1. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 Ownership of Property Outright Life Estate / Remainder Tenancy in Common Joint Tenancy with Right of Survivorship Tenancy by the Entirety Community Property Totten Trust, POD, TOD

2. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company2 Ownership of Property Outright Ownership –Hold title to the property with the right to use, possess, and enjoy the property –Right to alienate or transfer property during life or at death Life Estate –The right to use, possess, and enjoy the property for life Remainder Interest –Receive property after person with a life estate dies

3. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company3 Ownership of Property Tenancy in Common –Form of co-ownership –Each tenant owns share in proportion to contribution (or gift or inheritance) –Right to alienate or transfer share during life or at death

4. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company4 Ownership of Property Joint Tenancy with Right of Survivorship –Form of co-ownership –Each tenant shares in proportion to contribution (or gift or inheritance) –At death, interest automatically passes to remaining joint tenants –During life, a joint tenant can sever tenancy or transfer interest

5. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company5 Ownership of Property Tenancy by the Entirety –Form of co-ownership exclusively for spouses –Each spouse has an undivided interest –At death, property automatically passes to other spouse –While alive and married to each other, neither spouse can sever the tenancy without the consent of the other spouse

6. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company6 Ownership of Property Community Property –Community property states include: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin –A form of co-ownership between spouses –Each spouse has a one-half undivided interest in property acquired during the marriage –At death, right to alienate or transfer one-half interest –During life, need spouse’s consent to alienate or transfer interest

7. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company7 Ownership of Property Community Property (cont’d) –Community property remains community property when the spouses move to a non-community property state –Noncommunity property includes Property acquired prior to marriage Property acquired by one spouse by gift or inheritance Property acquired prior to move to community property state –Spouses can draft an agreement to designate property as community or non-community property

8. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company8 Ownership of Property Totten Trust –Bank account as trustee for another person –Generally revocable –At death of trustee, donee receives bank account Payable On Death (POD) Account –Bank account –At death of owner, named beneficiary receives POD account Transferrable On Death (TOD) Account –Securities account –At death of owner, named beneficiary receives TOD account

9. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company9 Transfers of Property Lifetime –Outright Gift –Trust At Death –Operation of law Joint tenancy with right of survivorship –Contract with beneficiary designation Life insurance, annuities, retirement benefits –Wills Probate –Intestate succession Die without a valid will Probate

10. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company10 Transfers of Property Wills –Revocable until death –Instructions on how to dispose of a person’s property after death –Can name executor or guardian for minor children –Formalities for execution vary among states Usually typed or written Two witnesses required in most states Testator must have the capacity to make a will at the time of execution

11. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company11 Transfers of Property Testamentary capacity –Must be of legal age, at least 18 in most states –Must understand the extent of his property e.g. knows he owns a home in Florida, two life insurance policies, retirement benefits, one bank account, three mutual funds, etc. –Must understand the natural objects of his bounty e.g. knows he has a spouse and three children –Must understand the nature of his dispositions e.g. knows his spouse Mary gets the house, his brother Tom gets $10,000, and his sister Jane gets the antique ring, with Mary receiving the remainder of everything else

12. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company12 Transfers of Property Types of legacies (disposition of property from testator to legatee) –Specific legacy – Specific piece of property All personal and household effects to wife, Rachel 1962 Corvette to niece, Heather Note: If the specific property does not exist at testator’s death the legatee receives nothing in most states

13. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company13 Transfers of Property Types of legacies (cont’d) –General legacy – Specific value or amount $10,000 to my nephew, Ralph Note: If there is $10,000 worth of property remaining after specific bequests, the general bequest will be satisfied even if other property has to be sold –Residual legacy – Remainder Disposes of all remaining property not disposed of by specific or general legacies Often the largest share of the estate

14. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company14 Transfers of Property Lapse –If a specific or general legatee is not alive at the testator’s death, the legacy lapses and passes to the residual legatee –Some states provide that if certain related legatees are not alive, then the legacy passes to descendants of the legatee Tax-Apportionment Clause –Provision directing which legacies are to bear the burden of death taxes

15. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company15 Review Will Periodically Questions to ask: –Does the testator still live in the same state? –Does the testator own real estate in another state triggering ancillary probate? –Is the testator still married to the same person? –Does the testator wish to change any beneficiaries? Have any beneficiaries died? –Does the testator have any new relatives, such as a newborn child? –Has the state law on wills changed? –Have tax laws or assets changed?

16. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company16 Transfers of Property Limitations on disposition of property: –Spousal statutory share Election against the will 1/3 to 1/2 of the estate –Antenuptial (prenuptial) agreement –Homestead rights –Family allowance –Pretermitted or omitted heir statutes –Mortmain statute limiting charitable contributions

17. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company17 Transfers of Property Intestate succession –Person dies without a valid will or only a partially valid will –State law provides rules for who will inherit how much based on their relationship to the decedent (varies) For example, spouse receives ½ of estate and the other ½ is divided equally among the children –Default will –Doesn’t apply to Property passing by contract to beneficiary Property passing by form of ownership to survivor

18. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company18 Transfers of Property Trusts –Fiduciary trustee administers trust for the benefit of one or more persons known as beneficiaries –Person creating the trust is called the settlor, trustor, or grantor –Property held in trust is called corpus or res –State law controls the creation, operation, and termination of a trust

19. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company19 Transfers of Property Types of Trusts: –Testamentary Irrevocable Created at death –Revocable intervivos (established during life) Grantor trust rules apply for income tax purposes Part of grantor’s gross estate at death

20. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company20 Transfers of Property Types of Trusts: –Irrevocable Generally, retained income is subject to compressed trust income tax rates and distributed income is taxed to the beneficiaries –Unless grantor or grantor’s spouse retain rights causing trust income to be taxed to grantor May trigger gift taxes upon transfer of property to trust Generally, not included in grantor’s gross estate if grantor gave up all rights and control

21. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company21 Transfers of Property Rules against perpetuities –Interests in property must vest no later than lives in being plus 21 years and nine months –Uniform statutes add 90 year alternative period –A few states have done away with rule against perpetuities Spendthrift provisions –Attempt to limit the ability of the beneficiary to squander funds –Attempt to keep beneficiary’s creditors from reaching the funds State laws may restrict the grantor’s ability to prevent creditor’s from reaching the beneficiary’s interest

22. Ownership and Transfer of Property Chapter 7 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company22 Transfers of Property Typical spendthrift provisions: –Prohibition of beneficiary transferring the beneficiary’s interest –Forfeiture of beneficiary’s interest if beneficiary attempts to transfer interest –Distributions of income or principal to a beneficiary limited to support of the beneficiary (or to provider on behalf of the beneficiary) –Distributions to beneficiary at the trustee’s discretion –Prohibition against creditors reaching beneficiary’s interest