changed

38. Benefits of Trust-Based Estate Planning Grantor keeps full control Comprehensive (and certain) incapacity protection Coordinated property management Increased privacy No probate

39. Trust Mechanics • Trust created by “maker” • Trust drafted by attorney • Attorney carefully interviews client • Expectations • Nature of family relationships • Nature of property • Unusual assets • Unusual circumstances

40. Trust Mechanics • Attorney and client design estate plan • Type of documents • Special provisions for special circumstances • Engagement Agreement • Hourly • Flat fee • Client often pays half to start, balance when plan is signed

41. Trust Mechanics • Client dictates terms of trust • Client is beneficiary during life • “Self-settled” trust • Client is Trustee while healthy • Client may modify (amend) or revoke the trust at any time • In writing, for enforceability • A “Restatement” is just a comprehensive amendment

42. Trust Mechanics • Trustee administers trust for benefit of beneficiaries • Bound by fiduciary standard • Guided by distribution standards in trust • Trust may terminate at some point, or may be continuing/lifetime trust for ultimate beneficiaries

43. Trust Administration • “Private Probate” • No court involvement • Can begin immediately • Private • Typically costs less than probate

44. Questions? Sara K. Yen, J.D., LL.M. 503-675-4385 www.yenlaw.com