Estate Planning _ Fundamentals of Estate Planning

Question 1

Effective vs. Efficient Transfer

Answer 1

Effective = a person’s assets are transferred to the person or institution intended by that person

Efficient = when transfer costs are minimized consistent with the greatest assurance of effectiveness

Question 2

Heir vs. Legatee

Answer 2

Heir = those who inherit under STATE LAW

Legatee = those who inherit under a WILL

Question 3

7 Basic Steps of the Estate Planning Process

Answer 3

1. Understanding the client’s current circumstances
2. Identify and select goals
3. Analyze their current path and any potential alternatives
4. Develop a comprehensive plan of transfers consistent with all information and objectives
5. Present your recommendations to the client
6. Implement the estate plan
7. Review the estate plan periodically and update the plan when necessary (especially for changes in family situations)

Question 4

3 types of Wills

Answer 4

1. Holographic = HANDWRITTEN by the testator and include material provisions of a will; must be dated and signed by the testator, most states do not require a witness, VALID IN MOST STATES
2. Nuncupative = ORAL, DYING DECLARATIONS made before a sufficient number of witnesses; may only be effective to pass tangible personalty in some states, dollar amount transferred may be limited; use is fairly restricted and NOT VALID IN MOST STATES
3. Statutory = DRAWN BY AN ATTORNEY and comply with the statutes for wills of the domiciliary state; often referred to as witnessed or attested wills; MUST BE TYPED OR BE IN WRITING, BE SIGNED BY THE TESTATOR (GENERALLY IN FRONT OF WITNESSES), AND BE SIGNED BY THE WITNESSES

Question 5

Common Will Provisions or Clauses

Answer 5

Introductory clause

Declaration clause

Bequest clause = SPECIFIC PPTY

Residuary clause = BALANCE OF ANY ASSETS NOT PREVIOUSLY DISTRIBUTED

Guardianship clause

Attestation clause (witness clause) = AT LEAST 2 QUALIFIED WITNESSES SIGN WILL

Self-proving clause = NOTARY SIGNS DECLARATION OF TESTOR & WITNESS AUTHORIZATION

Simultaneous death clause

Survivorship clause = BENEFICIARY/HEIR MUST SURVIVE DECEDENT A SPECIFIED TIME PERIOD

Disclaimer clause = MUST DISCLAIM WITHIN 9 MONTHS, HAVE NO BENEFIT OR FUTURE INTEREST, MUST BE IN WRITING

Question 6

Contingent legatee clause

Answer 6

may use one of two methods:

1. Per Capita = “BY THE HEAD”
   - each GENERATION of living beneficiaries share EQUAL AMOUNT (split between generations children)
   - heirs of same generation get equal share IF the are the only heirs
   - AT EACH GENERATION = heirs of same generation ALWAYS get an equal share (one of the more preferred methods of leaving assets to heirs)
2. Per Stirpes = “BY REPRESENTATION” or “BY THE ROOTS”
   - directs that grandchildren stand in for their deceased parent and get that share to split amongst themselves

Question 7

Joint Tenancy in Common

Answer 7

owners can choose to partition interest WITHOUT CONSENT of other owners

UNDIVIDED, but NOT NECESSARILY EQUAL INTEREST in the whole property

FMV of decedent’s ownership interest included in the decedent’s gross estate

decedent’s interest PASSES THROUGH PROBATE

generally interest is PROPORTIONAL TO FINANCIAL CONTRIBUTION

OWNERSHIP SHARE > PROPORTIONAL SHARE than his pro rata contribution == GIFT MAD FROM ONE PARTY TO ANOTHER

Question 8

Joint Tenancy with Rights of Survivorship

Answer 8

interest held by 2+ related or unrelated parties

each owns an UNDIVIDED EQUAL INTEREST in the whole

each owner generally SHARES IN INCOME & EXPENSES IN PROPORTION TO HIS INTEREST

property included in decedent’s gross estate to the extent of decedent’s original contribution percentage (ACTUAL CONTRIBUTION RULE)

SPOUSES DEEMED TO HAVE EACH CONTRIBUTED 50%, ELIGIBLE FOR UNLIMITED MARITAL DEDUCTION

Question 9

Tenancy By the Entirety

Answer 9

ONLY BETWEEN SPOUSES, CANNOT BE PARTITIONED WITHOUT CONSENT OF THE OTHER SPOUSE

AUTOMATIC TRANSFER TO SURVIVING SPOUSE AT DEATH (NO PROBATE)

50% FMV INCLUDED IN DECEDENT’S GROSS ESTATE

ELIGIBLE FOR MARITAL DEDUCTION

Question 10

Community Property

Answer 10

ONLY AVAILABLE TO SPOUSES

each spouse deemed to have contributed and to own 50%, cannot be partitioned without consent

DECEDENT’S INTEREST INCLUDED IN PROBATE ESTATE, BOTH HALVES STEPPED TO FMV

NO AUTOMATIC RIGHT OF SURVIVORSHIP

eligible for unlimited marital deduction if transferred by will or intestacy

9 STATES = ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON, WISCONSIN

Earnings due to marriage are community property

NO GIFT-SPLITTING

Question 11

Moving from Common Law to Community Property

Answer 11

Property ACQUIRED BEFORE MOVE – generally RETAINS SEPARATE PPTY STATUS, unless couple agrees to treat as community property

Property ACQUIRED AFTER MOVE = COMMUNITY PPTY

Quasi-Community Property = recognized in certain community property states when moving from common law to community property state

Question 12

Property Ownership Key Features

Answer 12

Question 13

Equitable Ownership

Answer 13

has economic right to the property

right to posses, enjoy, use, receive income from the property

Question 14

Property Passing Through Probate

Answer 14

Question 15

What is Ademption?

Answer 15

LEGATEE BEQUEATHED ASSETS DISPOSED OF PRIOR TO decedent’s death

NOT ENTITLED to any replacement asset

Question 16

What is Abatement?

Answer 16

INSUFFICIENT ASSETS REMAIN to satisfy all of the legatee provisions, estate is too small to satisfy and COURT REDUCES AMOUNTS GIVEN TO LEGATEES