Plan Your Estate

by Clifford, Denis; Jordan, Cora

• ISBN13: 9780873377782
• ISBN10: 0873377788
• Edition: 6th
• Format: Paperback
• Copyright: 2002-08-01
• Publisher: Nolo

Summary

From the basics to sophisticated tax-saving strategies, this bestseller is one of the most comprehensive estate planning books available. This sixth edition discusses the new estate tax laws and how they apply to tax-saving trusts. Illustrations.

Author Biography

A lawyer who specializes in estate planning, Denis Clifford is the author of many titles Your Own Living Trust, Estate Planning Basics and Nolo's Simple Will Book Cora Jordan, a lawyer and trained mediator

Table of Contents

Introduction: How to Use This Book
How This Book Works	3	(1)
Will You Need Professional Help	4	(1)
Other Nolo Resources	5
Part I: Setting Your Goals
Selecting Your Estate Planning Goals
Setting Your Goals	2	(1)
Laying the Groundwork	2	(2)
Children	4	(1)
Wills	4	(1)
Probate and How to Avoid It	5	(1)
Understanding Estate and Gift Taxes	6	(2)
Reducing or Eliminating Estate Taxes	8	(1)
Imposing Controls Over Property	9	(1)
Taking Care of Personal Issues	9	(2)
Family Business Estate Planning	11	(1)
Going Further	11	(1)
Sample Estate Plans	11
Personal Concerns and Estate Planning
Avoiding Conflict	2	(3)
Leaving Unequal Amounts of Property to Children	5	(2)
Providing Care for Minor Children	7	(1)
Subsequent Marriages	8	(1)
Long-Term Care for a Child With Special Needs	9	(1)
Concerns of Unmarried Couples	10	(1)
Worries About the Effect of Inheriting Money	11	(1)
Disinheriting People, Including Children	12	(1)
Communicating Your Decisions to Family and Friends	13
Part II: Laying the Groundwork
Special Property Ownership Rules for Married People
What You Need to Know	3	(2)
Marital Property in Community Property States	5	(3)
Marital Property in Common Law States	8	(2)
Moving to a Different State	10
Inventorying Your Property
Instructions for the Property Inventory Worksheet	2	(8)
Your Property Worksheet	10
Your Beneficiaries
Types of Beneficiaries	3	(1)
Primary Beneficiaries	3	(3)
Life Estate Beneficiaries and Final Beneficiaries	6	(1)
Alternate Beneficiaries	6	(1)
Residuary Beneficiaries	7	(1)
Gifts Shared by More Than One Beneficiary	7	(1)
Establishing a Survivorship Period	8	(1)
Explanations and Commentary Accompanying Gifts	8	(1)
Disinheritance	9	(1)
Simultaneous Death	10	(1)
Property You Give Away by Will or Trust That You No Longer Own at Your Death	11
Part III: Children
Children
Naming Someone to Take Custody of Your Minor Children	2	(3)
Naming an Adult to Manage Your Child's Property	5	(2)
How Your Children's Property Should Be Managed	7	(7)
Naming Children As Beneficiaries of Life Insurance	14	(1)
Leaving Property to Children Who Are Not Your Own	14	(1)
Disinheritance	15
Part IV: Wills
Wills
A Will As the Centerpiece of Your Estate Plan	2	(1)
A Backup Will With a Comprehensive Estate Plan	2	(2)
What Makes a Will Legal?	4	(1)
Types of Wills	5	(2)
What Property Cannot Be Transferred by Will?	7	(1)
Can My Will Be Successfully Challenged?	8	(1)
Keeping Your Will Up to Date	9
Part V: Probate and How to Avoid It
Probate and Why You Want to Avoid It
What Is Probate?	2	(1)
Probate Fees	3	(1)
Avoiding Probate	4	(4)
When You May Want Probate	8	(1)
Debts, Taxes and Probate Avoidance	8	(1)
Probate Reform	9
Living Trusts
Does Everyone Need a Living Trust?	2	(2)
Living Trusts Explained	4	(4)
Major Decisions in Creating a Living Trust	8	(5)
Creating a Valid Living Trust	13	(2)
Keeping Your Living Trust Up to Date	15
Joint Tenancy and Tenancy by the Entirety
What Is Joint Tenancy?	2	(1)
Joint Tenancy Bank Accounts	3	(1)
Joint Tenancy Safe Deposit Boxes	4	(1)
Tenancy by the Entirety	4	(1)
Joint Tenancy in Community Property States	5	(1)
Tax Concerns Affecting Joint Tenancy	6	(5)
Drawbacks of Joint Tenancy	11	(2)
When Joint Tenancy Makes Sense	13	(1)
Creating a Joint Tenancy for Property With Documents of Title	13	(2)
Creating Joint Tenancy for Personal Property Without Documents of Title	15
Pay-on-Death Designations
Choosing Beneficiaries	2	(1)
Pay-on-Death Bank Accounts	3	(2)
Naming a Pay-on-Death Beneficiary for Government Securities	5	(1)
Naming a Beneficiary for Stocks and Bonds	5	(1)
Car Registration	6
Life Insurance
Do You Need Life Insurance?	2	(3)
Types of Life Insurance	5	(5)
Life Insurance and Probate	10	(1)
Choosing Life Insurance Beneficiaries	10	(1)
Reducing Estate Taxes by Transferring Ownership of Life Insurance Policies	11
Retirement Benefits
Social Security	2	(1)
Individual Retirement Programs	3	(3)
Pensions	6	(2)
When You Retire	8	(1)
Choosing Beneficiaries for Your Retirement Plans	9	(3)
Using Disclaimers for Retirement Accounts	12	(1)
Probate and Taxes	12
State Law Exemptions From Norm Probate
Using Your State Laws in Estate Planning	2	(1)
State Law Probate Exemption Rules	3	(2)
Summary Chart of State Law Exceptions to Normal Probate	5	(5)
California Exemptions From Normal Probate	10	(2)
New York Exemptions From Normal Probate	12	(1)
Texas Exemptions From Normal Probate	12	(1)
Florida Exemptions From Normal Probate	13
Part VI: Understanding Estate and Gift Taxes
Estate Taxes
Federal Estate Tax Exemptions	2	(2)
The Big Picture: Death Taxes and Gift Taxes	4	(2)
Will Your Estate Have to Pay Taxes?	6	(3)
Calculating and Paying Estate Taxes	9	(4)
Reducing Federal Estate Taxes	13	(1)
The Federal Income Tax Basis of Inherited Property	14	(3)
State Death Taxes	17
Gifts and Gift Taxes
The Federal Gift Tax: An Overview	2	(2)
What Is a Gift?	4	(3)
How Federal Gift Tax Works	7	(2)
State Gift Tax Rules	9	(1)
Using Gifts to Reduce Estate Taxes	10	(5)
When Not to Give Property Away: Tax Basis Rules	15	(2)
Using Gifts to Reduce Income Taxes	17
Part VII: Reduction or Eliminating Estate Taxes
An Overview of Ongoing Trusts
Trusts to Reduce Estate Tax	2	(2)
Ongoing Trusts Used to Control Property	4	(1)
Ongoing Trusts and Avoiding Probate	4	(1)
What Ongoing Trusts Can't Do	5	(1)
When Ongoing Trusts Begin and End	5	(1)
The Trustee	6	(5)
Taxation of Ongoing Trusts	11
Estate Tax-Saving Bypass Trusts
Overview of Bypass Trusts	2	(2)
IRS Restrictions on Bypass Trusts	4	(2)
AB Trusts: Bypass Trusts for Couples	6	(11)
Bypass Trusts for Unmarried Persons	17
Other Estate Tax-Saving Marital Trusts
QTIP Trusts	2	(11)
Trusts for Noncitizen Spouses: QDOTs	13	(2)
Marital Deduction Trusts	15	(2)
Widow's Election Trusts	17
Charitable Trusts
An Overview of Charitable Trusts	2	(2)
The Income Tax Deduction	4	(3)
A Closer Look at Charitable Remainder Trusts	7	(5)
A Closer Look at Charitable Lead Trusts	12	(3)
Types of Charitable Trusts: A Comparison	15
Other Estate Tax-Saving Trusts
Generation-Skipping Trusts (GSTT Trusts)	2	(6)
Irrevocable Life Insurance Trusts	8	(2)
Grantor-Retained Interest Trusts: GRATs, GRUTs and GRITs	10
Disclaimers: After-Death Estate Tax Planning
Advantages of Disclaimers	2	(2)
Couples and Disclaimers	4	(1)
IRS Rules for Disclaimers	5	(3)
Disclaimers and Living Trusts	8
Combining Estate Tax-Saving Trusts
Combining Two Estate Tax-Saving Trusts	2	(2)
Combining a Charitable Trust With Other Estate Tax-Saving Trusts	4	(1)
Combining Three Different Estate Tax-Saving Trusts	5	(1)
Using Ongoing Trusts and Gift-Giving to Reduce Estate Tax	6
Part VIII: Imposing Controls Over Property
Property Control Trusts for Second or Subsequent Marriages
Evaluating Your Situation	2	(1)
How a Marital Property Control Trust Works	3	(2)
Restricting the Surviving Spouse's Rights Over Trust Property	5	(1)
The Role of the Trustee	6	(2)
Savings on Estate Taxes	8	(1)
Working With a Lawyer	9
Trusts and Other Devices for Imposing Controls over Property
Educational Trusts	3	(1)
Trusts for Persons With Special Needs	4	(2)
Spendthrift Trusts	6	(1)
Sprinkling Trusts	7	(2)
Trusts to Manage Your Own Property	9	(1)
Powers of Appointment	10	(2)
Combining a Property Control Trust With Estate Tax-Saving Trusts	12
Part IX: Taking Care of Personal Issues
Incapacity: Making Medical and Financial Decisions
Medical Decisions	2	(6)
Financial Decisions	8	(4)
Guardianships and Conservatorships	12
Body and Organ Donation, Funerals and Burials
Making Your Own Choices	2	(1)
Leaving Written Instructions	3	(1)
Donating Your Body or Organs	4	(1)
Death Notices	4	(1)
Services and Ceremonies Following a Death	5	(1)
Funerals	6	(3)
Cremation	9	(1)
Burials	9
Part X: Family Business Estate Planning
Family Business Estate Planning
Operation of the Business	2	(3)
Reducing Estate Taxes	5	(5)
Avoiding Probate of a Family Business	10
Part XI: Going Further
Using Lawyers
Hiring a Lawyer	2	(4)
Doing Your Own Research	6
After You Complete Your Estate Plan
Storing Your Estate Planning Documents	2	(1)
Revising Your Estate Plan	3
After a Death Occurs
Wills	2	(1)
Probate-Avoidance Living Trusts	2	(2)
Ongoing Trusts for Estate Tax Savings or Property Management	4	(1)
Preparing and Filing Tax Returns	5	(1)
Trustee's Reports to Beneficiaries	6	(1)
Collecting the Proceeds of a Life Insurance Policy	6	(1)
Obtaining Title to Joint Tenancy Property	7
Part XII: Sample Estate Plans
Some Estate Plans
A Prosperous Couple in Their 60s and 70s	2	(1)
A Wealthy Couple in Their 70s	2	(1)
A Single Man in His 60s	3	(1)
A Younger Couple	4	(1)
A Widow in Her 80s	5	(1)
A Couple in Their 60s, in a Second Marriage	6	(1)
An Unmarried Couple in Their 40s	7
Glossary
Appendix: State Death Tax Rules
Index

Excerpts

Selecting Your Estate Planning Goals

Part I: Setting Your Goals 1/2 Part II: Laying the Groundwork 1/2 Part III: Children 1/4 Part IV: Wills 1/4 Part V: Probate and How to Avoid It 1/5 Part VI: Understanding Estate and Gift Taxes 1/6 Part VII: Reducing or Eliminating Estate Taxes 1/8 Part VIII: Imposing Controls Over Property 1/9 Part IX: Taking Care of Personal Issues 1/9 Part X: Family Business Estate Planning 1/11 Part XI: Going Further 1/11 Part XII: Sample Estate Plans 1/11

There are a number of ways to leave property to those you want to have it after your death. The peculiarities of our system of inheritance mean that substantial amounts of money and time can often be saved if property is labeled and transferred by certain legal methods rather than others. But to choose wisely among these methods, you must first clearly define your estate planning goals.

This book is divided into 12 parts; each part covers a different estate planning goal or purpose. This chapter gives you an overview of each goal, so you can select the ones that matter to you. It also presents a sample estate plan of a couple in their 50s, so you can get a feel for what kinds of decisions and documents you may end up with.

We urge you to read all chapters of every part that concerns you before you actually begin to formulate your own estate plan. Different aspects of estate planning are often intertwined. For example, it just doesn't make sense to decide what property should pass under your will-and so go through probate-until you understand whether some of it might be better left by other, probate-avoiding, methods. Similarly, if you have a good-sized estate, you'll need to understand how estate taxes work before you can determine the wisest ways to transfer property to your loved ones. The point is that you need a good overview of all the parts of estate planning that concern you before you begin to make your plan.

Part I: Setting Your Goals

Use Part I to focus on your estate planning goals. After reading the first chapter, you should be able to decide which other parts of the book probably apply to your situation.

You should also take some time to mull over important personal concerns that can arise in estate planning-such as leaving unequal amounts of property to different children or avoiding potential conflicts. Chapter 2, Personal Concerns and Estate Planning, discusses some of these concerns. Unless you're very confident that your personal situation is clear and not conflicted, be sure to check it out.

"Thrift is a wonderful virtue, especially in an ancestor." -Mark Twain

Part II: Laying the Groundwork

This part covers the primary concerns of any estate plan: what you own and whom you want to leave it to.

Obviously, you'll need to be sure of what you own. Also, sensible planning usually requires at least a rough idea of what your property is worth. Chapter 4, Inventorying Your Property, contains a worksheet you can use to list all your major items of property or just use as a safety check to make sure you haven't overlooked anything.

Your "estate" includes all the property you own, minus anything you owe (assets minus liabilities). You may find it useful to use the worksheet to make a rough estimate of the dollar value of your estate, which can be helpful both for general planning purposes and to predict whether or not your estate will likely be liable for estate taxes. Of course, your estate will very likely have a different worth when you die, so precise figures aren't necessary.

You can't leave what you don't own. Ownership rules for single people are simple. Except as limited by contract (such as a partnership agreement or other form of shared ownership), you can leave all property you own outright. For these purposes the fact that some institution has a claim on the property, such as a mortgage on a house or a loan lien on a car, doesn't create shared ownership.

Property ownership rules for a married person can be more complex. Read Chapter 3, Special Property Ownership Rules for Married People, before you start inventorying your property. Two areas of law may restrict your right to leave property. First are rules affecting ownership of property acquired during marriage. There are two basic systems; which one applies to you depends on what state you live in. The majority of states follow the "common law" system where, in general, the owner of property is the person whose name appears on the ownership document. The other system, applicable in nine states, mostly in the West, is "community property," where most property acquired during a marriage is owned equally by both spouses.

Unmarried Couples: Who Owns What?

Unless an unmarried couple-gay, lesbian or heterosexual, it makes no difference-agrees to share ownership of specified property, each member of the couple owns only his or her own property. An agreement to own property together must often be in writing to be enforceable. In some states, an oral agreement is effective if it can be proved, but that can often be difficult. In short, it is best for unmarried couples to put any property-sharing agreement in writing.

If you're part of an unmarried couple where each person has kept all property separate (a written agreement to do this, listing the property of each person, is a good idea here as well), each of you is free to give your property to whomever you wish. However, if property ownership is shared, either under the terms of a written contract or in a tenancy in common or partnership, you're free to dispose of your share only, unless the contract or partnership agreement provides otherwise.

Property held by unmarried couples in joint tenancy goes to the survivor automatically.

California and Vermont have passed laws that provide gay and lesbian couples with many of the property inheritance rights of married couples. To obtain these rights, a lesbian or gay couple must register as domestic partners with the state. However, relying on these laws should never be a substitute for doing your own comprehensive estate planning. It's not wise for any couple, or anyone, to allow the state to do their estate planning for them.

For more information on property ownership problems of unmarried couples and sample property-sharing agreements, see either Living Together: A Legal Guide for Unmarried Couples , by Toni Ihara, Ralph Warner and Frederick Hertz (Nolo), a detailed guide designed to help unmarried couples minimize their entanglements with the law, or A Legal Guide for Lesbian and Gay Couples , by Hayden Curry, Denis Clifford and Frederick Hertz (Nolo).

In common law states, laws limit a spouse's right to disinherit the other spouse. As explained in Chapter 3, in these states a surviving spouse has the right to receive a certain portion of a deceased spouse's property, no matter what that spouse provided or intended. If you plan on leaving your spouse more than half your property, these laws can't affect you.

For most people, the heart of estate planning is deciding who gets what. You may have a very clear idea of who should inherit your property. If so, fine. Still, there are a number of issues that you may want to consider, from naming alternate beneficiaries to leaving shared gifts to forgiving debts. Chapter 5, Your Beneficiaries, discusses these and other concerns about your inheritors.

Part III: Children

The word children can have two meanings. The first is minors, legally those under age 18. The second is one's offspring of any age. Parents, obviously, can have adult children. Chapter 6, Children, covers estate planning issues pertaining to children in either sense of the word.

The major focus of the chapter is minor children, because a number of special estate planning issues arise with them. Of course if you have minor children, you'll want to plan for what would happen in the unlikely event that you and the other parent (if there is one involved) both die before your children become legal adults. Most likely your first concern is who would raise the children if you couldn't. In your will, you can name someone to serve as the "personal guardian" for your children-the adult who would be responsible for raising them if neither parent could. Your nomination isn't automatically legally binding, but courts normally confirm the person you name if the other parent isn't available. Chapter 6 also discusses what you can do if you do not want the other parent to obtain custody.

The second big issue is who will manage any property you leave to your minor children. Minors cannot legally own more than a minimal amount of property without adult supervision. So leaving property to your minor children requires you to choose a method for adult management. Chapter 6 explains the four legal methods you can use to impose adult supervision over property you leave to minors, and the advantages and drawbacks of each.

Part IV: Wills

Everyone should have a will, the most basic estate planning device. Chapter 7, Wills, explains why and shows you what you can accomplish in your will.

In your will you name your "executor," the person with legal authority to administer the transfer of your will property. Chapter 7 discusses the responsibilities of an executor, and presents some thoughts on selecting yours.

Wills do have one big drawback: Property left by a will must go through probate. So don't decide what property to transfer by your will until you've looked at transfer methods that avoid probate, which are discussed in Part V.

Whatever you decide about avoiding probate, you still need a will. At a minimum, a will is a backup device essential to transfer any property that somehow wasn't transferred by other methods, such as property you overlooked or that you unexpectedly acquire after setting up your probate-avoidance devices (a surprise inheritance, lottery winnings).

In most all states, a will is the only document you can use to name a personal guardian for your minor children. Also, a will is best for transferring some types of property, like a personal checking account or vehicle, that usually aren't convenient to transfer by any other method.

Part V: Probate and How to Avoid It

Probate is the name given to the legal process by which a court oversees the distribution of property left by a will. The probate process is examined in detail in Chapter 8, Probate and Why You Want to Avoid It.

Probate proceedings are generally mere formalities, because there's rarely any dispute about a will, but they are nevertheless usually cumbersome and lengthy. During probate, your assets are identified, all debts and death taxes are paid, fees for lawyers, appraisers, accountants and for filing the case in court are paid, and the remaining property is finally distributed to your inheritors. The average probate proceeding drags on for at least a year before the estate is actually distributed.

The very word "probate" has acquired a notorious aura. Commonly, it's an institutionalized rip-off of a dead person's estate by lawyers, and sometimes other officials or executors, who get large fees for what in most cases is routine, albeit tedious, paperwork. For example, if a father leaves his estate equally among his three children, and no one contests the will, why should a lawyer be paid a hefty sum to shuffle papers through a bureaucratic maze?

Because probate lawyers are expensive, we've been asked many times by will beneficiaries if they can safely handle probate without an attorney. Unfortunately, except in California and Wisconsin, the answer is normally "no," at least not without considerable difficulty. (In California, probate can be done without an attorney by using How to Probate an Estate, by Julia Nissley (Nolo). Wisconsin has a simplified probate system, with court clerical assistance for completing the forms.) Legally, it's permissible in most states (but not, for example, in Florida) for the executor named in a will to act for the estate, appear in probate court and handle the proceedings without an attorney. But probate is a technical and tedious area of the law. Without good instructions, which are unfortunately nonexistent outside of lawyer texts (except, to repeat, in California and Wisconsin) the forms can seem very complicated to the uninitiated. Further, in some situations, there are court hearings to attend. In short, learning how to do probate from scratch normally takes considerable time and risks continuing frustration. Worse, the courts and clerks can be unhelpful, or even hostile, to laypeople.

A wiser choice is to reduce or eliminate probate fees by transferring property outside of probate. If you have a moderate estate, you can probably prepare probate-avoidance devices and documents yourself, without an attorney. The next six chapters explain the major probate-avoidance methods:

ò Living trusts, which allow you to retain full control over trust property while you live; after your death, your living trust property is transferred quickly to your beneficiaries.

ò Joint tenancy, a form of shared property ownership with the key element that the surviving owner of joint tenancy property automatically inherits the share of a deceased owner. No probate is required.

ò Pay-on-death designations, which let you name a beneficiary to quickly and easily receive, without probate, assets such as bank accounts or stocks when you die.

ò Life insurance, the proceeds of which go directly to the policy beneficiary, without going through probate.

ò Individual retirement programs, such as IRAs, profit-sharing plans or 401(k) plans, where you can leave any money remaining in the account to a named beneficiary. The money is transferred outside of probate.

ò State law exemptions from normal probate, which allow smaller estates to go through a simplified probate procedure or avoid probate altogether. These rules apply to estates ranging from less than $5,000 to $200,000, depending on the state. A list of each state's rules is in Chapter 14.

Continue...

Excerpted from Plan Your Estate by Denis Clifford & Cora Jordan Copyright © 2002 by Denis Clifford
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.