ESTATE PLANNING FUNDAMENTALS

Presented By

Thomas R. Docking

Morris, Laing, Evans, Brock & Kennedy, Chtd.

Old Town Square

300 N. Mead, Suite 200

Wichita, KS 67202-2745

(316) 262-2671

Presented at

Kansas Council for Economic Education

Financial Fitness Extravaganza
June 25, 2014

Wichita State University Campus,
W. Frank Barton School of Business, Clinton Hall

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ESTATE PLANNING FUNDAMENTALS

  1. Ways to Hold Title to Property

A.Separate Property - individual ownership

B.Joint Tenancy - two or more parties own as “joint tenants w/ right of survivorship”

C.Tenancy in Common - two or more parties owning undivided interests

D.As Trustee of a Trust

  1. Ways Property is Transferred on Death - Title is Everything

A.Joint Tenancy

B.Intestate Succession - dying without a will- probate proceeding is necessary

C.Testate Succession- dying with a will - probate proceeding is necessary

D.Trust - revocable/irrevocable

E.Contractual Benefits (i.e., insurance proceeds, retirement plans, payable on death bank accounts, transfer on death real estate or securities, other deferred compensation or contractual rights)

  1. Estate Plans and the Probate Process

A.Intestate –dying “intestate” means dying without a valid will - probate proceeding is not necessary

1.One half to spouse and one half to children (or issue of predeceased child)

2.If no spouse, all to children (or issue of predeceased child)

3.If no children (and noissue of predeceased child), all to spouse

4.If no spouse and no issue, then to parents, then to siblings, etc

5.Spousal Elective Share and other rights to protect the family.

B.Will - dying “testate” means dying with a will - probate proceeding is necessary

1.Benefits of a Will

  • Direct how your property passes
  • Appoint the person who is to administer your estate (executor)
  • Provide stability and certainty to your estate plan
  • Appoint guardian/conservator for minor children
  • Utilize trust provisions for minors and/or special needs beneficiaries (Testamentary Trust - trust created under the terms of a Will)

2.Basic Provisions of a Will

  • States intent of testator (the person making the Will)
  • Sets out distribution of testator’s separate property
  • Gives instructions and authority to executor

C.The Probate Process

1.Probate is the formal court process of transferring property to the proper heirs/beneficiaries.

2.Advantages of Probate (either intestate or testate)

  • Court supervision of estate administration
  • Maybe shortened period for creditor claims (now available for trusts)

3.Disadvantages of Probate (either intestate or testate)

  • Cost - filing fee, attorney fees to administer the estate
  • Time delays –must comply with certain statutory time periods
  • Court supervision and involvement (especially in intestate matters where you must get court approval to do basically anything like sell real estate, etc.)
  • Publicity (proceeding is a matter of public record)

4.How to Avoid Probate

  • Small Estate Procedures
  • Joint Tenancy (automatic transfer but lifetime risks)
  • Trusts (revocable or irrevocable)
  • Payable on Death/Transfer on Death (bank accounts, securities and real estate)
  • Contractual Rights (life insurance, retirement plans, IRAs, etc.)

D.Revocable Trust as a Will Substitute (Inter Vivos Revocable Trust or Living Trust means created during lifetime as opposed to a Testamentary Trust which is created under a Will at death)

1.Advantages

  • Avoids probate - saves some administration costs, but not all
  • Provides for distributions after death
  • Privacy - nothing in public record
  • Incapacity provisions - disability of settlor
  • Facilitates planning - better review of the assets
  • Management of assets - corporate or professional fiduciary

2.Disadvantages

  • Cost to establish and fund
  • Ongoing administration
  • Inconvenience of titling assets and asset transfers

3.Tax Consequences

  • Income taxed to settlor (just like you own it individually)
  • Includible in estate at death for estate tax purposes

E.Additional Documents

1.Living Will (Declaration) - End of Life Decisions

  • Statutory form - direction to die naturally
  • Possible circumstances beyond statutory provision

2.General Durable Power of Attorney (for financial decisions)

  • Appoints agent to act on your behalf with respect to financial and property matters.
  • Agent can file income tax returns, invest assets, pay bills, sell assets, etc.
  • Homestead issue for spouses

3.Durable Power of Attorney for Healthcare Decisions

$Appoints agent to make health care decisions for you.

$Agent can consent to medical treatment for you, have access to your medical records, and can make arrangements for placement in long term care facility if necessary.

  1. Estate Tax Considerations

A.Federal Estate Tax

1.Old Estate Tax Law (prior to December 17, 2010)

  • Decedents dying in 2009 - $3,500,000 exemption per person
  • Decedents dying in 2010 - The estate tax was repealed for 2010 (modified carryover basis instead).

2.New Estate Tax Law

$Congress made changes to the federal estate, gift and generation-skipping transfer (GST) tax law as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) which was signed into law by President Obama on December 17, 2010

$Decedents dying in 2010 - The estate of a decedent who died in 2010 can elect either (i)no estate tax and modified carryover basis, or (ii) estate tax (with a $5 million exemption and maximum rate of 35%) and a step-up in basis to the date of death value.

$Decedents dying in 2011 and 2012 - The new exemption is $5 million for decedents dying in 2011 and $5 million indexed for inflation for decedents dying in 2012.

$The maximum estate tax rate for 2011 and 2012 is 35%, and 40% for 2013 (it was 45% in 2009).

$Portability is a new concept under the Act that allows a surviving spouse to use his or her predeceased spouse’s unused estate tax exemption.

B.Kansas Estate Tax: Kansas had an estate tax in effect for 2007, 2008 and 2009 with a $1,000,000 exemption, but the Kansas estate tax has been repealed for decedents dying after December 31, 2009.

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