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Estate Planning - A Necessity
by
G. Raye Jones, Attorney at Law

Martin & Raynor, P.C.
1228 Cedars Court
Charlottesville, Virginia 22903-4801
Telephone: (434) 817-3100
Fax: (434) 817-3110
 

Table of Contents

1. Introduction
2. Comprehensive Estate Planning Guide
3. Summary Explanation of Estate Planning Documents
4. Estate Planning Checklist of Concerns
5. Estate Tax Structure
6. Life-Insurance Worksheet
7. Long-Term Care Policy Checklist

Estate Planning – A Necessity

For most people, planning their estate is usually an “I will do that later” project.  You may not be sure where to begin or even if the nature and size of your assets warrant estate planning.   There may be delicate issues such as a second marriage with one spouse having children by a prior marriage.  Regardless of which concerns affect you the most, estate planning is critical to ensuring that you leave as much of your hard-earned assets to your chosen heirs and less to the local, state and federal governments in the form of taxes and/or probate costs.

Estate Planning addresses three basic issues:

1. Transferring wealth to your chosen heirs.
2. Preserving the value of your estate.
3. Providing liquidity for estate tax and settlement costs.

In transferring your wealth, you will need to determine who all of the beneficiaries will be and set up contingency plans in case any of those beneficiaries predeceases you.  The attached Comprehensive Estate Planning Guide helps you to organize your plans.  The Comprehensive Estate Planning Guide is an information-gathering instrument used to consolidate the basic information needed in order to begin to draft the necessary documents for the transfer of your wealth in accordance with your intended wishes.

After the Comprehensive Estate Planning Guide, the Summary Explanation of Estate Planning Documents includes a brief discussion of the most often used documents in estate planning.  Please remember that any documents you decide upon should be reviewed every year and updated as needed.  When any of your assets, your beneficiaries and/or the tax laws change, then your documents will need to be updated accordingly.

I have provided the Estate Planning Checklist of Concerns to remind you of other issues to address in order to not only transfer your wealth, but to help preserve the value of your estate.  There are many available resources to accomplish your intended purposes while at the same time preserving as much of the value of your estate as possible by eliminating or greatly reducing both the probate tax and the federal estate tax.  Unless properly addressed, both the probate tax and the federal estate tax can significantly reduce the value of your estate.

The Estate Tax Structure lists the amount that is effectively exempt from federal estate tax for each year through the year 2011 when the exemption amount reverts back to $1,000,000.  Most of my clients intend to survive until the year 2011 and therefore prepare accordingly.  Depending upon the size of your estate, life insurance and long term care insurance may be of great assistance to you in providing additional liquidity for any costs that may be incurred by you or assessed against your estate.  You will note on the Life-Insurance Worksheet that I have used actual numbers based upon a client’s potential needs.  Your needs will vary.  Life insurance, when used properly, can assist greatly with providing necessary liquidity for estate and probate taxes and other settlement costs.  In addition, the Long-Term Care Policy Checklist assists you in comparing policies and the coverage concerns you should be aware of.  Long-term care insurance provides coverage for long term costs which in turn preserves your estate value.

Hopefully, the attached items will assist you in getting started in the right direction.  If I can be of any assistance with your estate planning needs, please let me know.

G. Raye Jones, Esquire

Comprehensive Estate Planning Guide

Client Information

Name:
Residence Address:
Home Telephone:	(    )	Work Telephone:	(    )
Social Security Number:		Date of Birth:
State of Residence:		Age:
City/County of Legal Residence:
Employer:		Citizenship:
Spouse:
Residence Address:
Home Telephone:	(    )	Work Telephone:	(    )
Social Security Number:		Date of Birth:
State of Residence:		Age:
City/County of Legal Residence:
Employer:		Citizenship:

Beneficiary Information

*Children of this marriage and previous marriages, if any:

*"Children" includes children from your present marriage, children from a prior marriage, adopted children, children born out of wedlock, and your children adopted by another.

Name & Address		Age		Married?		Their children's name and ages
1.
City/County of Legal Residence:
2.
City/County of Legal Residence:
3.
City/County of Legal Residence:
4.
City/County of Legal Residence:

Other [including charities, etc.] whom you wish to leave property:  

 

Name & Address		Relationship		Age
1.
2.
3.
4.

Property Information Summary

Date:  _____________________

Description        Owner	Mortgage if Any	Purchase Price	Fair Market Value	Husband Value	Wife Value	Joint Value
Real Estate Residence Other
Securities Stocks
Notes, Mortgage
Cash Savings CDs
Money Account
Mutual Fund
Jewelry Vehicles Other Tangible Assets
Retirement Plan/IRA Husband – Wife –
Life Insurance Husband – Wife –
Business Owned:
Anticipated Inheritances and Gifts
TOTAL ASSETS (GROSS)

*  Include all life insurance and annuities, regardless of beneficiary, and name the beneficiary, contingent beneficiary and relationship to you.  If beneficiary of any policy is a charitable organization, please note the amount of that policy included above:  _____________________.

Fair Market Value – list the present value of all of your assets in this column and total the same at the bottom.

Husband Value – list only those items from the Fair Market Value column that are only in the name of the husband in this column.

Wife Value – list only those items from the Fair Market Value column that are only in the name of the wife in this column.

Joint Value – list only those items from the Fair Market Value column that are only in the name of both husband and wife with survivorship.

NOTE:   The total of the husband value, wife value and joint value columns should equal the fair market value column.

Do you currently have a will?		Yes		No	(If yes, please provide us with a copy.)
Do you have a trust in your name?		Yes		No	(If yes, please provide us with a copy of the trust agreement.)
Are you a beneficiary of another's trust?		Yes		No
Are you the custodian of any custodial accounts?		Yes		No

Disposition of Assets

Note:  Assets owned jointly with right of survivorship pass automatically to the survivor.  They do not pass under the living trust or the will of the deceased joint owner.

If husband dies first, do you wish for the wife to receive his property?			Yes			No
If wife dies first, do you wish for the husband to receive her property?			Yes			No

If no, then who?

On the death of the surviving spouse, who receives the property? Indicate specific property or amounts of money which are to pass to named persons or institutions. Is the rest of your estate to be divided equally among your surviving children or in another way? If any child of yours dies before the survivor of you and your spouse, does that child's share pass to (1) his children or (2) to his brothers and sisters or (3) others?  Are there any other beneficiaries not previously indicated?  If any potential beneficiary is under the age of 21, do you want his share held in trust until he reaches a certain age?  For what purposes can the property held in trust be used?  (For example, education, medical emergencies, etc.)  Are there any other circumstances that might require special provisions such as potential beneficiaries with disabilities, broken marriages, poor judgment, etc.

Special Circumstances

1. Do you own any assets (or do you expect to inherit any assets) of any kind outside of the U.S.A.?
   1. If yes, you must provide for the disposition of those assets in the country where they are located.
   2. If yes, please advise me so I can restrict the applicability of your estate planning documents as needed.
2. Do you have any children (or anyone who may claim to be a child) or any other relative that you want to exclude from your estate?  _____ Yes     _____ No. If yes, please provide name, relationship and your concerns so I can address the same in your estate planning documents.

Persons to Act for You on Death or Incapacity

Unless you advise otherwise your documents will be drafted so that you leave everything to your spouse but if your spouse does not survive you then everything goes equally to your children.  If we are setting up Revocable Trust Agreements then the maximum lifetime estate tax credit exemption is provided for in your family trust portion.

If you want all of your children to serve as successor Agent for your Power of Attorney and your Advance Medical Directive then please list them in the order you wish.

If you wish for your successor Executor and your successor Trustee to be all of your children or the survivors thereof serving together then please indicate.   Otherwise I will list them in the order you desire.

Note: Anyone serving in any of these capacities should be trustworthy and have good judgment.  To the extent that such person does not have legal, investment, or accounting knowledge, he or she will be able to retain professional assistance for such matters.  It is advisable to appoint someone who (i) knows his or her limitations and (ii) will know when to seek professional assistance for legal, investment and accounting matters, rather then someone who (i) incorrectly believes he or she can handle such matters without professional advice or (ii) may be too timid or "tight" to seek such assistance. Remember, a natural person, not a resident of this Commonwealth, may be appointed or allowed to qualify or act as personal representative (executor), or trustee under a will, of any decedent. Where any nonresident qualifies pursuant to Virginia Code Section 26-59, bond with surety shall be required in every case, unless a resident personal representative (executor), trustee, or fiduciary qualifies at the same time. Trustees under a living trust and persons acting under a power of attorney (both general and for health care) need not be residents of Virginia or related to you in any way.  However, if the will "pours over" assets into the living trust with only nonresident trustees, then bond with surety shall be required unless one of the trustees is a resident of Virginia.

Note:  Choose as many successors as you like and indicate if you want any successors to serve together.

1.  Power of Attorney
A.  Your agent:
Address:
City/County of Legal Residence:
Telephone Number:
B.  Your successor:
Address:
City/County of Legal Residence:
Telephone Number:
C.  Successor agent:
Address:
City/County of Legal Residence:
Telephone Number:
D.  Successor agent:
Address:
City/County of Legal Residence:
Telephone Number:
2.  Advance Medical Directive
A.  Your agent:
Address:
City/County of Legal Residence:
Telephone Number:
B.  Your successor:
Address:
City/County of Legal Residence:
Telephone Number:
C.  Successor agent:
Address:
City/County of Legal Residence:
Telephone Number:
D.  Successor agent:
Address:
City/County of Legal Residence:
Telephone Number:
3.  Executor
A.  First:
Address:
City/County of Legal Residence:
Telephone Number:
B.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
C.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
D.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
4.  Trustee
A.  First:
Address:
City/County of Legal Residence:
Telephone Number:
B.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
C.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
D.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
5.  Guardian
A.  First:
Address:
City/County of Legal Residence:
Telephone Number:
B.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
C.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:
D.  Successor:
Address:
City/County of Legal Residence:
Telephone Number:

Summary of Explanation of Estate Planning Documents

1. Wills.

   If your estate planning documents include the Lifetime Revocable Trust then each of you will execute a Will which provides that, after certain expenses are paid, all of your assets will be transferred to the Trustees of your individual lifetime trusts to be held in trust.  Please keep in mind that the assets to be transferred to your trusts do not include assets transferred before your death.  Those assets are already a part of the trust and do not pass via your will.

   The person responsible for administering your estate is called your executor.   Typically a person will appoint their spouse as executor and then will appoint one or more of their children as substitute executors or Co-Executors where the children serve together.
    

2. Lifetime Revocable Trusts.
   
   If you are using such trusts then each of you will also execute trust agreements to create individual Revocable Lifetime Trusts.  You and your spouse or you and one or more of your children typically serve as initial Trustees of your respective trusts.  After your death, or at such earlier time that you become unable to manage your affairs, the surviving spouse and/or your children as you desire will serve as Co-Trustees.

   If you fund your trusts during your lifetime (i.e., transfer assets to your trust), you will receive any income earned on the assets.  Of course, you also have complete control over investing assets, transferring/withdrawing assets, etc. as outlined in your trusts.  Because the trusts are revocable during your lifetime, you can even remove all assets from the trust and terminate its existence.  Any and all income earned by the trusts is reported on your individual social security numbers.

   Upon your death, the trust assets typically will be divided into the family trust (i.e., a credit shelter or bypass trust) and the marital share.  Typically the income earned on the family trust assets will be payable to the surviving spouse.  In addition, if income is not sufficient to maintain your spouse, principal (i.e., the trust property) may be spent for his or her benefit.  When the survivor later dies, usually all of the assets in both trusts will be distributed to your children.  You should read carefully your trust documents to be certain of how these assets will be distributed since, depending upon your requests, it may be distributed differently.

   Remember, too, that the survivor will also be able to use and spend the assets of his or her own lifetime trust  

3. Durable Powers of Attorney.

   If you request one, each of you will execute multiple original Durable Powers of Attorney.  These are particularly valuable estate planning documents in that they permit the person you nominate (your "Agent") to step in and handle your affairs immediately upon your inability to do so yourself.  Accordingly, a guardian need not be appointed to act for you which can be expensive and requires court intervention.

   Typically you appoint your spouse as your primary agent and then you decide, usually, upon your children as successor agents in whatever order you desire.

   In the event your primary agent is unable to serve for any reason then those you appoint as successor agent or co-agents will serve.

   NOTE:   The authority of your agent(s) ceases upon your death  

4. Advance Medical Directive.

   If you request one, the Advance Medical Directive authorizes whomever you choose as your primary agent to make decisions regarding your health care.  You typically will choose your spouse as primary agent and then the substitutes are typically the same as in your Durable Powers of Attorney.  The Advance Medical Directive also authorizes your primary agent to make decisions about life support; provided, however, that such decisions are in accordance with your expressed intention not to be kept alive by extraordinary means in certain circumstances.  Your agents are required to follow what they know to be your instructions and your wishes.

   The Advance Medical Directive allows your agent(s) to carry out your wishes and requires the doctors to do the same.

Estate Planning Checklist of Concerns

Estate planning is no longer only for the very wealthy.  The cumulative effects of the wealth created by the bull market, all of us living longer, the aging of the Baby Boomer generation and a less than simple tax code require that middle class America focus on estate planning for their generation and the one to follow.

Everyone needs the basic estate documents which include a will, durable power of attorney, and advance medical directive.  In addition, trusts can be used for a variety of purposes:

1. The Revocable Living Trust – to maximize your control of your estate, avoid probate and preserve your unified credit exemption.
2. Charitable Remainder Trust – allows you or a designated beneficiary to enjoy a stream of income and leave the remainder to charity which reduces your estate subject to tax while providing an immediate income tax deduction.
3. Irrevocable Trust – provides income to another beneficiary, reduces your estate and provides for the educational or other needs of children/grandchildren.
4. Life Insurance Trust – keeps life insurance proceeds out of an estate in order to reduce the size of an estate and/or provides for the special needs of family members.

Are you guilty of any of the following:

1. Underestimating the value of your estate.  Your taxable estate includes not only your cash but also other assets such as home equity, retirement accounts, life insurance, tangible personal property, anticipated inheritances including those received from your spouse.
2. Failing to correctly use the unified estate and gift tax credit.  The unified credit will shelter up to $1,000,000.00 worth of assets in the year 2003 from any estate and gift taxes.  The exemption amount gradually increases over the next several years until it reverts back to $1,000,000.00 in the year 2011.  If you leave all of your assets to your surviving spouse, then no tax will be due on your death, but all the assets may be taxed on your spouse’s death.  Through such an “I Love You” arrangement, the unified credit for the first of you to die is lost forever.  Remember, the “I Love You” setup includes all jointly owned property with survivorship which is never controlled by directions contained in a will.
3. Failing to reduce the tax owed on life insurance proceeds.  Life insurance owned by you will be included in your taxable estate upon your death even though it may pass outside of probate.  A taxable estate subject to the federal estate tax is not the same as a probate estate subject to the probate tax.  Setting up an irrevocable life insurance trust which owns your life insurance policy or policies will remove the same from your estate provided the necessary steps are taken in the correct order.
4. Failing to use Charitable Opportunities that can save your estate taxes.  There are numerous charitable techniques that not only benefit any of your favorite charities, but can also benefit the family as well with an income stream.  The larger your estate the greater the appeal of charitable opportunities.
5. Failing to appoint qualified people to oversee the handling of your estate.  You need personal representatives (executors, trustees, etc.) who are qualified to manage your estate, pay taxes and distribute your estate in accordance with your wishes.  A trustee or executor needs to be trustworthy so that your intentions are carried out appropriately.
6. Failing to use the annual gift tax exclusion.  One of the key weapons minimizing estate taxation is to gift assets to future generations during your lifetime.  Using the annual gift tax exclusion is an easy mechanism which avoids gift tax and reduces the size of the estate subject to the estate tax.
7. Failing to consider the qualified disclaimer.  Every estate plan should consider and provide for the use of possible disclaimers and other contingency plans.  By disclaiming property left to you within the time limits required, you refuse to take assets into your estate for tax savings or other reasons such as correcting faulty estate plans by the decedent.
8. Failing to prepare for business succession.  If you own a business or real estate (other than the family home), how will the ownership transfer take place at your death?  Do you have a business partner or co-owner that may not want to deal with your children or spouse?  Will part of the business or real estate have to be sold to pay for taxes and other succession costs?  You need to prepare for all of this and much more.

Estate Tax Structure

The federal estate tax is a tax on the transfer of property at death.  It is a graduated rate tax, based on the size of the “taxable estate”.  The taxable estate is the value of your assets, plus all taxable gifts made after 1976, less available deductions.  Before 1998, no estate tax was payable if your taxable estate was less than $600,000.

The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually increases the amount that is effectively exempt from estate tax.  The exemption amount eventually increases to $3.5 million in 2009, is repealed in 2010 and reverts back to $1 million in 2011 as follows:

Life-Insurance Worksheet

The Life-Insurance Worksheet will help you to focus on both the immediate and future expenses you will want to consider in your family’s long-term estate planning needs.  Below is an example.

Long-Term Care Policy Checklist

The following checklist will help you compare policies you may be considering.

	Policy A	Policy B	Policy C	Policy D
1.  What services are covered?
Nursing home care
Home health care
Adult daycare
Alternate care
Respite care
Other
2.  How much does the policy pay per day?
For nursing home care
For home health care
For adult daycare
For alternate care
For respite care
Other
3.  How long will benefits last?
In a nursing home
At home
4.  Does the policy have a maximum lifetime benefit?  If so, what is it?
For nursing home care
For home health care
5.  Does the policy have a maximum length of coverage for each period of confinement?  If so, what is it?
For nursing home care
For home health care
6.  How long must the client wait before pre-existing conditions are covered?
7.  How many days must the client wait before benefits begin?
For nursing home care
For home health care
8.  Are Alzheimer's disease and other organic mental and nervous disorders covered?
9.   Does this policy require:
An assessment of activities of daily living?
An assessment of cognitive impairment?
Physician certification of need?
A prior hospital stay for:
Nursing home care
Home health care
A prior nursing home stay for home health coverage
Other
10.  Is the policy guaranteed renewable?
11.  What is the age range for enrollment?
12.  Is there a waiver-of-premium provision?
For nursing home care
For home health care
13.  How long must the client be confined before premiums are waived?
14.  Does the policy have a nonforfeiture benefit?
15.  Does the policy offer an inflation adjustment feature?  If so:
What is the rate of increase?
How often is it applied?
For how long?
Is there additional cost?
16.  What does the policy cost?
Per year
With inflation feature
Without inflation feature
Per month
With inflation feature
Without inflation feature
17.Is there a 30-day free look?

Source:   The Health Insurance Association of America's Guide to Long Term Care Insurance, 3rd ed. Rev. (1997) Reprinted with permission.