Estate planning will be somewhat of a review of property and wills and trusts. This couse is designed to be a practical experience to build on the learning made throughout that material.
Estate planning is the act of organizing the estate to plan for eventual retirement and death. Specifically, estate planning is how to transfer wealth. As such, it is important to understand what is considered the “estate” and know the different methods of “organization.”
An estate can be defined in several ways. For instance, there is the “probate estate” or the property that is designed to pass through probate. Typically the probate estate is formed if there is any property left over after the other methods of transfer have occurred. Another example would be the taxible estate. This includes all property, including retirement plans, beyond what is classified as the probate estate. The estate can also be organized through a trust, which ultimately avoids probate.
The estate can be administered generally in one of two ways. For wills, the estate is administered by an executor. For trusts, the estate is administered by a trustee. Both an executor and trustees have fiduciary duties associated to protecting the interests of the trustor or testator in devising the property to beneficiaries.
There are also times when an estate does not pass through any method of administration at all. If the value of the estate is small, family members might choose to informally adminsiter the estate amongst one another.
Estates are gifts. There are two main types of gifts, life gifts (intervivos gifts) and testimentory gifts (gifts devised via a will). Life gifts require the donor (gift giver) to have the intent to give a gift and make delivery of the gift (either through actual, constructive, or symbolic delivery) to the donee (gift receiver) who must receive the gift. Most disputes around inter vivos gifts arise around the aspect of whether there was delivery.
There are several will substitutes used to avoid probate. These include life insurance policies, retirement plans with a beneficiary designation, and revocable trusts. The primary will substitute is the revocable trust. In a revocable trust, the trustor retains control of the assets during his or her life and then those assets fund the trust upon the trustor’s death. At that point, the appointed trustee will devise the trust assets in accordance with the terms of the trust.
All of these principles are guided by state law, influenced by federal law for taxes or social security. Further considerations arise when the estate extends beyond the boundaries of a single state. When there is property in multiple states, there is the potential that multiple represtentatives of the state need to be selected to manage the state in the respective state. This could be an issue because the state statutes might differ, leading to questions of “which law governs.”
Marital property is another issue to be considered with estate planning. There are typically two types of states: separate or community. States adopting the seperate approach states that assets belong to the individual who provided the means of obtaining the asset. In a community state, all assets obtained during the marriage (except for gifts) are combined between the spouses and divided in equal shares. Upon death, the spouse has the right to distribute his or her share of the estate.
The pillars of estate planning include:
- A will – goal is to avoid probate, but it should always be there.
- Durable (effective even if unconscious. Power dies with grantor, typically) power of attorney finance – the ability to make financial decisions for someone who is incapacitated.
- Durable power of attorney health – the ability to make medicial decisions for someone who is incapacitated.
- A living will – what to do with the estate if the person is alive but incapacitated. Typically a plan for ending the life of the testator if they are on medical aid for survival.
- Transfer on Death – brokorage accounts, notes, bonds, cars, etc.
- Payable on Death – bank accounts usually transfering directly to the kids upon death.
- Life estate deeds – Life estates on real property.
- Assignments – Promissory notes, etc.
- LLCs – require a TOD to receive any estate property.
- Living Trust
- Testamentory Trust
- Revocable Trust
