ESTATE PLANNING BASICS

Transcription

1 ESTATE PLANNING BASICS 1.0 General Credit Hours in Washington A partnership with WSBA Call to Duty and the WA Vets Will Clinic

2 Faculty WILLIAM O. ETTER Mr. Etter is a tax attorney at Witherspoon Kelley in Spokane, Washington, where his practice focuses primarily on corporate law, estate planning and probate matters. He received his law degree from the University of Arizona in 2009 and an LL.M in taxation from New York University in William is admitted to practice in the state of Washington and the United States Tax Court and is atrustee for the Spokane County Bar Association s Young Lawyer Division.

3 Faculty (cont.) ROBIN LYNN HAYNES Robin is a Litigation Principal at Witherspoon Kelley. Prior to that, she was a partner at Reed & Giesa, P.S., where her practice focused on complex commercial litigation, including trust and estate disputes. She received her law degree from Gonzaga University in 2006, where she also received undergraduate and graduate degrees. Robin is admitted to practice in the State of Washington and Idaho, as well as the United States District and Bankruptcy Courts in those states. Robin is a former SYLD President and currently serves as the At-Large Governor (New and Young Lawyers) on WSBA s Board of Governors.

4 Basic Overview of Will Requirements RCW authorizes the preparation of a will for a Washington Resident If a Washington resident or a non- Washington resident who own real property does not have a Will at the time of her/his death, then the laws of intestate succession apply. See RCW

5 Requirements for all Washington Wills Testamentary Capacity of person having will prepared Prepared in writing by someone who is at least 18 years old Signed by the testator/testatrix In the presence of two witnesses

6 Testamentary Capacity For an individual to have testamentary capacity, s/he must: 1. Know that s/he has property; 2. Know or have knowledge of the beneficiaries to whom the property is to pass; AND 3. Understand that the purpose of the Will is to pass her or his property upon her or his death Capacity must be determined at the time the Will is prepared. Challenges to testamentary capacity are issues of fact. See In re Gwinn s Estate, 36 Wn.2d 583 (1950).

7 Testamentary Capacity Requirements Testamentary capacity is presumed unless overcome by clear, cogent, and convincing evidence. Advanced age and occasional forgetfulness or confusion do not prevent a person from preparing a Will. See In re Hansen s Estate, 66 Wn.2d 166 (1965). Witnesses may testify to capacity; See In re Gwinn s Estate, supra. If there is a question of capacity, the attorney must obtain sufficient expert documentation or demonstrate other factual bases for capacity

8 Testamentary Capacity Requirements A Ward may prepare a Will in some guardianship situations. See In re Bottger s Estate, 14 Wn.2d 676 (1942).

9 Signing Testator/Testatrix may sign the Will with assistance, so long as the intent to sign is present. A mark of any kind can meet the signature requirements. See RCW ; Matter of Young s Estate, 23 Wn.App. 761 (1979).

10 Witnesses Witnesses to the Will must be able to testify to: The signing of the Will; AND The intent to sign by the Testator/Testatrix An attorney who drafts the will can serve as a witness to that Will Practice Tip: Do Not Do This! A beneficiary should not serve as a witness Rebuttable presumption that the beneficiary witness obtained the bequest by duress, menace, fraud or undue influences

11 Holographic Wills A holographic will is a will that is not in compliance with the required will formalities. A holographic will prepared in the State of Washington is not valid. A holographic will valid in the State of Domicile (other than Washington) is effective in Washington.

12 Oral Wills Only valid in limited circumstances for disposing of personal property of a limited financial amount. RCW

13 Client Intake Full, legal name (always use) Address, phone, Asset Information Bank accounts, cds, investments, other financial instruments Real Estate Life Insurance (likely non-probate) IRA, 401(k), pension (may be non-probate) Money owed (may be by beneficiary) Business Interests

14 Client Intake Marital Status Full legal name of spouse Children Minor Children (have date handy) All children s parents (if not same as spouse) Pregnancy status Full info on each child: legal name, dob, biological, adoptive, etc.

15 Client Intake Beneficiary Information Specific Bequests (not required) Remainder Contingent Remainder Disinheriting Full information on disinherited individual Children s Trust & Guardianship Personal Representative General Power of Attorney Health Care Directive (hydration, nutrition, ventilation) & Health Care Power of Attorney

16 Basic Will: Married Person I. Introduction Name, Residing in County, Washington, at date of execution of this will, hereby declares this to be my Last Will & Testament II. Revocation Practice Tip: Always, always do this. III. Family Status Am married. Spouse s name. Number and identity of children. I have no other living children, biological or adopted, at the time of executing this Will. I have no children that predeceased me leaving issue surviving.

17 Basic Will: Married Person IV. Property List RCW Must be signed May be changed at any time without changing effectiveness of list Stored with Will Copy given to attorney

18 Basic Will: Married Person V. Disposition of Estate Entire Estate to Spouse, so long as s/he survives me by 20 days. Contingent disposition: if my spouse does not survive me by 20 days Contingent disposition is also often called Residuary or Remainder Disposition VI. Appointment of P.R. At least 2 Without bond or intervention

19 Basic Will: Married Person VII. Nonintervention VIII. Definitions All children include adopted children, etc. Execution Witnesses/Affidavit of Attesting Witnesses

20 Drafting & Client Tips Clients cautioned not to attempt to make changes to the face of original Will Be aware of separate and community property Know who your client is obtain conflict waivers where needed Probate or probate alternative is required Store will somewhere safe safe deposit box issues

21 Drafting & Client Tips Property list must be signed by testator/trix Consider gifts made to beneficiaries pre-will Consider predeceased, adopted, half, stepchildren, mixed families Think about non-probate assets (e.g. jtwros accounts) Drafting attorney keeps a copy Consider medical directives, power of attorney, pre-need materials for funeral homes

22 BASIC MARITAL DEDUCTION/CREDIT SHELTER PLANNING I. Overview of Transfer Tax Regime A. Estate Tax 1. Federal Estate Tax (a) 2013 exemption amount = $5.25 million 2. Washington State Estate Tax (a) Current exemption amount = $2 million

23 BASIC MARITAL DEDUCTION/CREDIT SHELTER PLANNING B. Gift Tax 1. Federal Gift Tax (No Washington State gift tax) (a) Annual exclusion gifts = $14,000 (b) Lifetime exemption amount = $5.25 million

24 BASIC MARITAL DEDUCTION/CREDIT SHELTER PLANNING C. Generation-Skipping Transfer Tax 1. A generation-skipping transfer tax is imposed on gifts or bequests to persons more than one generation removed from the transferor ("skip persons") where there is a "taxable termination", "taxable distribution", or "direct skip".

25 Bypass Trust or Credit Shelter Trust Planning for Married Clients As a result of the unlimited marital deduction, a spouse can bequeath his or her entire estate to the other spouse and there will be no federal (or Washington State) estate tax at the death of the first spouse to die. Disadvantage: it "wastes" the applicable credit amount available to the spouse who dies first. At the surviving spouse's subsequent death, the combined total of both spouses' estates will be subject to federal estate tax, and only the survivor's available applicable credit amount will be available to offset the tax.

26 Bypass Trust or Credit Shelter Trust Planning for Married Clients In order to reduce the federal estate tax at the death of the surviving spouse, it is generally advisable to utilize a combination of a marital bequest and a "credit shelter trust" that uses the applicable credit of the first spouse to die.

27 Bypass Trust or Credit Shelter Trust Planning for Married Clients At the death of the first spouse, an amount approximately equal to the deceased spouse's available applicable credit amount (currently $5,250,000, for federal estate tax purposes, reduced by taxable gifts or bequests not qualifying for the marital or charitable estate tax deductions, and $2,000,000 for Washington state estate tax purposes) will be placed in a trust for the surviving spouse..

28 Bypass Trust or Credit Shelter Trust Planning for Married Clients To provide greater flexibility, under certain circumstances, the credit shelter trust can be a "spray trust" that includes the children as potential beneficiaries and permits the trustee to make discretionary distributions among the beneficiaries of the trust.

29 Bypass Trust or Credit Shelter Trust Planning for Married Clients The property in the credit shelter trust will not be subject to tax at the first spouse's death by reason of his or her applicable credit.

30 Bypass Trust or Credit Shelter Trust Planning for Married Clients The property in the credit shelter trust, and all future appreciation associated with it, will avoid estate tax at the death of the surviving spouse.

31 Bypass Trust or Credit Shelter Trust Planning for Married Clients The remainder of the first spouse's estate will be bequeathed to the surviving spouse either outright or in a marital trust. This marital bequest will not be subject to tax in the first spouse's estate by way of the unlimited marital deduction. I.R.C This marital bequest will, however, be includible in the surviving spouse's estate at the time of his or her subsequent death. I.R.C

32 Bypass Trust or Credit Shelter Trust Planning for Married Clients Using credit shelter trust planning, it is possible to pass currently a total of $10,500,000 million, rather than only $5,250,000 to the clients' beneficiaries (e.g., their children, etc.) free of federal estate tax; and a total of $4,000,000, rather than only $2,000,000 million to the clients beneficiaries free of Washington state estate tax.

33 Taking Advantage of Both Spouses' Applicable Credit Amounts Shelter trust planning is effective only to the extent that the first spouse to die has sufficient assets in his or her individual name to take full advantage of his or her applicable credit amount. This is not as big an issue if the clients reside in a community property state, like Washington or Idaho.

34 Taking Advantage of Both Spouses' Applicable Credit Amounts Although jointly-owned property enjoys a greater degree of protection from individual creditors than does property titled in an individual's separate name, it is not available to fund a credit shelter trust because it passes by operation of law to the surviving joint owner and outside of the probate estate. Example: real property held as a joint tenancy with right of survivorship Distinguish between jointly-owned property and community property Thus, careful planning is required to ensure that clients' assets are properly structured to take advantage of both clients' applicable credit amounts.

35 Taking Advantage of Both Spouses' Applicable Credit Amounts Restructuring a client's assets to plan for the possible funding of a credit shelter trust is not always an easy task, particularly when a substantial part of the client's assets are held in a tax-deferred or retirement account, or in a principal residence.

36 Taking Advantage of Both Spouses' Applicable Credit Amounts In some cases, it is not clear that clients' separate estates will necessarily be large enough at the time of their deaths to warrant establishing credit shelter trusts. In order to preserve the maximum flexibility and to take advantage of both clients applicable credit amounts, if desirable, the clients' Wills can be drafted to include disclaimer credit shelter trusts.

37 Disclaimer Credit Shelter Trust The Will would be drafted to leave the estate of the first spouse to die to the surviving spouse. At the death of the first spouse, the survivor would have nine months within which to decide whether to disclaim a part of the first spouse's estate. See I.R.C. 2518, and the regulations thereunder. This would enable the surviving spouse and his or her advisers to have a second look at both the deceased spouse's and the surviving spouse's estates and the tax situation before making a decision as to whether a credit shelter trust should be established.