Estate Planning Guide
|
Types Of Estate Planning Documents And Concepts Used Although estate plans vary among individuals, many of the estate planning documents and concepts used are similar. List below is an explanation of some of the more common ones: Last Will and Testament This is the most common form of estate planning document. In Oklahoma, there are two types of wills. The first is called a "holographic" will. It is one prepared totally in the testator's own handwriting and signed and dated by the testator. The other type, referred to as a "typewritten" will, is one that is typed and signed by the testator before at least two witnesses. Other states have requirements for three or more witnesses. However, as long as a valid will is signed here in Oklahoma, it is valid in other states. A will is a document whereby you express, in writing, how you want your estate disposed of at the time of your death; who you want to have manage your estate for you; as well as various other instructions. Although many people include funeral instructions in their will, it should be noted that a will is generally not admitted to probate until weeks and even months after death. There is a statutory requirement in Oklahoma for a will to be filed for probate within one year after death. Living Trust A living trust, also called an Inter Vivos Trust, is a document whereby you convey property from your individual name to a trust of which you (or you and your spouse) are the trustee. The trustees are the only people who can manage or control the property within the trust. It is also necessary that a trust have beneficiaries. Initially, you (or you and your spouse) will be the beneficiary of the trust. In that manner, you will owe no duty to any other beneficiaries (such as children) to account for what is in the trust. You can essentially do what you please with the trust property. Upon your death, the trust can name the successor trustees and can provide for the division and distribution of your estate after your death. Finally, a trust can provide for the management of your property in the event you become disabled. In this manner, a trust can avoid the need for a guardianship. Since probate records are public records, having a trust provides a great deal of privacy. Remember, however, that a trust only avoids probate and guardianship as to the property that is placed in the trust. Therefore, it is beneficial to have a fully funded trust. This means one that contains all of your property, which must be legally titled into the name of either the trust or the name of you as trustee of your trust. In the event you already have arrangements made for the disposition of all of your liquid assets at your death and the only asset that remains titled in your individual name is your home, you can use a Personal Residence Trust which is a simplified version of the fully funded living trust designed to own only your home. Durable Power of Attorney A power of attorney is a document by which you appoint someone (a friend, spouse, relative, etc.) to act in your place. It can be for a limited purpose, such as signing checks on your bank account, or signing a deed or mortgage for you in case of your absence (this was very common during the Persian Gulf war), or it can be for a general purpose which essentially gives your attorney-in-fact the power to do anything that you could have done. A power of attorney is valid until it is revoked, or until the creator dies or becomes incompetent. Further, if the power of attorney is a durable power of attorney, it will be valid even after the incapacity of the creator. As of September 1, 1992, a durable power of attorney can be created to give a person the authority to make health care decisions for the maker of the power. As a result of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), a durable power of attorney for health care should also include language allowing your attorney-in-fact to be able to review and discuss all medical records and treatments as well. Advance Directive for Health Care This is the so-called "living will", which is not really a will at all. It is a document in which you state your intention and desire not to be connected to artificial life support in case your death is imminent or in the event you are in a terminal condition or a persistently unconscious condition. The document also allows you to designate a person, known as a health care proxy, to make health care decisions for you in the event you are unable to do so. Life Estate Generally this is used only for probate avoidance purposes. It involves conveying your real estate to someone, such as a child, and reserving to yourself the right to live there for the rest of your life. Upon your death, your interest terminates and the person or persons owning the rest of the property (the remainder) will own it all. Unfortunately, as a life tenant, you cannot usually sell or mortgage the property (other than the sale or mortgage of your life estate which has little value). Upon your death, the remainder owners usually need to file an Affidavit to legally determine your death in order to terminate your ownership interest in real estate, and may have to file a court proceeding to terminate other ownership rights you held. A life estate has become a useful way to contribute property to a charity. You can retain use and control of the property during your life, and then have the property pass to a charity after your death. Irrevocable Trust This trust, which is formed similar to a living trust, has a more limited use. You generally do not want an irrevocable trust to own most of your property because you cannot change the terms of such a trust. This form of trust is useful, however, to own life insurance since the proceeds of life insurance are of no personal benefit to you and can be taxable in your estate for estate tax purposes if you own the policy. This form of trust is also useful for charitable planning which can substantially reduce estate taxes, eliminate capital gains taxes and generate income taxes savings. Some forms of irrevocable trust can only be used to protect your assets from consideration as resources in qualifying for Medicaid. However, such a trust cannot be created by you and allow you to be a beneficiary since, by law, any beneficial interest you retain in the trust is fully reachable by your creditors, including nursing homes. Pay on death designation Many people use this option, usually provided by banks and investment companies, to allow for passage of certain property after death to designated beneficiaries. Common types of property for which this designation is used are certificates of deposit and savings bonds. Also, most IRA accounts provide for a pay on death designation. Gifting Many people give gifts and do not think about how it is reducing the size of their estate. Many times, they do not think of the tax consequences either. Gifts are taxable under federal law. As of 2002, a person can give up to $11,000 per year (up from $10,000 in previous years) to any one or more persons and not pay gift taxes. As a result of the Taxpayer Relief Act of 1997, the amount a person can gift annually will increase, beginning in 1999, based on inflation. However, the exempt amount will be rounded down to the next $1,000 increment. There can be multiple gifts. For example, if you have five grandchildren, you can give each of them $11,000 for a total of $55,000 this year. You and your spouse together can gift up to $22,000 per person per year. For larger gifts, you must file a federal gift tax return. There is no longer any Oklahoma gift tax. Many people do not realize that converting property ownership from your individual name to that of you and someone else (a child, for example) creates a possible gift which can be taxable. You can also make gifts through a charitable trust to generate sizeable estate and income tax benefits. Nomination of Guardian This is a document by which you designate or nominate someone as YOUR guardian, in the event of your incapacity or in the event of an attempt to have a guardian established for your care and benefit. Realize that, if you have a living trust and a durable power of attorney, there should be no need for a guardianship over you. But, in the event such a guardianship proceeding is initiated, your written nomination, signed while you are still competent, can control the appointment process. Postic & Bates, P.C. 2212 Shadowlake Drive |
