Do you have a written estate plan? If you do not have a written estate plan, including a will, power of attorney, and a healthcare surrogate designation/living will directive, now is the time to create one. If you have a written plan, perhaps it’s time for a review. By Jim Dressman, DBL Law
2. dbllaw.com/blog
Probate
Probate is the process by which the Probate Court:
Verifies (“proves”) the authenticity of the offered will
Authorizes a personal representative for estate
(Executor/trix or Administrator)
Ensures that the estate administration is handled
properly (Supervises the personal representative)
Payment of debts
Distribution of probate assets to beneficiaries either via will
or via statute of descent and distribution if no will
3. dbllaw.com/blog
Probate
Two Types of Assets Upon Death:
Probate: Assets titled solely in the name of the
decedent (e.g. bank accounts, stock, real estate and
personal items)
These assets must pass through the probate process.
Non-Probate: Assets that transfer directly to
beneficiaries upon the decedent’s death (e.g. life
insurance policies, joint bank accounts, transfer on
death deeds, assets transferred to a revocable living
trust prior to death & investment accounts with
beneficiary designations
These assets are not subject to the probate process.
4. dbllaw.com/blog
Probate
Probate assets can pass to beneficiaries in one
of two ways:
Testate Succession: Through a properly executed will.
Intestate Succession (i.e. no properly executed will):
Intestate Succession: State statute of descent and
distribution governs who receives property from a
deceased person
State statute of descent and distribution may be quite
different from decedent’s actual preferences
Lose opportunity to select an executor/trix of estate and
guardian for minor children or other dependent
5. dbllaw.com/blog
Probate
State statute of descent and distribution generally in Kentucky:
½ to surviving spouse, if any. Remainder in the following order:
Children and their descendants
Parents
Brothers and sisters
Surviving spouse
State statute of descent and distribution generally in Ohio:
½ to surviving spouse or 1/3 if two or more children. Remainder in
the following order:
To children, if no surviving spouse
To surviving spouse, if all surviving children are of surviving
spouse
etc., etc.
6. dbllaw.com/blog
The Basic Estate Plan
Last Will & Testament
Financial Power of Attorney
Healthcare Power of Attorney/Living Will
Intervivos (living) Trust
Special treatment of real estate in another state
LLC
Revocable trust
7. dbllaw.com/blog
Last Will & Testament
Dictate how property is distributed at death
Appoint trusted relative or friend to wind up your
affairs (Executor/rix)
Appoint guardian for minor children or other
dependent
Establish testamentary trust for minor or special
needs children (or for other purposes)
Charitable bequests
8. dbllaw.com/blog
Financial Power of Attorney
Appoint a trusted individual (“attorney-in-fact”) to
manage your finances in the event of incapacity.
Consider naming multiple “back-ups” to primary
attorney-in-fact.
9. dbllaw.com/blog
Healthcare Power of Attorney/Living Will
Appoint a trusted individual to make health-care
decisions in the event of incapacity.
To avoid uncertainty, authorize (or do not authorize) named
representative to withdraw life support when you are in a
terminal condition or permanently unconscious state.
Consider naming one or more “back-ups” to your named
representative.
Well drafted Healthcare POA acts as a living will if
representatives not available
11. dbllaw.com/blog
Revocable Intervivos (Living) Trust
A revocable intervivos trust is a document created during lifetime for
trust asset management in the event of disability or death
Trust can be terminated or trust terms can be changed at any time
during lifetime
Grantor can also act as Trustee and have complete control over the
trust assets until disability or death.
Name a Successor Trustee in the trust – The Successor Trustee will
take control of the trust upon disability or death and distribute the trust
assets according to the terms of the trust (without need of probate)
Integrate with will and other estate planning documents (a “pour-
over” will)
Can hold real estate in another state
12. dbllaw.com/blog
Revocable Living Trust
Purposes include:
Avoid probate
Establish benchmarks for distributions (e.g.
beneficiary must reach a certain age) and establish
criteria for earlier distributions (education, new home,
health issues, etc.)
Provide for special needs beneficiaries without
jeopardizing qualifications for government programs
(Medicaid)
13. dbllaw.com/blog
Revocable Living Trust
Must actually transfer all assets into the trust or
designate trust as beneficiary to avoid probate
Types of assets typically transferred to a trust: bank
accounts, homes, and non-titled assets such as furniture,
art, jewelry, etc.
It may not be advisable to transfer some of your assets
into a trust (e.g. 401ks, IRAs) because of certain income
tax characteristics and options
It may be more advantageous for the trust to be the
beneficiary of an asset, rather than the owner (e.g. life
insurance, annuities);
14. dbllaw.com/blog
Irrevocable Intervivos (Living) Trusts
Cannot be revoked or amended
Used to “complete” gifts for tax planning and charitable giving
“Crummey” trust
Takes advantage of $13,000 ($26,000) annual gift tax exclusion
Life insurance trust (known as “ILIT”)
Keep life insurance proceeds out of taxable estate
Dynasty trust
Benefits multiple generations and takes advantage of generation
skipping tax exemption (credit)
Charitable remainder or lead trust
Tax exempt – avoids income tax on sale of appreciated assets
Grantor/Trustee may retain powers to name charitable beneficiaries
Grantor or other non-charitable beneficiaries retain an interest (income
with remainder trust, remainder with lead trust)
Many variations
15. dbllaw.com/blog
New Federal Tax Law
Credit Exemption Equivalent of $5,000,000 ($10,000,000 for
married couples) extended and indexed for inflation. For 2013,
credit exemption equivalent is $5,250,000 ($10,500,000 for married
couples)
Portability made permanent
Estate and Gift Tax increased from 35% to 40%
Estate, Gift, & Generation skipping unified credit made permanent
Extends capital gains and dividend rates on incomes under
$400,000 (individual), $425,000 (heads of households), and
$450,000 (married filing joint). Rate is 20% on those with higher
incomes
Tax free distributions from IRAs of up to $100,000 per taxpayer for
those 70½ or older to charity extended to calendar year 2013.
Ohio recently abolished its estate tax. Kentucky has a limited
inheritance tax which exempts transfers to children, grandchildren
and siblings.
16. dbllaw.com/blog
Various Charitable Giving Techniques
Charitable remainder or lead trusts and annuities:
Income tax favored
Tax exempt trust pays no income tax on sales of appreciated assets
Provides income stream to non-charitable beneficiaries
Life insurance
Lowest cost, big benefits
401K/IRA
Built up ordinary income tax and federal estate tax avoided
Could leave less than 1/3 to a non-charitable beneficiary after reduction for
federal and state income and death taxes.
Direct transfers to charities: (1) must be at least 70½; (2) limited to $100,000; (3)
must complete by 12/31/13; and (4) limited to IRAs.
Legacy bequests
To substitute for support of regular lifetime giving
Outright gifts
Especially appropriate for appreciated securities
17. dbllaw.com/blog
Questions – What is on your mind?
James A. Dressman, III
Dressman Benzinger LaVelle psc
859-426-2150 • jdressman@dbllaw.com