these methods are all separate and independent of each
other. If an asset is held in joint tenancy a
will or trust will not effect that asset.
If a beneficiary method is used then a will does not pass
that asset. If an asset is in a trust then a will
does not pass it.
Each method is separate and independent of the other methods.
clearest example to illustrate this principle would be a person
who draws a will and leaves everything to my five children in
equal shares. They then go to the bank and add the eldest son to all of the
accounts as a joint tenant so that they can have help paying
their bills if they become ill or disabled.
This person will think that the estate goes to all of the
children as dictated by the will.
Having read this overview you now know that the elder son
receives those assets outright as the surviving joint tenant.
This is not the desired result.
A little proper estate planning is needed.
Documents in a normal estate plan include a durable business
power of attorney, which allows someone you appoint to do
business for you while you are living (the power ends at your
death); a durable healthcare power of attorney, which allows
someone you appoint to make healthcare decisions for you if you
are incapacitated; a Living Will or Natural Death Declaration,
in which case, if two doctors agree your condition is terminal,
they are directed not to artificially prolong the dying process;
a will or revocable trust document; and a pourover will (if a
Benefits to this method are that this does avoid probate court
if all assets held by trust, it is a comprehensive plan and easy
to change, it is private (no asset inventory filed in a court),
it provides succession of management of affairs if become
disabled during life, provides protection for minors, and has a
relatively lower cost at death.
Revocable trusts, however, have a
more involved process to set up, they require more paperwork now
and transferring of titles of property to the trust now, and
they have a relatively higher cost now.
Federal Estate Tax -
This is a federal tax on your estate when you die. Smaller
estates are exempt. These exemptions are changing over
time and Congress is expected to revisit these exemptions in the
next few years.
Current exemptions are:
2010 No Tax
2013 and after
The current effective tax rate is 45%
If your estate is over these exemptions there are ways we can
help to reduce your estate taxes. Particularly gifts and
also establishing separate estates for spouses are two of the
tools we can use to shelter a meaningful amount of your estate
from tax. You will hear phrases such as "marital bypass
trusts" and "credit shelter trusts" which sound much more
complicated than they are. These are well worth exploring
if your estate is in the ranges noted here.
Kansas Estate Tax Exemption Equivalent:
2010 and after
Federal Gift Tax. The annual exclusion is $13,000
recipient, meaning that there is no gift tax or return due for these gifts,
but gift tax returns must be filed for all gifts over this amount. A husband and wife can give $26,000 to
each recipient, but there is often not a tax reason to make these gifts until a
single estate exceeds the federal estate tax exemption amount.
Selected Income Tax issues. Traditional IRAs and retirement plans are taxed as you withdraw
from them. If you die and have assets in these plans your beneficiaries
pay the income tax as they withdraw the money from the plans. If you are in the 0% or 15% income tax
bracket and your children are in the 28% or 31% bracket or
higher then it does not make much sense to leave it to them to
pay the taxes. Better strategy is to at least use up
the 15% tax bracket each year by cashing some IRA assets.
LONG TERM CARE ISSUES
term care insurance. The lifetime chances of residing in a
means that there is a fairly good chance that either a husband
or wife may need nursing care at some point in their lives.
There is actually a much higher chance of needing nursing
care than of your house burning down or being blown away in a
tornado yet we all purchase homeowners insurance.
There is also a much higher chance of needing nursing
care than of having a large liability from an auto accident yet
we all purchase auto insurance.
Age 60 - annual premium ranges from $286 to $798
Long term care insurance is affordable at younger ages and becomes very
expensive at older ages. These rates come from a Kansas Insurance Department
publication as examples:
Coverage for $70 per day, 90 day elimination period,
lifetime benefit-Age 55 - annual premium ranges from $180 to $581
Age 65 - annual premium ranges from $464 to $1162
Age 75 - annual premium ranges from $1235 to $2954
Age 79 - annual premium
ranges from $1726 to $4214
At age 55 a couple
can purchase two policies for roughly $300 each, or $600 per year. If they pay these premiums for 25 years
(until age 80) they will have invested $15,000. If either one of them ever resides in a nursing home
for only 7 months they will get all of their money back.
Medicaid. If a person needs nursing care and has exhausted all of their
assets then the state will pay for their nursing care.
However, their assets must be spent down to less than
$2000. Some items do not count, such as prepaid
funeral plans, household goods, and a home if you plan to return
things disqualify you from Medicaid, such as too many assets and
gifts. The lookback period is 60 months and gifts within this
period disqualify you from receiving Medicaid.
Gifts prior to the lookback period are not counted
against the applicant.
is a system for dividing assets when one spouse needs nursing
care and the other spouse does not.
They allow you to divide the assets and when the
spouse has spent down their assets, Medicaid takes over.
Whenever Medicaid pays for a person's care a lien arises for the
amount expended against the property of the person and the
person's spouse. This lien is not enforceable until the death of the person or
The Medicaid rules change
often and care should be taken to seek competent advice prior to making any of
This overview gives you an idea of the many ways to plan an estate and stresses
the importance of being very careful in your approach to estate planning so that
you are certain to get your intent implemented.
We're happy to meet with you to review these methods and design a plan for you
that is efficient and cost-effective in meeting your intent and needs.
Feel free to give us a call for an appointment.
Q. Is there a difference between a will and a living will?
A. Yes. A will is a formally signed document that indicates
who is to get your property at your death and who will be in charge
of paying your final bills and things like that. It can also
appoint a new guardian for your minor children if both you and
your spouse die. It has no effect whatsoever while you are alive.
A living will is also called a Natural Death Declaration. It
is a formally signed document stating your intentions if you have
a terminal condition or illness and whether or not you want extraordinary
life-sustaining measures employed.
Q. I have drawn my own will and signed it. Is it valid?
A. Maybe. To be valid, a will must be signed in a certain way.
It requires two witnesses and that certain formalities be followed.
If the technicalities are not followed, then the will is not valid.
The technicalities vary from state to state, and they can change
from year to year as the state legislatures change the laws.
Q. The deed to my house has my name and my husband's name on
it. If something happens to one of us, will it automatically
go to the survivor?
A. Maybe. If the deed contains the magic words "joint tenants
with right of survivorship" then the property would go to the survivor.
If the deed does not contain the magic words, then the property
will not automatically pass to the survivor. The same holds true
for titles to other property like checking accounts, cd's, stocks,
savings accounts etc.
Q. What is Federal Estate Tax?
A. The federal government may tax your estate when you die. They
base the tax on all assets owned by you at your death (including
life insurance). Currently, the first $5,000,000 per decedent
passes to heirs tax-free. There are ways for a couple to pass up
to twice the exemption amount or more tax-free to their children
with a little proper planning.
Q. What is a living will?
A. A living will, also known as a "Natural Death Declaration,
is a statement in writing directing your physician, in the event
you suffer a terminal condition, to withhold or withdraw life-sustaining
procedures that would otherwise artificially prolong the dying
process. There are certain formalities which must be followed
in making a living will and assuring that others comply with your
decisions. This document is often part of a comprehensive estate
Q. What is a durable power of attorney?
A. A durable power of attorney is a written document that appoints
someone else to make financial and other important decisions
for the person granting the authority. The authority granted
can be narrow and specific or more general and comprehensive.
This document is often part of a comprehensive estate plan and
can be very useful in helping an elderly person manage business
Q. What is joint tenancy?
A. Joint tenancy is a form of property ownership where two or
more persons share ownership of personal property or real estate.
It has the special attribute of "survivorship" so that when one
owner dies, his or her interest passes automatically to the survivors.
Joint tenancy is sometimes used with other tools like wills and
trusts to achieve a person's estate planning goals. It is very
appropriate in some situations and not at all appropriate in other
Q. My mother died 11 years ago, and we just found her will while
going through papers. Do we need to do anything with it?
A. Except under extremely limited circumstances, a will must
be filed for probate within 6 months of death or it is void.
Your mother's property would have passed by the intestate succession
laws of the State of Kansas to her heirs.
Q. I have just moved to Kansas from California. Do I need to
change my will or trust?
A. It depends. A will that was valid where signed should be
valid in all 50 states. The laws of each state differ, however,
and you may begin to acquire Kansas property that is not properly
treated in your California will. It is always a good practice
to have a lawyer in your new state of residence look at your estate
planning documents so you know they still carry out your plan.
Q. How do we determine how our children are raised if something
happens to both of us?
A. Kansas law allows you to appoint guardians and conservators
for your children in the event of your death in a will or trust.
At your death the court will appoint whomever you chose unless
they are unfit. By exercising this right you can avoid family
fights over who gets the kids, and you can know that your chosen
person will raise your kids.
Q. I want somebody to be able to help me pay my bills. Shouldn't
I just add my son's name on all my accounts at the bank?
A. Probably not. By adding his name to your account as a joint
tenant you have given him an ownership interest in the account.
His creditors may be able to reach the account or it may become
entangled in his divorce action or bankruptcy. At your death
the account would just belong to your son to the exclusion of
your other children. A durable power of attorney that appoints
your son is a much better way to get help paying bills.
Q. My mother just died and left me some property. Do I owe
income tax on this?
A. Usually no. Property you inherit comes income tax-free unless
you are the beneficiary of an IRA account or a pension plan of
some sort. These items carry with them income tax consequences,
but other items come income tax-free. There may be Kansas Estate
Tax or Federal Estate Tax due in some cases. Proper planning
can reduce or eliminate tax in many situations.
Q. I am a widow, and for reasons that are best known to me,
I would like to leave all of my property to my church rather than
to my children at my death. Can my children challenge this?
A. As long as you are mentally competent, Kansas law allows
you to leave your property to anybody you wish. Children have
no right to inherit in Kansas if you wish otherwise. The only
people who have rights to inherit are spouses; in Kansas you cannot
disinherit a spouse without their consent. This is an area that
requires close attention to details if you wish to avoid problems.
Q. I don't want them hooking me up to all those machines when
I'm at the end of my life. Is there some way I can stop it?
A. A Natural Death Declaration, or Living Will, is a legal document
that expresses your wishes in this regard. When two doctors agree
that you have a terminal condition and that procedures would only
artificially prolong the dying process, then this document directs
that such procedures be withheld or withdrawn and that you be
permitted to die naturally. This document is usually part of
a well-coordinated estate plan.
Q. What is a TOD deed?
A. The Kansas legislature has authorized some property to be
held in a form of ownership that automatically passes the property
to your named beneficiaries at your death. This avoids probate
but not taxes and some creditors claims. This has previously
been allowed for bank accounts, credit union accounts, savings
and loan association accounts, stock brokerage accounts, federal
savings bonds and securities. Real estate
has now been added to the authorized list. A Transfer on Death deed
is required to be signed and recorded to affect this kind of ownership.
Q. You have previously mentioned POD accounts and TOD deeds.
How about cars and trucks?
A. The legislature has authorized certain types of property
to be titled in a special way to pass automatically to your beneficiaries
at your death. The list includes bank accounts, credit union
accounts, savings association accounts, securities, brokerage
accounts, savings bonds, real estate and vehicle titles. This
avoids probate but not taxes and some creditors claims. You must
re-register your car title in this form of ownership and send
it in to have a new title issued.
Q. I recently put my assets in a revocable trust and now want
to change some of the provisions. Is this possible?
A. Usually yes. One of the attributes of a revocable trust
is that you can amend it or revoke it at any time. It is usually
a better practice to restate your trust with your changes rather
than string along a whole series of amendments. This keeps things
as clear as possible as your intent changes over the years and
avoids hurt feelings as beneficiaries don't have to read that
they were included and then reduced or excluded from your plan.
It also tends to lessen chances for litigation in the interpretation
of the trust.
Q. Does a person granted Power of Attorney by someone in failing
health, have a LEGAL responsibility to manage the finances in
a manner that protects the interests of the sick person?
A. When someone is granted authority under a power of attorney
to act for another, they probably have no legal obligation to
act with that authority. However, once they begin to act, they
stand in a fiduciary capacity to the grantor of the power and
can be held liable for mis-uses of the power. The attorney in
fact cannot use the power for his personal profit or advantage.
He must exercise it, if he exercises it at all, for the benefit
of the grantor.
Q. I lost my husband several years ago and wish to remarry.
Should I consider some sort of agreement so my assets will go
to my kids at my death?
A. Yes. They are called Premarital Agreements and they make
good sense in your situation. If you do not have an agreement
like this, your assets may all wind up going to his kids after
you are gone. It is entirely possible that your kids would get
Q. My health is failing and I am considering a nursing home.
Is there any reason I should not give all of my assets to my kids?
A. Yes. Medicaid will pay for your nursing home care if you
run out of your own assets. Medicaid rules disqualify you if
you have made gifts within 60 months of applying. This is a very complicated area of the law with
ever-changing rules. I would highly recommend that you speak
to a qualified attorney prior to making the gifts.
Q. Do I need a will or a trust?
A. That depends entirely upon your circumstances. State law
dictates how your property will pass in the event that you do
not have a will. If you have a will or trust you can implement
your more specific desires and you can do it more comprehensively.
There is a current trend toward trusts (even on smaller estates)
to avoid the effort and expense of probate, to maintain privacy,
to provide more flexibility and to manage finances in the event
Q. I'm getting older. Should I add my children's name to the
deed for my house or farm?
A. There are several issues involved and potential problems
with this arrangement, including possible gift and estate tax
implications and Medicaid eligibility issues. You will need the
signatures of the child and his or her spouse if you wish to sell
or mortgage the property. Also, if the child becomes involved
with creditors, tax problems, litigation or a divorce, additional
problems may arise which cause you troubles and expense. In some
circumstances it is possible to lose the property.
Q. I am thinking of making gifts to my children, but I have
heard there is a tax on gifts. When does the tax apply?
A. A person can give up to $13,000 per year per person to an
unlimited number of recipients without gift tax. Gifts over $13,000
in a year to a single donee are taxable gifts, for which a
gift tax return must be filed.
Q. My aunt's health is failing and she needs someone to help
her with her business. Can this be accomplished fairly easily?
A. Usually, Yes. Assuming your aunt is still competent, a durable
power of attorney may be executed, giving you the authority to
transact business for her. If she's not competent, you may have
to consider going through the courts to establish a conservatorship
for her. There are also healthcare powers of attorney that would
enable you to help her with making healthcare decisions if she
is unable. A trust may also be appropriate. These documents
can be done individually or in connection with a more comprehensive
estate plan. In any event, there are mechanisms that allow you
to help her with her needs.
Q. My mother is failing noticeably, is it too late to do a will?
A. Probably not. As long as she knows the general nature of
her property and who she wants to receive it, she is likely still
competent to execute estate planning documents. The test is not
whether she is still able to do her own business. It is important
that various formalities be followed in executing these documents,
and it is particularly important with your mother's current health
Q. I have read that you should not keep your original will in
a safe deposit box because nobody would have access to it if you
die. Is this correct?
A. No. Kansas law provides that when the holder of a safe deposit
box dies, the bank may open the box in the presence of those who
claim an interest in the contents and remove any will for delivery
to the court. The bank should also allow you to remove life insurance
policies and deliver them to the beneficiaries. The remainder
of the contents can be removed after the executor of the estate
Q. I have a durable power of attorney. Do I also need a will?
A. A durable power of attorney allows someone you appoint to
do business for you while you are alive. Legally, the authorization
contained in a power of attorney ceases at death. A will is one
of the several ways to pass property to your beneficiaries at
your death. A will has nothing to do with your property while
you are alive. The answer to your question is that you probably
need both a power of attorney and a will. These documents are
normally part of a coordinated estate plan that all persons should
have in place.
Q. Is there a difference between a Durable Power of Attorney
and a Healthcare Power of Attorney?
A. Yes. A Durable Power of Attorney generally applies to business
and financial matters only. Without this document a court-ordered
conservatorship may become necessary in the event of incompetency.
A Healthcare Power of Attorney, as the name implies, refers to
healthcare matters like consenting to medical procedures, making
living arrangements and things like that. Without this document,
a court-ordered guardianship may become necessary in the event
of incompetency. A coordinated estate plan will normally include
both of these powers of attorney because they do different things.