Estate planning is the ordering of ones affairs so that upon
death, divorce or disability the least amount of economic and emotional
stress is placed on the family. The following is a primer outlining
basic estate planning concepts and simple alternatives.
BASIC CONCEPTS
1. Community vs. Separate Property. Washington is a community
property state. Generally speaking, community property is all property
acquired after marriage. Separate property (all the other property
of the couple) includes property owned prior to marriage (and increases
or accretions in value of such property), inherited or received
by gift. Property may be designated as separate property by agreement.
Co-mingling or mixing separate with community property may change
separate to community property. The importance of this distinction
(between community and separate property) arises upon the happening
of one of the following events: divorce, disability or death..
2. Intestacy and Testacy. Intestacy" simply means dying without
a valid Will. Washington has adopted a stature governing the disposition
of intestate property (who gets what is spelled out in the statute).
Testacy" simply means having died with valid Will. Generally
speaking, the Will disposes of the property of the descendent (who
get what is spelled out in the Will).
3. Will. A Will is written legal document. A valid Will controls
disposition of the decedent's property at death. A Will has no affect
until death, and may be changed at any time (absent agreement) by
a competent testator. A Will may nominate a Personal Representative
(the person appointed to administer the decedent's estate). A Will
may nominate a guardian(s) for minor children. A Will may contain
a trust or have no trust provisions, depending on the needs of the
testator.
4. Revocable Living Trust (RLT). A Revocable Living Trust is a written
document which provides for the management (during the lifetime of
the grantor) and distribution of assets, upon the death or disability
of the grantor. A Revocable Living Trust is an alternative to a Will.
A Revocable Living Trust may be the centerpiece" of one's estate
planning.
5. Community Property Agreement. A Community Property Agreement
is a written agreement (contract) between married couples. The agreement
may fix the status of property, as separate or community. The agreement
may apply to property presently owned or acquired in the future.
The agreement may automatically transfer the decedent's one-half
of the community property to the surviving spouse (at the death of
the first spouse).
6. Durable Power of Attorney. A Durable Power of Attorney is a wreitten
document by which s person ( called the Principal) appoints another
(called the Agent) to act on the principals behalf. The authority
to act may be limited or broad. The authority may include the power
to make medical decisions. A Durable Power of Attorney can be effective
either immediately or upon the disability/incapacity of the principal.
7. Health Care Directive. A Health Care Directive (commonly called
a Living Will) is written directive (to a patient's physician) setting
forth the patients direction to withhold or withdraw extraordinary
life sustaining treatment in the event of a terminal condition or
a permanent unconscious condition.
BASIC ALTERNATIVES
1. Should we have a Community Property Agreement, Wills or Revocable
Living Trusts? A Community Property Agreement is appropriate for
some couples and inappropriate for others. As a general rule, a Community
Property Agreement may be appropriate for seasoned marriages" (those
of significant duration). The couple should have no children or only
children of the marriage. Neither spouse should have significant
separate property ( or the expectation of receiving significant separate
property or if federal gift and estate tax avoidance or minimization
is important. Community Property Agreements should never be used
unless each spouse has (in place) a valid Durable Power of Attorney
permitting revocation of the Agreement under specified circumstances.
A Revocable Living Trust is a popular probate avoidance device.
These trust can be as expensive s probate (or more so). Revocable
Living Trusts are not appropriate for all persons. Once in place,
Revocable Living Trusts require upkeep". For example, newly
acquired property must be titled to the Trust (otherwise the benefits
of the Trust may be lost).
Wills are a necessity. A Community Property Agreement passes property
to a surviving spouse (and no other person). A Will is necessary
as a back-up to pass property to children or other heirs. A Revocable
Living Trust requires a pour-over" Will, which puts back" any
property inadvertently left out of the Trust. Regardless of the plan,
a Will is necessary either as a back-up, pour-over devise or the
primary vehicle for passing property to heirs.
2. Durable Powers of Attorney for Medical and Financial Decisions.
Durable Powers of Attorney may be limited or general (covering a
specified topic, or all contemplated areas). A Power of Attorney
may be effective immediately or upon some specified event, such as
the disability or incapacity of the principal. A Power of Attorney
may be divided between financial decision making and medical decision
making, or combined all into on document. This decision (whether
to have separate Powers of Attorney for medical and financial decision
making) depends on whether or not the principal is comfortable with
the agent making both medical and financial decisions. In many instances
those duties should be split between different people.
A Power of Attorney may name more than one person to act, or may
appoint successive persons. A Power of Attorney may permit gifting
of the principal's assets. A gifting provision must be carefully
and prudently drafted. A gifting provision may become the most important
provision in a Power of Attorney. Improperly drafted provisions can
cause adverse tax consequences, Medicaid ineligibility and family
fights. There is no other provision in a Power of Attorney which
can cause more problems (and, alternatively, be of more benefit).
3. Health Care Directives (Living Wills). Health Care Directives
are an important tool in the over all estate and health care planning
process. A Health Care Directive permits the writer to direct, in
advance, that in certain circumstances ( a terminal condition or
permanent unconscious condition) the application of life sustaining
treatment be withheld or withdrawn and (the writer)be permitted to
die naturally. This is an important document and the use (or non-use)
should be carefully considered. Such a document can save family members
grief and stressful decision making.
JEFFREY R. ROPP is a graduate of Washington State University, receiving
his Bachelor of Arts Degree in Business Administration, and his Law
Degree from Gonzaga University School of Law. He holds a Masters
of Laws in Taxation (LL.M.) from the University of Florida. Mr. Ropp
has been with the law firm of John Cooney & Associates, P.S.
since 1989. His practice focuses on estate planning, probate, federal
gift and estate tax planning and elder law issues. He is member of
the Washington State and Spokane County Bar Associations, Spokane
Estate Planning Council, National Academy of Elder Law Attorneys,
Inland Northwest Planned Giving Council and the Planned Giving Advisory
Board for the Spokane Food Bank.
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