Estate Planning

Again, 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.

The 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 trust).

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.

TAXATION ISSUES

Federal Estate Tax - This may be a federal tax on your estate when you die. Smaller estates are exempt. These exemptions are changing over time.

Current exemptions are:

2023 $12,920,000

2024 $13,610,000

This exemption is now inflaiton adjusted and will rise each year.

The current effective tax rate is 40%.

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:

2009 $1,000,000

2010 and after No Tax

Federal Gift Tax. The annual exclusion is currently $18,000 per 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 $36,000 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 12% income tax bracket and your children are in the 22% or 24% or 32% 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 12% tax bracket each year by cashing some IRA assets. In 2024 a single person can have approximately $60,000 of income and not use up the 12% bracket.

LONG TERM CARE ISSUES

Long term care insurance. The lifetime chances of residing in a nursing home:

This 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.Long term care insurance can be affordable at younger ages and becomes very expensive at older ages. It is normally worth a visit with an insurance agent to see what a policy might cost and if it fits your circumstances.

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 to it.

Other 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.

There 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 care-needing 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 later of the death of the person or their spouse.

The Medicaid rules change often and care should be taken to seek competent advice prior to making any of discussed changes.

SUMMARY

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.

FREQUENTLY ASKED QUESTIONS

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 approximate $13,610,000 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 plan.

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 affairs.

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 situations.

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 nothing.

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 of incapacity.

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 $18,000 per year per person to an unlimited number of recipients without gift tax. Gifts over $18,000 in a year to a single donee are taxable gifts, for which a gift tax return must be filed. No tax will likely be due but a 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 circumstances.

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 is appointed.

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.