REVOCABLE TRUSTS FOR MARRIED COUPLES WITH PLANNING TO MINIMIZE ESTATE TAXES
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Introduction. A good estate plan will include planning for incapacity as well as for death. Objectives of estate planning may include: A. B. C. D. E. F. G. H. Determining the appropriate ages and manner of distribution to beneficiaries. Naming a primary and alternate personal representative. Name a primary and alternate agent to handle financial affairs in the event of incapacity. Naming a primary and alternate agent to handle health care decisions in the event of incapacity. Avoiding court supervised probate and/or guardianship through the use of a revocable trust. Naming an alternate trustee to serve in the event of death or incapacity. Naming a guardian to care for minor children in the event of both parents’ incapacity or death. Minimizing estate taxes.
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Probate/Guardianship A. Probate is the court procedure for transferring a deceased person’s assets to his or her beneficiaries. The process involves filing initial paperwork with the court to admit the Will to probate and to appoint a personal representative. Additional steps involve the filing of an Inventory of the assets, making distributions and paying expenses and closing the probate process. The court charges a fee of .2% of the assets ($200 for each $100,000 of assets). Probate assets are those assets titled in the decedent’s name alone which do not have beneficiary designations.
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Guardianship is the court procedure for appointing someone to make financial decisions and health care decisions for an incapacitated person. This is a cumbersome expensive process which is easily avoided with the execution of a Durable Power of Attorney and Health Care Power of Attorney.
III.
Estate Taxes. Current federal estate tax law provides for an unlimited marital deduction on most transfers between spouses and a $2,000,000 exemption from the tax for each individual. The federal estate tax exemption is increasing significantly over the next several years until the estate tax is repealed in 2010. However, in 2011, the estate tax exemption reverts to $1,000,000 absent further action by Congress. Accordingly for planning purposes (unless death is imminent), we assume the exemption will be $1,000,000 at the time of death. Without any tax planning, estate taxes may be incurred that could otherwise be avoided. For example, if a husband predeceases his wife, the husband could leave all his assets to her outright and there would be no tax upon the husband' death s (the husband' estate tax exemption would be wasted because transfers to s spouses are exempt from tax anyway). However, upon the wife' subsequent s death, there would be a federal estate tax to the extent that her assets exceed the then current estate tax exemption. The goal in estate planning for a married couple with assets over $1,000,000 is to utilize both spouses' estate tax exemptions by creating a family trust (also known as a credit shelter trust, bypass trust or "B" trust). The joint revocable trust discussed below will insulate assets from the federal estate tax by utilizing both spouses' then current exemption. Effective October 1, 2002, Wisconsin enacted its own estate tax system that could result in state tax being due even in situations where no federal estate tax is due. The Wisconsin estate tax exemption is currently $675,000 per person.
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The Estate Planning Process. A. Prepare a Financial Statement. It is important to put together a complete list of all assets including your home, other real estate, stocks, bonds, bank accounts, IRAs, retirement plans, life insurance, annuities and personal property. Determine Goals and Objectives. The next step is to meet to discuss your goals, personal situation and concerns.
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Drafting of Documents – After meeting with you, we will put together drafts of appropriate estate planning documents to be sent out to you for review. Review and Finalize Draft Documents. You should review the documents to make sure they are in accord with your wishes and notify us of any changes that you would like. Beneficiary Designations. New beneficiary designation forms should be obtained for all life insurance, IRAs, annuities and retirement plans. The beneficiary designations should either be completed by the attorney or by you at the attorney’s direction to make sure that they are consistent with your estate plan. Conference to Execute Documents. Generally the next step is to return to our office to execute documents and beneficiary designations. Periodic Review. Periodically (every 5 to 10 years) you should review your estate plan to make sure that it is still relevant to your situation. Significant changes in assets or your personal situation should trigger at least a telephone call to your attorney to discuss whether any changes may be necessary.
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F. G.
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Documents of an Estate Plan. A. Will. A Will generally serves as a safety net in a plan which includes a revocable trust. The Will provides that all assets pass at death to the revocable trust. The Will will also name a personal representative and alternate personal representative to settle your affairs at death. Finally, the Will should name a guardian to care for your children in the event that minor children are involved. B. Joint Revocable Trust. The purposes of a revocable trust (also known as a “living trust”) are to minimize estate taxes, avoid probate or guardianship and to provide privacy. The trust is the main document of the estate plan and includes the disposition of assets at death. In order to avoid probate, assets are generally retitled into the name of the trust. Generally, a joint revocable trust is used for a married couple. The joint revocable trust is for both spouses’ benefit during their joint lifetimes and may be revoked or amended at any time prior to the first spouse' death. s
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At the first spouse' death, the assets are usually divided into 2 trusts -- the s Family Trust and the Survivor' Trust. The Family Trust will be funded with s the deceased spouse’s assets up to the amount of the estate tax exemption. The balance of the deceased spouse’s assets, if any, and the surviving spouse’s assets will be held in the Survivor’s Trust. The Family Trust provides that all income is paid to the surviving spouse, and principal if needed. The Family Trust is irrevocable at the first spouse’s death and any assets in the Family Trust at the second spouse’s death will not be included in the surviving spouse’s estate for estate tax purposes. The Survivor' Trust provides that all income will be paid to the surviving s spouse. In addition, the surviving spouse shall receive as much of the principal as he or she may request. At the surviving spouse' death, he or s she may appoint all or part of the assets to any person or trust including his or her own estate. Finally, the surviving spouse can amend or revoke the Survivor' Trust. s At the second death, the trust provides for the disposition of the assets to the children or other beneficiaries (either outright or in trust). Generally, the client(s) serve as the initial trustee of the trust. The trust will also name an alternate trustee to handle the management and distribution of assets when the client(s) die or become incapacitated. C. Marital Property Agreement. We generally recommend including a Marital Property Agreement as a key document of an estate plan in order to provide certainty as to classification of assets at each spouse’s death. In addition, the Marital Property Agreement can help to avoid probate by including provisions that allow for the non-probate disposition of assets at each spouse’s death. Durable Power of Attorney. A Durable Power of Attorney is a document that names another person to act as your agent (sometimes referred to as an attorney-in-fact) to handle financial affairs if you are unable to do so yourself. It is important to name both a primary agent and an alternate agent in the event your primary agent is unavailable. Oftentimes a married couple names the spouse as the primary agent and then someone else as the alternate. Health Care Power of Attorney. A Health Care Power of Attorney is a document where you name an agent to make health care decisions for you if you are unable to do so yourself. Again it is important to name both
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a primary and alternate agent. A Health Care Power of Attorney can authorize your admission to a nursing home, can authorize the withholding of feeding tubes, can authorize the withholding of life support and can address any other health care issue that you so choose. F. Beneficiary Designations. As discussed above, it is critical to update beneficiary designations to be consistent with the estate plan. Oftentimes people only name a primary beneficiary on their forms and neglect to name a contingent beneficiary.
VI.
Cost. Generally our cost for preparing this type of plan is in the range of $2,200 - $2,500. This is for a typical estate planning situation and assumes a normal amount of conference time and minimal funding of assets.
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