Transcript ESTATE PLANNING 101: A BEGINNER’S GUIDE TO PLANNING …

ESTATE PLANNING 101: A BEGINNER’S
GUIDE TO PLANNING FOR YOUR FUTURE
Why is Estate Planning Important?
• It allows you, while you are still living, to ensure that your
property will go to the people you want, in the way you want,
and when you want.
• To control your personal and financial affairs after you no
longer can because of death or incapacity (for yourself and
your family)
• To save as much as possible on taxes, court costs, and
attorney’s fees (i.e. avoid probate if possible)
• To avoid disputes, such as, will contests
• Provides comfort that your loved ones can mourn your loss
without being simultaneously burdened with unnecessary red
tape and financial confusion
Most Common Documents
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Health Care Power of Attorney (a/k/a Proxy)
Durable Power of Attorney
HIPAA Release
Will
– Simple Will
– Pour Over Will
– Will Trust (Testamentary)
• Trust
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Revocable (Inter Vivos)
Irrevocable
Supplemental Needs Trust
Credit Shelter Trust
Income Only Trust (Medicaid)
Health Care Power of Attorney
• Most important document in my opinion
• Allows an agent whom you designate to make health
care decisions for you should you be unable to make
those decisions for yourself
• Often contains a “Living Will Declaration” requesting
the withholding of life support by artificial means when
there is no reasonable chance of recovery
• Section where you can state if you want to be an organ
donor
• Avoids guardianships
• In the absence of a proxy, health care providers
generally look to your next of kin
Durable Power of Attorney
• Authorizes a designated person or persons to
act on your behalf in making financial and
legal decisions
• Generally used when authorized or when you
are incapacitated
• Avoids guardianships/conservatorships
• Very powerful document which should not be
taken lightly
HIPAA Release
• Health Insurance Portability & Accountability Act
• Allows doctors and other health care providers to
give information about your health care to your
agents, who are generally family members.
• HIPPA Release language in DPOAHC but clients
may want other family members who are not
their Agents to be granted access to information
Will
• Primary Estate Planning Document
• Directs the administration and distribution of your
“probate” assets upon death
– Can list specific bequests; OR
– Attach a list to your will which you can update periodically
• Designates an Executor to pay your debts and taxes, and to
handle the administration and distribution of your assets to
beneficiaries
• Designates a guardian for your minor children (and can
avoid distribution of money directly to them)
• It is a good idea to state family facts in the will which may
help to prevent will contests
• Can obtain Testamentary Trust
Revocable or Living Trust
Can be amended!
• Allows control over timing and terms of distributions to
beneficiaries
• Often used to protect assets from creditors of a beneficiary
(spendthrift provisions)
• Assets are subject to creditor claims of the grantor/testator (who
established the trust)
• Private Process- assets do not go through probate
• Allows for estate tax planning and savings especially for married
couples (Marital and Family Trusts)
• May be established during your lifetime and used with a “pourover” will as your primary estate planning document
• Needed in RI to avoid Spouse’s Elective Share (Barrett v. Barrett)
Irrevocable Trusts
• Can not be amended by the donor
• Any property placed into the trust may only be
distributed by the trustee as provided for in
the trust document itself
• Used to help reduce or defer high value assets
such as life insurance
• Income only trusts for Medicaid purposes (RI
& MA laws are evolving- 5 year look back
period)
Probate Property
• Assets in your sole name
– Bank Accounts
– Real Estate
– Cash
– Securities
• Tangible Personal Property (i.e. furniture,
jewelry, books, etc.)
• Retirement Accounts payable to the estate
• Life Insurance payable to the estate
Non-Probate Property
• Jointly Owned Assets
– Bank Accounts
– Real Estate
– Securities
• Assets passing by beneficiary designation
– Life insurance (as long as the policies are not payable
to your estate)
– Retirement accounts (as long as the policies are not
payable to your estate)
– POD/TOD
• Assets held in Trust
If You Die Leaving a Spouse and No
Children
• Personal Property
– Spouse gets $50,000 plus ½ remaining personal
property
– Parents get balance of personal property, then
brothers and sisters, nieces and nephews
• Real Estate
– Spouse gets a life estate in all RI real estate. Also a
court may set aside RI real estate up to $75,000 in
value outright
– Parents get all real estate subject to life estate of
surviving spouse, then brothers and sisters, then
nieces and nephews
Probate Process: What happens once
you have passed away
• Purpose of probate: RI wants to make sure that your assets are
distributed to the appropriate individuals
• Petition to Probate Will
– Request that your will be admitted to probate and that an executor be
appointed
• Probate courts have control over assets in your sole name and that
do not pass by beneficiary designation
– If the total value of such assets is less than $15,000 in RI, probate is
not required.
• Probate Courts do not have control over
– Joint Assets
– Beneficiary Designations (life insurance and retirement accts)
– Property held in Trust
• Probate has nothing to do with estate taxes
Rhode Island Estate Tax System
• State of Rhode Island estate tax exemption
amount is fixed at $850,000. This was
increased on January 1, 2010 from $675,000
• $1,000,000 estate pays around $33,000 to RI
• 100% Marital Deduction
– Just like the Federal Estate Tax, marital deduction
is not available to unmarried couples or DP’s
• 100% Charitable Deduction
Gift Tax System
• Tax Free Gifts
– $13,000 annually per donee
– $26,000 per married couple
– $1,000,000 lifetime federal gift tax exemption
– Unlimited gifts for tuition and medical expenses
(must pay the school or medical provider directly
• There is no RI gift Tax
Things to Remember
• Even if you do not have a probatable estate, you
still need to file a Form 100 with the RI Division of
Taxation
• RI automatically places a lien on real property
once a person passes dies. An attorney will need
to prepare the Form 100 to get an ITL
(Inheritance Tax Lien) Discharge
• If you own investment property you may want to
consider establishing a Rhode Island Limited
Liability Company (LLC) to hold the property.
Questions???