End-of-Life Management Workshop #6: Estate Planning: The Basics

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END OF LIFE MANAGEMENT WORKSHOP #6

ESTATE PLANNING: THE BASICS


Death is not the end. There remains the litigation over

the estate.

Ambrose Bierce


Definition: Estate Planning

• Estate planning is a process that continues throughout your adult lifetime, through which you evaluate your current situation and plan for the future.

• Estate planning is often part of the larger process of lifetime financial planning.


Objectives of Estate Planning

• Lifetime financial security.• Management of assets.• Liquidity to fund tax, debt, and administrative

needs.• Minimizing estate and gift taxes.• Maximizing assets being transferred to children or

others.• Providing for family members and protecting those

with special situations.• Gaining peace of mind that all these items are in

place before any sort of disability or other issues make it too late to act.


Why Bother?

• You lose the ability to name a trusted individual to act on your behalf if you become disabled or unable to manage your own affairs during your lifetime.

• Your assets may not go where you want them to go.

• You forfeit your right to name a personal representative, trustee, and guardian.

• You lose the opportunity to protect assets.• You may pay more estate taxes.


Identify Your Estate: First Step for Creating an Estate Plan

The initial step in the estate planning process is to identify your estate by determining: 1. What property you own2. Its value3. And how it is owned.


Types of PropertyReal property

Real property is land.

• E.g. primary residence, a vacation home, investment real estate, a farm, a condominium, or any interest in land.


Types of PropertyPersonal property

Personal property includes all property that is not real property:

1. Tangible personal property is property that has independent Substance.• E.g. furniture, jewelry, cars, or stamp collections.

2. Intangible personal property includes personal property that has value, not for what it is, but for what it represents.• E.g. stock certificates, bonds, promissory notes,

contracts, or claims.


Types of PropertyProbate property

• Probate property is all property that, at death, transfers through a Last Will and Testament.

• Probate property must go through the probate process to get to beneficiaries.


Types of PropertyNon-probate property

• Non-probate property can be defined as all property that is not probate property.

• Non-probate property gets to the appropriate beneficiary at death, not through the probate court, but through other means.


Methods of Owning PropertyIndividually Owned Property

• These are assets owned in the name of a single owner with no automatic transfer arrangements, such as the house or land you individually own.


Methods of Owning PropertyTenancy in Common Co-Ownership

• These assets are owned as tenants-in-common with another, such as the property and land you own together with your sibling, friend or life partner.


Methods of Owning PropertyRight of Survivorship Property

• These are assets owned with another where the surviving joint tenant automatically takes full ownership without going through probate.


Methods of Owning PropertyContractual Property

Many types of property pass from one owner to another by virtue of a contractual provision, including:

1. Life Insurance: • The beneficiary of a life insurance policy receives the

policy proceeds at death.

2. Retirement Accounts with a Designated Beneficiary:• The beneficiary named in an IRA gets the property at the

death of the owner by virtue of the beneficiary designation. Governments dictate how (and when) some property is transferred, such as qualified retirement plans, which must pay benefits to a surviving spouse.


Methods of Owning PropertyRevocable Trusts

• Revocable trusts are the final way that property can pass from one individual to another without going through probate.

• This is why revocable trusts are used as a preferred means of transferring property.


Property With Multiple OwnersTenancy in Common

• Tenancy in Common is the default way for two or more unmarried people to concurrently own real property.

• Each co-owner has an undivided interest in property.

• When one tenant in common co-owner dies, his interest does not pass automatically to the surviving co-owner.

• Rather, it is probate property and passes to the beneficiary through the probate court under the terms of the will


Property With Multiple OwnersTenancy by Entireties

• This is a special method of joint ownership for spouses in which the surviving spouse automatically owns the entire interest in the property at the death of the first spouse.


Property With Multiple OwnersJoint Tenancy with Right of Survivorship

• When two or more people hold title to property as joint tenants with right of survivorship, each co-owner has an undivided interest in the property.

• At the death of the first joint tenant, the surviving individual automatically takes full title to the property.

• Many banks define all joint accounts as being owned this way.

• With regard to real property, the instrument creating the joint tenancy must specify that each co-owner will own the property with right of survivorship.


What’s Next

• Estate planning is an ongoing process through which you take an honest look at your current situation and plan for the future.

• If you don’t take control of your estate plan, someone else will and default rules will apply, whether or not they make good sense for your particular situation.

• The initial step in the estate planning process is to identify your estate (everything you own) by determining: 1. What property you own2. Its value3. How it is owned.

• Property can be owned/titled in different ways and that helps to determine how it passes to beneficiaries.

• Once you know what you own, then you can move on to decide what to do with it.


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Sources:

1. See an Example of an Estate Plan

2. Get a Full Estate Plan Checklist3. Glossary of Estate Plan Terms

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End-of-Life Management Workshop #6: Estate Planning: The Basics