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Many people believe that estate planning consists of only making a Will. In fact, such planning involves much more. A Will is one of a number of instruments that can be used to accomplish an estate plan. Each individual’s estate plan will differ depending on his or her assets and liabilities, needs and goals. A personal estate plan also includes planning for the present as well as the future. In general, a basic estate plan includes the following legal documents: a Will; a Durable Power of Attorney; a Directive to Physicians; commonly called a Living Will; and, when appropriate, a Community Property Agreement. Depending on a person’s estate and lifestyle, an estate plan can encompass a wide range of documents developed to specifically address each individual’s situation. Aoki & Sakamoto LLP can assist in determining what legal documents are needed. A will (the, “Will”) is the written instrument used to govern and direct probate, which is the legal process of settlement of an estate. A person who makes a Will is called the “testator.” By means of a Will, the testator can name the individuals he or she wants to serve in certain positions of trust, such as, executor, guardian of minor children or trustee of any trusts in the Will. The Will sets out the final disposition of property after the testator’s death and after payment of any debts and taxes due. The Will states the testator’s plan of who is to receive certain property and what amounts or shares the heirs and beneficiaries are to receive. The Will can provide for the preservation of the estate assets for the benefit of heirs, such as minor children, who may be unable to receive their inheritance immediately. The testator may designate that the estate be distributed to heirs in a number of ways. Naming specific items or specific dollar amounts in the Will may cause potential problems at the time of distribution because by the time the Will is actually presented for probate the estate may have changed considerably. For this reason, most often, an estate is distributed to heirs and beneficiaries in percentage shares. Some people deal with specific items separately in a letter or written instrument other than the Will that is kept safely with the Will. In that separate instrument, an individual can give directions with respect to the disposition of specifically described personal property. The separate instrument can be used only for personal property and will not be effective for specific amounts of cash or real property. Some estates are subject to a federal estate tax. Recent changes in the federal estate tax laws increase the total amount of an estate that can pass exempt from estate taxes. (For more information on the changes to the estate tax laws, please see the article "A Brief Overview of the 2001 Federal Estate Tax Law Changes" on this site.) This amount, the "applicable exclusion amount,” is $675,000 for 2001 and is scheduled to increase as follows: Year(s)
Amount 2002, 2003
$1,000,000 Married individuals can minimize their tax exposure by using certain trusts in their Wills and other strategies to fully utilize both of their estate tax exemptions, which will minimize the potential for federal estate taxes. However, to be effective, such Wills must be executed prior to the death of the first spouse. Having an inventory and fair estimation of the value of the estate assets and joint estate assets will assist individuals in determining whether to include tax planning strategies in their Wills. A testator whose family includes minor children or beneficiaries with certain disabilities may also want to include a trust in the Will. The trust would specify the individual who the testator desires to serve as trustee to hold, administer, manage, use and distribute the trust estate for the stated benefit of the beneficiaries. A trust would also provide directions for the trustee with respect to the purposes of the trust, the appropriate distributions, the use of the trust estate and the termination of the trust. Certain assets, such as, certain life insurance policies, bank or IRA accounts and other property specifically naming an individual or individuals as beneficiaries to that property on the death of the owner of such policies or accounts are not controlled by the Will. Also, other property held in the owner’s and another’s name as "joint tenants with rights of survivorship" will not be governed by the Will. An individual should consider which properties and to what extent he or she wants properties to be transferred outside the control of the Will when formulating a plan of distribution. The overall plan of distribution should include all assets of the estate. The character of property can affect distribution. Washington is a community property state. Such description is often misunderstood. Property acquired by a husband and wife during their marriage through their own efforts is presumed to be community property. However, married individuals in Washington can have separate property. Separate property is (1) property received by gift or inheritance whether acquired prior or during the marriage, or property owned by an individual prior to marriage or owned by a married individual in his or her name before becoming a resident of a community property state, and (2) separate property only remains separate in character as long as it is not co-mingled with community assets. Once co-mingled, property is presumed to be community property. In appropriate cases, a husband and wife in Washington may want to make a community property agreement. A community property agreement can be described as a contract between a husband and wife in which they agree that all property owned by them is community property regardless of origin, and that upon the death of one spouse, the surviving spouse shall receive all the property in the survivor's sole name (a “Community Property Survivorship Agreement”). Such a Community Property Survivorship Agreement can be used to effectuate the transfer of property from a deceased spouse to a surviving spouse without the legal process of probating his or her Will. Generally, a Community Property Survivorship Agreement would not be used when the joint estate of the spouses exceeds the unified credit amount of one of them because that would cause the estate to pass to the surviving spouse without the benefit of tax planning trusts. The Community Property Survivorship Agreement cannot effectuate the transfer of property to beneficiaries other than the surviving spouse and, therefore, it does not provide for a situation when both spouses die in the same incident or at the same time. To effectuate the distribution of property to beneficiaries other than one’s spouse or to cover the instance of both spouses dying in a common incident, each spouse should also have a Will. The durable general power of attorney is a document that grants authority during an individual’s lifetime to a person named by the individual to act in his or her capacity and on the individual’s behalf (“a Durable General Power of Attorney”). The authorization is called "durable" because it survives incapacity, temporary or permanent. The authority can be effective upon execution or can become effective upon a defined triggering event, for example, a determination of incapacity. When appropriate, powers of attorney can be limited to specific authorities or transactions or for specific periods of time. However, the benefit of having identified a trusted individual authorized to immediately be able to handle affairs, if necessary, is diminished if the limitations are extensive. Making a Durable General Power of Attorney will most often eliminate the need for appointment of a Guardian by a court which is a matter of public record. Using a Durable General Power of Attorney also saves family and friends the significant time, effort and expense associated with appointing a Guardian. The Directive to Physicians or “Living Will” is intended to direct an individual’s physician to cease extraordinary artificial life-sustaining measures when the individual’s medical condition is terminal and life-sustaining measures would only prolong the moment of death. This document also provides direction to family members and friends who are faced with difficult choices regarding their loved ones’ medical care. A copy of the directive can be kept with the maker’s primary physician. The estate planning instruments described in this article are the main legal documents that support a basic, yet complete, estate plan. Individuals should seek legal assistance in creating their estate plan to insure that the plan is complete, covers all aspects of their estate and that the legal documents are properly drafted and executed and meet their needs and goals. Coming
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