Estate Planning - Fundamentals

Question 1

What are the 7 steps of the estate planning process?

Answer 1

1. Understanding the clients current circumstances
2. identifying and selecting 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 2

What is a will?

Answer 2

• Legal document that provides the testator the opportunity to control the distribution of his property at death and thus avoid his states intestacy laws
• may be amended or revoked by the testator at any time prior to death.
• dying with a will is to be “testate”, dying without is to be “intestate”
• if will does not dispose of all property you are intestate.
• If intestant, the laws of the decedent’s state of domicile (where they live, vote, pay taxes) determines how the decendents personal property will be distributed.
• Movable property - distributed according to will or the laws of intestacy in the state of domicile for the decedent.
• Real Property - is distributed based on the laws of the state in which the property is actually located.

Question 3

What are the different types of wills?

Answer 3

1. Holographic -Handwritten by the testator, Valid in most states.
2. Nuncupative - oral dying declarations. fairly restricted, not valid in most states.
3. Statutory Wills - Drawn by an attorney, and comply with the statues for wills of the state of domicile.

Signed by a witness.

Question 4

When is a will valid?

Answer 4

• Willmaker is the age of majority in his domiciliary state, or is an emancipated minor
• the will maker has legal testamentary capacity, meaning they must understand the legal consequences of writing the will, including being able to:

Recognize and recollect the property being disposed of by the will; and

recognize the relationships of those friends and relatives who have any claim to the testators assets.

Question 5

What are some of the common clauses in a will?

Answer 5

Bequest clause - directs where specific property will go.

Residuary clause- directs where any assets that were not previously bequested to an individual will go. without this clause a probate estate may have intestate assets, which will go through probate.

Guardianship clause - allows the testator to identify the best person to raise any minor children or legal dependents.

Attestation Clause (witness Clause) - Signed by two witnesses that attest that the testator was competent and their signature is authentic.

Self Proving Clause - Signature of a notary, confirming signature of witnesses and the person signing the will.

Survivorship Clause - beneficiary/heir must actually survive the decedent for a specified period of time to receive the identified inheritance or bequest.

Question 6

What is the Disclaimer Clause? IMPORTANT

Answer 6

-Reminds heirs that they can disclaim a bequest, while still allowing the testator to direct the distribution of disclaimed property.

To disclaim a bequest:

1. disclaiming party cannot benefit from the property (might be surviving spouse exception)
2. Disclaiming party cannot direct any future interest in the property.
3. The disclaiming party must disclaim the property within 9 months of the decedents date of death
4. disclaimer must be in writing.

Question 7

What is a contingent Legatee Clause?

Answer 7

• Determines how proceeds will be divided with relation to the deceased heirs and their decedents.
  1. Per Stirpes = “By the roots”

directs that the grandchildren stand in for their deceased parent and get that share among themselves

2. Per Capita = By the head

equal shares based upon the number of living beneficiaries, heirs of the same generation get an equal share IF they are the only heirs.

3. Per Capita at Each Generation
   - heirs of the same generation ALWAYS get an equal share. Typically, one of the more preferred methods of leaving assets to heirs.

Question 8

What is a no contest clause?

Answer 8

-attempts to discourage disappointed heirs from contesting the will by decreasing or eliminating a bequest to them if they file a formal legal contest to the will.

Question 9

What is a codicil?

Answer 9

• supplement to a will.

- used to modify, explain or amend a will.

Question 10

What is a side instruction letter?

Answer 10

• details the testators wishes regarding the disposition of specific tangible possessions (household goods), as well as funeral and burial wishes.
• exists separately from the will.

Question 11

What are some common will statutes?

Answer 11

Marital Portion - Some States laws require the client to provide for his surviving spouse.

Felonious Homicide Statues - prevent heirs who have been convicted of intentionally killing the decedent from inheriting the decedents will or through the intestate process.

Divorce Statutes - invalidate any provisions in a will that leave assets to a former spouse

Anti-Lapse Statues - if a close relative, is not alive when the testator dies the testator would have wanted the bequest to those individuals to pass to their heirs.

Question 12

What is a power of attorney?

Answer 12

• legal document that authorizes a trusted person to act on ones behalf.
• Broadest is a general power of attorney: gives the agent the power to do anything that the principal can do.

power of attorney is automatically revoked at principals death

if agent dies before the principal, the assets that they have power over are included in their estate.

Question 13

What is a general power of appointment?

Answer 13

• gives the agent the power to direct assets to another.

- allows the agent the ability to appoint assets to himself, his estate, his creditors, or his estates creditors.

Question 14

Limited power of attorney vs general power of attorney

Answer 14

Question 15

General power of appointment vs. limited power of appointment

Answer 15

Question 16

What does it mean if a power of attorney is “durable” or is a springing POA?

Answer 16

Durable =the agents power does not expire upon the principals incapacity or disability but expires only at principals death.

Springing = power springs into existence upon some defined event or determination (disability to the principal), only activates after the event.

Question 17

What is a durable power of attorney for health care?

Answer 17

-legal document that appoints an agent to make health care decisions in the case a of a principal whos is unable to make decisions for themselves.

Question 18

What is a living will (advanced medical directive)?

Answer 18

-Establishes the medical situations and circumstances in which the individual no longer desires life sustaining treatment in the event he is no longer capable of making those decisions.

Question 19

What is a Do Not Resucitate (DNR)?

Answer 19

-principals wish to avoid having cardipulmonary resuscitation (CPR) performed in the event their heart stops beating.

Question 20

What happens if a persons tenant in common share is more than their contribution %?

Answer 20

Gift has been made from one party to another.

Question 21

Joint with rights of survivorship - things to know

Answer 21

• each person owns equal interest, share income and expenses
• at death interest auto passes to the surviving property owners, therefore property is not included in decedents probate estate
• individuals can sell their interest without the consent of the other joint tenants even when the joint tenant is a spouse.
• property is included in the decedents gross estate to the extent of the decedents original contribution! IMPORTANT
• spouses named as joint tenants are deemed to have each contributed exactly 50 percent of the property. They receive Unlimited marital deduction

Question 22

Tenants in common - things to know

Answer 22

• each person, holds an unequal interest in the property
• the fair market value of a decedents ownership interest is tenancy in common is included in the gross estate.
• interest passes through probate.
• decedent can sell their share without consent from other owners.

Question 23

Tenancy by entirety - things to know

Answer 23

• only between a husband and wife, share cannot be sold without permission of the other spouse.
• at death, property automatically transfers to surviving spouse and does not go through probate.
• 50% of FMV is included in gross estate.

Question 24

Community property - things to know

Answer 24

• only available to spouses
• each spouse is deemed to have contributed and own 50 percent of the property and the interest cannot be sold without permission of other spouse.
• both haves of community property are stepped up to fair market value, even though the decedent only owned 50 percent of property.
• no automatic right of survivorship, property can be transferred elsewhere.
• property acquired before the marriage, or acquired by gift or inheritance during marriage is separate property.

Question 25

What are the community property states?

Answer 25

Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin

Question 26

What happens if you move from a common law state to a community property state?

Answer 26

• property acquired before the move retains its separate property status, unless the couple agrees to treat the property as community property.
• property acquired in the community property state is community property.

Question 27

Property ownership chart

Answer 27

Question 28

What is an interest for term?

Answer 28

• interest in property for a definite term (number of years)

- at the end of the interest for term, the property is transferred to remaindermen.

Question 29

What is a life estate?

Answer 29

• interest in property that ceases upon the death of the owner of the life estate. At death property is transferred to the owner of a remainder interest.
• provides the owner of such interest with a right to the income or the right to use property, or sometimes both.

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Question 30

What are Legatee’s, Heir’s, and Devisee’s?

Answer 30

Legatee - person named in a will to receive property
Heir - person who receives property under state intestacy laws.
Devisee - person who inherited real property under the will.

Question 31

What are deeds?

Answer 31

• Another means of avoiding probate and testamentary proceedings. (written)
• the passing of the interest in the property must be a present interest, though possession is delayed until the grantors death.
• Some states require the delivery of the deed to an escrow agent in order for the transfer to be considered valid.
• considered irrevocable unless the right to revoke is given.

Question 32

What are some advantages of the probate process?

Answer 32

1. Implements objectives of testator regarding disposition of assets.
2. provides for an orderly administration of assets through a legal process.
3. provides clean title to heirs or legatees by court order.
4. increases, the chances that parties in interest have notice of proceedings, and therefore, a right to be heard.
5. protects creditors by ensuring that debts of the decedent are paid.

Question 33

What are some disadvantages of the probate process?

Answer 33

1. Delays (Attorneys & Courts)
2. Costs (time)
3. Publicity (open to the public)

Question 34

What is ancillary probate?

Answer 34

Additional probate proceeding if the person holds real property located outside the city or state of their domicile (where they pay taxes, lived, registered to vote, drivers license, etc…)

Question 35

Who is the executor and administrator and what are their duties?

Answer 35

• Personal representative appointed to administer the probate estate.
• See image for common duties of executor and administrator.

Question 36

What is ademption and abatement?

Answer 36

• Both frequent problems encountered during the probate process.

Ademption = insufficient assets remain to satisfy all of the legatee provisions. If the estate is too small to satisfy all the legatees the court will reduce the amounts given to legatees.

Abatement = assets specifically bequeathed to legatees have been disposed of prior to the decedents death. Unless testator has provided some alternative asset, such legatee is not entitled to a replacement asset.