An Estate Planning Primer

By Jeffrey R. Ropp, Attorney
John Cooney & Associates, P.S.
Spokane, Washington

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.