Estate Planning Wills Wills Trusts Trusts Insurance Insurance Class 8

What is an estate? An individual’s “estate” is any interest the individual has in any personal or real property. An individual’s “estate” is any interest the individual has in any personal or real property. This includes property owned solely by the individual or owned in common with another. This includes property owned solely by the individual or owned in common with another.

Probate Property Property owned by the decedent at the time of death Property owned by the decedent at the time of death This property is distributed by the court This property is distributed by the court Probate property includes Probate property includes Any interest in real and personal property Any interest in real and personal property Life insurance that names the estate as beneficiary Life insurance that names the estate as beneficiary Pending law suits for money damages Pending law suits for money damages Debts owed by the deceased Debts owed by the deceased Trusts established under a will Trusts established under a will

Nonprobate Property Property that was owned by the decedent at the time of death that passes directly to heirs rather than going through probate Property that was owned by the decedent at the time of death that passes directly to heirs rather than going through probate Life estate Life estate Living (inter vivos) trusts Living (inter vivos) trusts Life insurance policies naming specific beneficiary Life insurance policies naming specific beneficiary Community property agreement Community property agreement Joint tenancy with right of survivorship Joint tenancy with right of survivorship

Why make a plan? Provide for spouse or partner at death Provide for spouse or partner at death Provide for minor children Provide for minor children Provide for children of a prior relationship Provide for children of a prior relationship Designate specifically who – person or entity – will have benefit of one’s property Designate specifically who – person or entity – will have benefit of one’s property Avoid taxes Avoid taxes Avoid probate Avoid probate

Sources of Law Primarily statute Primarily statute In Washington RCW Title 11 is the title governing estate interests In Washington RCW Title 11 is the title governing estate interests Title 26 governs community property Title 26 governs community property Title 83 governs taxes of estates and gifts Title 83 governs taxes of estates and gifts Some common law sources Some common law sources Appellate decisions Appellate decisions Restatements Restatements

What happens without a plan? Intestate Succession Intestate Succession If the individual does not provide for property distribution prior to death, the government will decide how to distribute the property. If the individual does not provide for property distribution prior to death, the government will decide how to distribute the property. Decedent is called an intestate Decedent is called an intestate Includes property in a will if there is a lapsed gift Includes property in a will if there is a lapsed gift Includes all property if will is invalid Includes all property if will is invalid RCW RCW Priority of distribution Priority of distribution

Protection of Families Homestead exception: A statutory provision providing for the protection of homes – exempting them from forced sale or execution. Homestead exception: A statutory provision providing for the protection of homes – exempting them from forced sale or execution. Family allowance: Statutory provisions providing for an allowance in money to help maintain the family during the administration of the estate. Family allowance: Statutory provisions providing for an allowance in money to help maintain the family during the administration of the estate. In Washington, the protections for the family are set out in RCW In Washington, the protections for the family are set out in RCW 11.54

Escheat If a person dies without a will and without an heir, the estate will pass to the state. If a person dies without a will and without an heir, the estate will pass to the state. RCW RCW

Kinds of Plans Prenuptial agreements Prenuptial agreements Community property agreements Community property agreements Life insurance Life insurance Wills Wills Trusts Trusts Health care directives Health care directives Powers of attorney Powers of attorney

Prenuptial Agreements An agreement made in anticipation of marriage. An agreement made in anticipation of marriage. Provide for distribution of property upon dissolution of marriage Provide for distribution of property upon dissolution of marriage Also provide for agreement as to distribution upon death of one spouse Also provide for agreement as to distribution upon death of one spouse

Community Property One spouse’s share in community property may be gifted by will. One spouse’s share in community property may be gifted by will. If an estate is probated all community property is subject to probate administration. If an estate is probated all community property is subject to probate administration. A community property agreement can change the nature of property from separate to community at the time of death and can transfer ownership to the surviving spouse at the time of death. A community property agreement can change the nature of property from separate to community at the time of death and can transfer ownership to the surviving spouse at the time of death.

Life Insurance Whole life – these policies are both life insurance and an investment (premiums are set at the time of purchase) Whole life – these policies are both life insurance and an investment (premiums are set at the time of purchase) Universal life – also are both life insurance and an investment (premiums may vary during the course of policy ownership) Universal life – also are both life insurance and an investment (premiums may vary during the course of policy ownership) Term life – only insurance Term life – only insurance Purchased for a specified term (with renewal option) Purchased for a specified term (with renewal option)

Wills A will is a legal expression of an individual’s wishes as to how his or her property should be distributed when that person dies. A will is a legal expression of an individual’s wishes as to how his or her property should be distributed when that person dies. The person making the will is the testator The person making the will is the testator RCW governs the making of wills in Washington RCW governs the making of wills in Washington

Kinds of Wills Formal will Formal will Written, signed by the testator, witnessed by two witnesses Written, signed by the testator, witnessed by two witnesses Holographic (or informal) will Holographic (or informal) will Usually handwritten by the testator Usually handwritten by the testator These are NOT valid in Washington These are NOT valid in Washington Nuncupative (or oral) will Nuncupative (or oral) will These are NOT valid in Washington (however there a limited exceptions) These are NOT valid in Washington (however there a limited exceptions)

Requirements Legal capacity Legal capacity Must be an adult (18 in Washington) Must be an adult (18 in Washington) Testamentary capacity (of sound mind) Testamentary capacity (of sound mind) Knowing what property one owns Knowing what property one owns Knowing who his or her relations are Knowing who his or her relations are Knowing what he or she wants to do with the property Knowing what he or she wants to do with the property Voluntarily act (without undue influence) Voluntarily act (without undue influence)

Contents of a Will Exordium clause Exordium clause identifies testator, states his domicile and announces that this is his will identifies testator, states his domicile and announces that this is his will Revocation clause Revocation clause revokes all prior wills, codicils revokes all prior wills, codicils Identification of family clause Identification of family clause Dispositive provisions (specific devises) Dispositive provisions (specific devises) Minor beneficiary clauses Minor beneficiary clauses Testamentary guardian/Trust for minor Testamentary guardian/Trust for minor Simultaneous death clause Simultaneous death clause

Contents of a Will Appointment of personal representative Appointment of personal representative Statement of powers and duties Statement of powers and duties Separate writing clause Separate writing clause Attestation clause Attestation clause Self proof clause Self proof clause

Types of Gifts Devise Devise Gift of real property Gift of real property Bequest or legacy Bequest or legacy Gift of personal property Gift of personal property

Separate Writing A will may refer to a separate writing that directs disposition of tangible personal property not otherwise specifically disposed of in the will A will may refer to a separate writing that directs disposition of tangible personal property not otherwise specifically disposed of in the will Will must specifically refer to the writing Will must specifically refer to the writing The writing is handwritten or is signed by the testator The writing is handwritten or is signed by the testator The writing describes the property and the recipients with reasonable certainty The writing describes the property and the recipients with reasonable certainty This may be written before or after the execution of the will This may be written before or after the execution of the will

Provisions for Minors Appointment of testamentary guardian of minor child (RCW ) Appointment of testamentary guardian of minor child (RCW ) Only applies where one parent is deceased and surviving parent is making the appointment Only applies where one parent is deceased and surviving parent is making the appointment Person appointed must be qualified to serve Person appointed must be qualified to serve Establishment of a trust for minor child Establishment of a trust for minor child

Execution of the Will One of the few formalities left in law One of the few formalities left in law Must be signed Must be signed Must be witnessed by two witnesses Must be witnessed by two witnesses Witnesses must be able to say Witnesses must be able to say They know who the testator is They know who the testator is The testator was competent The testator was competent The testator was not acting under duress or undue influence The testator was not acting under duress or undue influence Testator must ask witnesses to witness; they must both be present at the time the will is signed (presence of testator and presence of each other) Testator must ask witnesses to witness; they must both be present at the time the will is signed (presence of testator and presence of each other)

Self-Proving Clause Washington statute provides for a self- proving clause. Washington statute provides for a self- proving clause. Affidavit signed by the witnesses under oath. Affidavit signed by the witnesses under oath. This affidavit makes it unnecessary to call the witnesses in the probate proceeding to prove the validity of the will This affidavit makes it unnecessary to call the witnesses in the probate proceeding to prove the validity of the will

Letters of Instruction Information for the family and personal representative Information for the family and personal representative Preferred funeral arrangements Preferred funeral arrangements Location of assets Location of assets Location of important papers (including will) Location of important papers (including will) Information about insurance policies and pension plans Information about insurance policies and pension plans List of debts, creditors List of debts, creditors Contact information for key people (personal representative, CPA, attorney, heirs) Contact information for key people (personal representative, CPA, attorney, heirs)

Codicil A codicil is an amendment or addition to the will A codicil is an amendment or addition to the will The same formalities are required for executing a codicil The same formalities are required for executing a codicil

Revocation A will can be revoked by A will can be revoked by Writing a new will Writing a new will Physically destroying the old will Physically destroying the old will

Trusts A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. A trust is an agreement under which money or other assets are held and managed by one person for the benefit of another. Common benefits include Common benefits include Providing personal and financial safeguards for the beneficiaries Providing personal and financial safeguards for the beneficiaries Postponing or avoiding unnecessary taxes Postponing or avoiding unnecessary taxes Establishing a means of controlling property Establishing a means of controlling property Meeting social or commercial goals Meeting social or commercial goals

Essential Terms Trustor (grantor or settlor) – the person who creates the trust Trustor (grantor or settlor) – the person who creates the trust Trustee – the person or entity who holds legal title of the trust property for the benefit of another Trustee – the person or entity who holds legal title of the trust property for the benefit of another Trust Property (principal, corpus or res) – the property placed in trust by the settlor Trust Property (principal, corpus or res) – the property placed in trust by the settlor Beneficiary – person to benefit from trust Beneficiary – person to benefit from trust Trust purpose – reason why trust is created Trust purpose – reason why trust is created

Requirements To be a valid trust To be a valid trust Settlor must manifest an intention to create it Settlor must manifest an intention to create it Trust must have assets (this may include future assets) Trust must have assets (this may include future assets) Trust must have legal purpose (not against public policy) Trust must have legal purpose (not against public policy) Must identify beneficiary Must identify beneficiary Must be established by written document or by operation of law Must be established by written document or by operation of law

Categories of Trusts Inter vivos or living trusts – created while trustor is alive Inter vivos or living trusts – created while trustor is alive Testamentary – created as part of will Testamentary – created as part of will Revocable living trusts – trustor retains right to change or terminate the trust Revocable living trusts – trustor retains right to change or terminate the trust Irrevocable living trusts – trustor gives up right to revoke after creation Irrevocable living trusts – trustor gives up right to revoke after creation Express trusts – intentionally created Express trusts – intentionally created Implied trusts – created by operation of law Implied trusts – created by operation of law

Rule Against Perpetuities All interests in property must vest within 21 years of the life of someone who is alive at that time of the creation of the interest. All interests in property must vest within 21 years of the life of someone who is alive at that time of the creation of the interest. Insures that someone will own the property within a reasonable time Insures that someone will own the property within a reasonable time RCW RCW

Termination of Trusts Trusts terminate when: Trusts terminate when: Express terms of trust instrument require termination at a specific time or upon the happening of a specific condition (child reaches age of majority) Express terms of trust instrument require termination at a specific time or upon the happening of a specific condition (child reaches age of majority) Fulfillment of trust purpose Fulfillment of trust purpose The same person owns both legal and equitable or beneficial title of trust property The same person owns both legal and equitable or beneficial title of trust property Settlor revokes the trust Settlor revokes the trust

Probate Probate is a legal procedure for settling the affairs of a person who has died and overseeing the distribution of the decedent’s property to the rightful beneficiaries. Probate is a legal procedure for settling the affairs of a person who has died and overseeing the distribution of the decedent’s property to the rightful beneficiaries. The process The process Collects and protects decedent’s property Collects and protects decedent’s property Identifies beneficiaries and creditors Identifies beneficiaries and creditors Pays all debts, expenses, taxes Pays all debts, expenses, taxes Distributes the property of the estate properly Distributes the property of the estate properly

Probate Jurisdiction of the court is triggered by Jurisdiction of the court is triggered by Filing Petition to Probate a Will (person died testate) or Filing Petition to Probate a Will (person died testate) or Petition for Letters of Administration (intestate) Petition for Letters of Administration (intestate) Personal Representative or Administrator is appointed Personal Representative or Administrator is appointed Court’s continued involvement is to resolve disputes or interpret documents Court’s continued involvement is to resolve disputes or interpret documents

Duties of Personal Rep. Notify heirs and creditors Notify heirs and creditors Take possession of and inventory estate Take possession of and inventory estate Determine fair market value of estate assets Determine fair market value of estate assets Determine names, locations of heirs Determine names, locations of heirs Collect debts owed to the decedent Collect debts owed to the decedent Represent the estate in any challenges to the will Represent the estate in any challenges to the will Complete any pending lawsuits in which the decedent has an interest Complete any pending lawsuits in which the decedent has an interest

Duties of PR Prepare tax returns and pay all estate and income tax Prepare tax returns and pay all estate and income tax Pay the valid claims of creditors Pay the valid claims of creditors Sell property – when necessary – to pay debts and taxes Sell property – when necessary – to pay debts and taxes Transfer title to real property and certain personal property Transfer title to real property and certain personal property Distribute the remaining assets to the designated heirs Distribute the remaining assets to the designated heirs File a Declaration of Completion of Probate File a Declaration of Completion of Probate

Estate Taxes One reason for making estate plans is to avoid estate taxes One reason for making estate plans is to avoid estate taxes

Health Care Directive A document that expresses the individual’s desires regarding the withholding or withdrawal of life support measures A document that expresses the individual’s desires regarding the withholding or withdrawal of life support measures A helpful website discussing the issues that should be considered is A helpful website discussing the issues that should be considered is

Power of Attorney Three forms Three forms Durable Power of Attorney Durable Power of Attorney Power of Attorney for Health Care Decisions Power of Attorney for Health Care Decisions Power of Attorney Power of Attorney