Fundamentals of Estate Planning (Lesson 1) Flashcards
What is the broad definition of estate planning
- defined as the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives
What is an effective transfer
- occurs when a persons assets are transferred to the person or institution intended by that person
What is a efficient transfer
- occurs when transfer costs are minimized consistent with the greatest assurance of effectiveness
What are some risks in failing to plan an estate
- clients property transfer wishes go unfulfilled
- transfer taxes are excessive
- transfer costs are excessive
- clients family no properly provided for financially
- insufficient liquidity to cover clients debts, taxes, and costs at death
What are the seven basic steps of the estate planning process
- understanding the clients current circumstances
- identify and select goals
- analyze their current path and any potential alternatives
- develop a comprehensive plan of transfers consistent with all information and objectives
- present your recommendation to the client
- implement the estate plan
- monitor/review the estate plan periodically and update the plan when necessary
What is a will
- is a legal document that provides the testator the opportunity to control the distribution of his property at death and thus avoid their state intestacy laws
What is dying testate mean
- dying with a valid will
What does dying intestate mean
- dying without a valid will
What is a partially intestate mean
- dying with a will that does not dispose of all property
How is real property distribubted
- based on the laws of the state in which the property is actually located
- ancillary probate will be required
What is a holographic will
- handwritten by the testator and include the material provisions of a will
- must be dated and signed by the testator but most states doe not require a witness
- valid in most states
What is a nuncupative will
- oral
- dying declarations made before a sufficient number of witnesses
- some states only allow tangible property to pass this way and dollar amount may be limited
- not valid in most states
What is a statutory will
- drawn by an attorney and comply with the statutes for wills of the domiciliary state
- must be typed, signed (usually a witness is required), and be signed by the witness
What are reciprocal wills
- two individuals will execute identical wills that leave all assets to the other person
What is a bequest clause of a will
- directs the distribution of specific property, whether cash, tangible personal property, or real estate
What is a residuary clause of a will
- directs the transfer of the balance of any assets not previously distributed to particular individuals or to charitable institutions through a bequest clause
- without a residuary clause a probate estate may have intestate assets which will pass under the laws of intestacy
What is a guardianship clause of a will
- allows the testator to identify the best person to raise any minor children or legal dependents
What is an attestation clause of a will
- a witness clause
- a provision at the end of the will that is signed by at least two qualified witnesses who authenticate the document is the testators will bearing the testators signature and that the testator was competent and not under any kind of duress at the time the will was executed
What is a self proving clause of a will
- involves the notary signing a declaration that he witnessed the testator and witness sign the will
What is a simultaneous death clause of a will
- establishes a presumption regarding which individuals died first in the event that both individuals die in the same event
What is a survivorship clause of a will
- is an alternative to and generally eliminates the need for a simultaneous death clause
- requires the beneficiary must actually survive the decedent for a specific period of time to receive the identified inheritance or bequest
What is a disclaimer clause of a will
- functions to remind any heirs that they can disclaim a bequest while still allowing the testator to direct the distribution of disclaimed property
What are the requirements of a disclaimer to be valid
- the disclaiming party cannot benefit from the property
- nor direct any future interest in the property
- disclaiming party must disclaim the property within nine months of the decedents date of death
- the disclaimer must be in writing
What is a contingent legatee clause of a will
- may use one of two methods, per capita or per stirpes, to determine how the proceeds will be divided with relation to the deceased heirs and their descendants
What is per stirpes
- by representation or by the roots
- directs that the grandchildren stand in for their deceased parent and get that share to split among themselves
What is per capita
- equal shares based upon the number of living beneficiaries
- heirs of the same generation get an equal share if they are the only heirs
What is 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
What is no contest clause of a will
- called an in terrorem clause
- attempts to discourage disappointed heirs from contesting the will by substantially decreasing or eliminating a bequest to them if they file a formal, legal contest to the will
What is a codicil
- supplement to a will
- may be executed like a statutory will, which must be signed, properly witnessed, and notarized as discussed previously
What is a side instruction letter of a will
- details the testators wishes regarding the disposition of specific tangible possessions as well as funeral and burial wishes
- exists separately from the will
What is a power of attorney
- is a legal document that authorizes a trusted person to act on ones behalf
- gives the right to one person, the attorney in fact, to act in the place of the other person, the principal
What is a general power of attorney
- is the broadest power a person can give another
- person will be able to act in the principals place as though he is the principal
- GPOA can be revoked by the principal by giving notice usually with a revocation form, to the agent and is automatically revoked at the principals death
How can a GPOA be revoked
- by the principal giving notice usually with a revocation form, to the agent, and is automatically revoked at the principals death
What happens if the agent of a POA dies before the principal and is holding a GPOA over assets of the principal
- the agents gross estate will include the FMV of the principals assets over which the agent held the power of appointment regardless of whether the power has been invoked
What is a Power of Attorney
- a power usually included in a trust or power of attorney allowing the power holder to direct assets to another
What is a limited power of attorney
- referred to as a special power of attorney gives the agent very specific detailed powers
- powers may be extremely narrow only authorizing the agent to act on a specific matter
What is a durable power of attorney
- the agents power does not expire upon the principals incapacity or disability but rather expires only at the principals death
What is a springing power of attorney
- the agents power springs into existence upon some defined event or determination
- in this case even though the principal has signed the power of attorney the agent cannot exercise the powers granted to him until the specific event occurs
What are the disadvantages of a power of attorney
- agent can abuse power
- person possessing a limited/special power of attorney is not permitted to make gifts to himself or other family members
- GPOA will require the assets to be included in the agents estate
What is a durable power of attorney for health care
- called a medical power of attorney
- is a legal document that appoints an agent to make health care decisions in the case of a principal who is unable to make those decisions for themselves
What is a living will
- known as an advance medical directive
- not a will
- a legal document expressing an individuals last wishes regarding sustainment of life under specific circumstances
What is a DNR document
- called a do not resuscitate
- declares the principals wish to avoid having CPR performed in the event their heart stops
What is the difference between a power of attorney for health care and a living will
- power of attorney addresses the providing of medical care but does not address the ending of life sustaining treatment
- living will addresses the ending of life sustaining treatment bus no the providing of medical care
What is real property
- includes land and anything permanently attached to the land
What is a tangible property
- is property which may be touched and is not realty
What is intangible property
- is property that cannot truly be touched such as stocks, bonds, patents and copyrights
What is sole ownership
- full outright ownership by one person
- transfers via probate by will or intestacy law
- FMV of property owned as fee simple is fully included in a decedents gross estate but if transferred to the the decedents spouse is eligible for unlimited marital deduction
- 100% included in owners gross estate and probate estate
What is the tenancy in common ownership
- joint interest in property between two or more individuals
- owners can choose a partition their interest without the consent of the other owners
- interests do not have to be equal
- FMV of the decedents ownership interest is included in the decedents gross estate
- if transferred to the decedents spouse the property is eligible for the unlimited martial deduction
- passes through probate
What happens if the contributions to a tenancy in common do not make the ownership percentage
- a gift has been made from one party to another
What is the joint tenancy with rights of survivorship ownership
- held by two or more related or unrelated parties
- each owns an undivided, equal interest in the whole
- each owner generally shares in income and expenses in proportion to their interest
- at death of one joint tenant his interest automatically passes to the surviving property owners and therefore the property is not included in a descendent probate estate
- individuals can choose to partition their interest without the consent of the other joint tenant
- property is included in the decedents gross estate to the extent of the decedents original contribution percentage (Unless individuals are married)
What is the actual contribution rule for Joint Tenancy with rights of survivorship
- property is included in the decedents gross estate to the extent of the decedents original contribution percentage (Unless individuals are married)
What is tenancy by the entirety
- is joint ownership of property only between spouses
- cannot be partitioned without the consent of the other spouse
- at the death of first spouse the property is included in a decedents gross estate
- 50% of the FMV of the property is included in a decedents gross estate
- Property is automatically transfers to surviving spouse so it is eligible for the unlimited marital deduction
What is community property
- ownership form available only to spouses
- each spouse is deemed to have contributed and to own 50% of the property and the interest cannot be partitioned without the consent of the other party
- decedents interest is included in the probate estate and both halves of community property are stepped to FMV even though the decedent only owned 50% of the property
- No automatic right of survivorship
What happens when a person moves from a common law state to a community property state
- property acquired before the move generally retains its separate property status unless the couple agrees to treat the property as community property
- property acquired subsequent to the couples move into the community property state is considered community property
How are earnings treated in a community property state
- treated as community property
Is there gift splitting for community assets
- No
How is property that is acquired by gift or inheritance treated in a community property state
- treated as separate property not community property
Which type of entity can have two or more owners
- Tenants in common
- JTWROS
Which type of property ownership can only be between spouses
- Tenancy by the entirety
- Community property
Which type of property ownerships have a right of survivorship feature
- JTWROS
- Tenancy by the Entirety
Which type of property ownership will be included in the decedents probate estate and what percentage is included
- Sole ownership (fee simple) - 100%
- Tenants in common - % owned
- Community property - 50%
Which types of property ownership can be sold without consent of the other owner
- Tenants in common
- JTWROS
What amount is included in the a decedents gross estate under JTWROS
- Non spouses = rule of contribution
- Spouses = 50%
Which type of property ownership can have non proportional interests of ownership
- Tenants in common
Is fee simple ownership include in the decedents gross estate
Yes 100%
Is fee simple ownership include in the decedents probate estate
Yes
Does fee simple ownership have a rights of survivorship feature
No
Is tenants in common ownership included in the decedents gross estate
Yes percentage of ownership
Is tenants in common ownership include in the decedents probate estate
Yes
Does tenants in common have a rights of survivorship
No
Does tenants in common ownership allow for interest to be sold without consent of the other party
Yes
Is JTWROS ownership included in a decedents gross estate
- Nonspouse = Rule of contribution
- Spouses = 50%
Is JTWROS ownership included in a decedents probate estate
No
Does JTWROS ownership have a right of survivorship
Yes
Does JTWROS ownership allow for interest to be sold without consent of the other party
Yes
Is tenancy by entirety ownership included in a decedents gross estate
Yes 50%
Is tenancy by entirety ownership included in a decedents probate estate
No
Does tenancy by entirety ownership have a right of survivorship
Yes
Does a tenancy by entirety ownership allow for interest to be sold without consent of the other party
No
Is community property ownership included in the decedents gross estate
Yes 50%
Is community property ownership included in the decedents probate estate
Yes 50%
Does community property ownership have a right of survivorship
No
Does community property ownership allow for interest to be sold without consent of the other party
No
What is a life estate owership
- an interest in property that ceases upon the death of the owner of the life estate
- provides the owner of such interest with a right to the income or the right to use property or sometimes both
- at death of the life estate owner the property is transferred to the owner of the remainder interest
What is a interest for term ownership
- interest in property for a definite term
- end of the interest for term the property is transferred to the remainderman
What is legal ownership
- implies legal title
What is equitable ownership
Economic right to the property:
- right to possess the property
- right to enjoy the property
- right to use the property and
- right to receive income from the property
What is the probate process
- defined as the legal proceeding that serves to prove the validity of an existing will, supervise the orderly distribution of a decedents assets to the heirs, assure heirs that they receive clear title, and protect creditors by insuring that valid debts of the estate are paid prior to distribution of assets to heirs
What are the advantages of the probate process
- implements objectives of testator regarding disposition of assets
- provides for an orderly administration of assets through a legal process
- provides clean title to heirs or legatees by court order
- increases the chances that parties in interest have notice of proceedings and therefore a right to be heard
- protects creditors by ensuring that debts of the decedent are paid
What are some disadvantages of the probate process
- delays
- costs
- publicity
What are some specific duties of the administrator
- petition court for appointment
- put up security bond
- court selects
- court issue letter of administration
What are some specific duties of an executor
- locate will
- submit will to court
- prove will with witness/ notary
- receives letters of testamentary
What are the letters of administration
- it empowers an administrator to act as the agent of a probate court
What are the letters of testamentary
- empowers an executor to act as the agent of a probate court
What is ademption
- assets are specifically bequeathed to legatees but have been disposed of prior to the decedents death
- ademption will allow the legatee replacement assets of equal value
What is abatement
- occurs when insufficient assets remain to satisfy all of the legatee provisions
- the court will reduce the amounts given to the legatees
