Basic Estate Planning Concepts

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Basic Estate Planning Concepts
James A. Dressman, III
Dressman Benzinger LaVelle psc
859-426-2150
jdressman@dbllaw.com

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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

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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.

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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

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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.

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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

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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

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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.

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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

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Intervivos (Living) Trusts
 Revocable
 Irrevocable

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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

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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)

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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);

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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

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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.

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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

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Questions – What is on your mind?
James A. Dressman, III
Dressman Benzinger LaVelle psc
859-426-2150 • jdressman@dbllaw.com

Basic Estate Planning Concepts

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Basic Estate Planning Concepts