I. Nomenclature
a. Probate: The Court administration of the decedent’s estate.
b. Will: The document the Court follows to distribute the decedent’s probate estate.
c. Trust: Agreement whereby the trustee agrees to hold and administer property for the benefit of the trust beneficiaries.
d. Living Will: Provides instructions for your HEALTH CARE when you are incapacitated.
e. Living Trust: A trust created by you, for you, that can be revoked by you, while you are alive.
f. Statutory Short Form Power of Attorney: Gives the Attorney-in-fact the power to perform financial transactions for you. This might be effective even when you are competent.
g. Health Care Power of Attorney: Gives the attorney-in-fact the power to make your health care decisions if you are incapacitated.
h. Health Care Directive: Generally, the same as the health care power of attorney, but provides more options to list health care directives.
II. What is Probate?
a. Probate is necessary when a person dies and the assets were titled in the name of the decedent alone. In that case, the Court is necessary to determine who owns the property that is titled in the decedent’s name.
b. Probate does not include:
1. Joint Tenancy
2. Life insurance with a named beneficiary (other than to the estate)
3. Revocable Trusts
4. “POD Accounts” (Payable on death) or “TOD Securities” (Transfer on death)
5. etc.
c. Testate. If a person dies with a Will, that person died testate. The Will is probated and the Court directs the personal representative (executor) to distribute the property according to the terms of the Will.
d. Intestate. If a person dies without a Will, the estate is probated and is distributed by a statutory type of Will called intestate succession.
e. Probate fees in Minnesota include a $152 filing fee and $10 for each copy of letters testamentary or letters of general administration.
III. What happens when you die without a Will? (Think of the Brady Bunch)
a. Intestate Estate of probate assets (horizontal line through letter indicates decedent)
1. No Spouse, but your issue survive
|
E 1/6 |
|
C 1/3 |
|
B 1/3 |
|
F 1/6 |
2. Spouse and issue of you and spouse survive
|
E |
|
C |
|
B |
|
F |
| W |
| 100% to Spouse |
3. Spouse and only spouse’s issue survive
|
E |
|
C |
|
B |
|
F |
| W |
| 100% to Spouse |
4. Spouse and your issue of prior relationship survive
|
C |
|
B |
| W |
| Spouse gets the first $150,000 plus 1/2 the balance (but note elections and exempt property laws) |
|
E |
|
F |
Issue get the other 1/2 of the estate as in example 1.
5. Spouse and issue of your prior relationship and spouse’s issue of prior relationship survive
|
E |
|
C |
| B |
|
F |
| W |
| Spouse gets the first $150,000 plus 1/2 the balance (but note elections and exempt property laws) |
The other 1/2 goes to H's heirs, in this case, to B
b. Share to children under 18 is held in guardianship. That means court supervised administration. When child attains age 18, all assets are distributed to the child.
c. No tax planning; minimal protection from creditors; no control.
IV. What happens when you die with a Will?
a. Assets held in the decedent’s name alone pass under the Will.
b. You control the distribution of assets.
c. You can plan to reduce taxes.
d. Children do not have to get entire estate (or any for that matter) upon attaining age 18.
e. Appoint guardians for children.
f. Create trusts.
V. What is subject to estate tax?
a. Probate vs. Non-Probate has nothing to do with it!
b. Any assets to which the decedent owned an interest at death.
c. Easy examples:
1. Cash
2. Real estate in decedent’s name alone
3. Personal property (car, boat, clothes, collections, etc)
4. Stocks & bonds
5. Retirement accounts (IRA’s, 401k’s, annuities, etc)
d. More complicated examples:
1. Face value of life insurance on decedent’s life (unless the policy was bought by a trustee of a qualified trust, the policy was transferred to a qualified trust more than 3 years before the decedent’s death, or the decedent has absolutely no incidents of ownership).
2. 100% of joint property owned with someone other than the decedent’s spouse (unless you can prove otherwise).
3. 50% of joint property owned with a spouse.
4. Trusts (or a portion thereof) which the decedent retained an interest. Retained interests include:
A. Power to revoke or amend the trust
B. Power to control enjoyment of the trust
C. Retained income interest in the trust
D. Greater than 5% reversionary interest in the trust (if you know how to compute this please tell me)
E. If certain powers are revoked within 3 years of death it is brought back in the estate
F. Other forms of retained interests
5. Gift taxes PAID within three years of death
VI. Questions to Consider Regarding the Current Estate Plan
a. Are powers of attorney in place? Are they in a secure place?
b. Are health care directives in place? Where are they?
c. Do you have Wills or trusts?
d. Review of Trust:
1. Is the trust fully funded?
2. Does it provide for contingencies for incompetency?
3. Are there good successor trustee provisions?
4. Are there accurate books & records?
5. Does it provide for the children?
6. Is it maritalized?
7. Is there a pour-over Will?
e. Review of Will
1. Does it create trusts?
2. Who are the trustees and personal representatives?
3. Does it provide for the children?
4. Is it maritalized?
f. Is there a marital agreement?
g. Are both spouses citizens and/or residents?
h. Are there medical assistance issues?
VII. Issues in a Second Marriage
a. QTIP Marital Trust (Brady Bunch Scenario)
1. All income (and discretionary principal?) to spouse.
2. After spouse’s death, the trust is distributed to the first spouse’s children (or to whoever).
3. Be very weary of the tax payment clause and 2207A. On the second spouse’s death his/her estate must bear the burden of the tax on the QTIP trust if the right to collect taxes from that trust are waived. If the beneficiaries of the QTIP trust are different than the beneficiaries of the surviving spouse’s estate then the beneficiaries of the surviving spouse’s estate pay the estate taxes on the first spouse’s devise to his/her own children. i.e., Marsha, Jan and Cindy get less money because Carol’s estate pays the taxes on the QTIP trust that goes to Gregg, Peter and Bobby after Carol’s death.
b. Be sure special items of tangible personal property are properly devised and not simply given to the surviving spouse.
c. Be sure the plan conforms to the marital agreement.
d. Be sure all beneficiary designations have been changed.
e. Are the burial instructions in place? Will there be a fight over the burial site/cremation?
If you would like to discuss any of the issues raised in this summary