I. OVERVIEW

Program Agenda

A. Use of Checklists in Preparation for an Initial Client Interview

B. Responsibilities of an Estate Planner

C. Post Mortem Estate Planning: An Introduction

Program Outlines

Estate Planning Overview 3

Fact Gathering — Use Of Checklists 

Estate Planning Glossary 

1 2

ESTATE PLANNING OVERVIEW

by

JESSICA R. AMELAR, Esq.

Principal Court Attorney New York County Surrogate's Court New York City

3 4 ESTATE PLANNING OVERVIEW

Jessica R. Amelar Principal Court Attorney New York County Surrogate's Court

I. Responsibilities of an estate planner

A. Objectives of estate planning include:

1. providing, to the extent appropriate, for the client’s personal care and the management of the client's assets during the client’s disability or old age;

2. arranging for a guardian of the person and property of any minor child (see SCPA 1710);

3. minimizing current income taxes; and

4. effectuating the client's intent to transfer wealth and, at the same time, minimizing estate, gift and generation-skipping transfer taxes, and administration expenses at death.

B. It is imperative that an estate planning professional know current estate planning techniques and relevant law, including tax, property, and trusts and estates law.

1. A poorly drafted instrument can dispose of property in a manner not intended by the client. (Consider, for example, the effect of a poorly drafted tax apportionment clause.)

2. A poorly conceived or poorly articulated estate plan can result in costly litigation, such as a construction proceeding, and/or excessive taxation.

3. An attorney may be liable, even after the client’s death, for pecuniary losses resulting from negligent estate planning representation (see Schneider v Finmann, 15 NY3d 306 [2010], in which the Court of Appeals ruled that the of a decedent’s estate has standing to commence a malpractice action against the decedent’s estate planning attorney.) NB: On September 2, 2015, the Appellate Division (2nd Department) determined that have standing to commence a malpractice action against the grantors’ attorney (Ianiro v Bachman, 2015 NY Slip Op 06709 [2nd Dept 2015]).

5 C. Estate planning operates against a background of complicated tax laws. Accordingly, a client's dispositive decisions must be informed by an understanding of the relevant federal and state tax laws.

II. Every prospective client has an estate plan.

A. A client’s assets not disposed of by will pass:

1. by operation of law, for example:

a. jointly held assets,

b. accounts (see EPTL 7-5.1 through 7-5.8), and

c. transfer-on-death security accounts (see EPTL 13-4.1 through 13-4.12);

2. to a designated beneficiary other than the estate, for example:

a. insurance policies,

b. retirement benefits, and

c. United States savings bonds payable on death; or,

3. if personal property, by the law of of the decedent's domicile (see EPTL 3-5.1 [b] [2]), and, if real property, by the law of intestacy of the jurisdiction in which the land is situated (see EPTL 3-5.1 [b] [1]).

III. An estate planner’s role is to try to improve upon the client’s existing plan. To do so, the attorney must know the relevant facts.

IV. Fact Gathering

A. Facts to be ascertained from the client include:

1. the client’s dispositive wishes;

2. the nature, extent, situs of, and title to, the client’s assets;

3. the nature and extent of any interest created for the client’s benefit;

4. the nature and extent of the client’s liabilities, if any;

5. any obligation which the client must satisfy by will; and

6 6. personal data.

B. The attorney should obtain copies of relevant documents, such as any prenuptial agreement, separation agreement, gift tax return, and the instrument for any trust of which the client is a beneficiary or over which the client has a .

C. Ascertaining the manner in which a client holds title is critical to an analysis of the and non-probate estates.

D. Among the relevant personal data are: the client's domicile and the citizenship of the client and the client’s spouse.

1. Under New York law, the law of the client’s domicile at death determines, among other things:

a. the effect of a of personal property (see EPTL 3-5.1 [b] [2]); and

b. family rights, such as:

i. a family benefit (see EPTL 5-3.1),

ii. a spouse’s right of election (see EPTL 5-l.l-A), and

iii. community property rights (see EPTL 6-6.1 through 6-6.7).

2. The client’s domicile at death determines the jurisdiction that will tax the estate (see Tax Law 952; see also Tax Law 605 [b] for the definition of a New York State “resident,” which includes a New York State domiciliary).

a. NB: There is an exception under New York law with respect to real property and tangible personal property having an actual situs outside New York State (see Tax Law 954 [a] [1]).

b. NB: Any change in the client’s domicile must be clearly established so that the client’s estate will not be subject to transfer tax in more than one jurisdiction.

3. Citizenship of the client and the client’s spouse is significant because:

a. The disposition of certain property of an alien may be subject to laws of in the country of which the alien was a citizen.

b. An outright disposition to a spouse who is not a citizen of the United States does not qualify for the unlimited marital deduction (see IRC 2056 [d] [1]; but see IRC 2056 [d] [2]).

7 E. A checklist may be useful to an attorney gathering information from the client during an initial interview (see "Fact Gathering - Use of Checklists," by Michael M. Mariani, included in this course book).

V. Some precepts in formulating an estate plan

A. An attorney should be wary of potential conflicts of interest.

B. An estate plan should provide for sufficient liquidity to meet anticipated administration expenses and transfer tax obligations. (Consider, for example, a client whose only asset is a business.)

C. An estate plan should provide for reasonably foreseeable contingencies, such as:

1. the death of an individual, named in a client’s will as sole executor or residuary beneficiary, either contemporaneous with or prior to the death of the client; and

2. a relevant change in the character of a client’s assets.

   



















8

FACT GATHERING — USE OF CHECKLISTS

by

MICHAEL M. MARIANI, ESQ.

Managing Director and Deputy General Trust Counsel Fiduciary Trust Company International New York City

9 10  

FACT GATHERING — USE OF CHECKLISTS  Michael M. Mariani, Esq.* Managing Director and Deputy General Trust Counsel Fiduciary Trust Company International New York, New York

I. OBJECTIVES CHECKLIST To determine client’s main objectives for estate plan and the relative importance of each of these objectives.

A. Objectives for Client and Client’s Spouse  1. Personal care during disability or old age.  2. Managing assets during disability or old age.  3. Securing advice for current management of assets.  4. Minimizing current income taxes.  5. Arranging for guardians for any of the client’s minor children.  6. Arranging for disposition or continued management of family business after disability, retirement or death.  7. Changing residence to another jurisdiction—double domicile problems.  8. Making gifts to family members.  9. Establishing asset management for children.  10. Providing financial care for client’s parents and adult dependent children.  11. Ensuring that family assets remain in family.  12. Making gifts to charities.  13. Purchasing additional .  14. Purchasing insurance to supplement income in case of disability.  15. Concern for health care decisions if gravely ill.  16. Concern for funeral arrangements and donation of bodily organs.  17. Minimizing estate and inheritance taxes and administration expenses at death.  * Copyright 2015 Michael M. Mariani. All rights reserved.

 

11   B. Objectives under Client’s Will

1. Selection of executor, and successor fiduciaries.  2. Disposition of valued personal effects to spouse.  3. Disposition of valued personal effects to children, other family members or friends.  4. Authorizing spouse to make gifts to other family members during spouse’s lifetime.  5. Authorizing spouse to make gifts to other family members under spouse’s will.  6. Protecting assets left to spouse or child from present or future creditors.  7. Reduction of estate taxes at client’s death regardless of estate tax consequences at death of surviving spouse.  8. Arranging for care of child with mental or physical handicap.  9. Arranging for care of parent or other family member.  10. Selection of guardian for minor children.  11. Arranging for the retention of the family home for the surviving spouse and the children.  12. Cash dispositions to family, friends, and employees.  13. Arranging for disposition of any professional practice assets and other business interests.  14. Dispositions to any charity.  15. Disposition of digital assets.  16. No contest clause.

C. Objectives under Power of Attorney

1. Enable attorney-in-fact to act for the client should the client become disabled, or for any other reason.  2. Enable attorney-in-fact to make tax-free gifts up to the amount of the annual gift tax exclusion ($14,000 in 2015), per year for each intended donee.  3. Allow attorney-in-fact to make unlimited tax-free gifts for medical and

 

12   tuition expenses for each intended donee.  4. Empower the attorney-in-fact to act concerning all tax matters for the client.  5. Enable the attorney-in-fact to pay for all health care expenses for the client.  6. Enable the attorney-in-fact to create or modify a revocable trust for the client.  7. Enable the attorney-in-fact to transfer client’s assets to client’s revocable trust.  8. Enable the attorney-in-fact to deal with retirement plans and IRAs.  9. Enable the attorney-in-fact to act concerning all business matters for the client.  II. DOCUMENT CHECKLIST

To determine availability of relevant data.

A. Information Regarding Client

1. Current will and .

2. Trust agreements—which client has created or under which the client may be a beneficiary.

3. Powers of attorney.  4. Naturalization papers.  5. Pending litigation papers.  6. Pre- or postnuptial agreements.  7. Divorce decree or separation agreement.  8. Military discharge papers.  9. Adoption papers regarding client or client’s family members.  10. Health care proxy.  11. Living will.

B. Property Interests

 

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1. Savings and checking accounts, investment management accounts and custody accounts.  2. Personal financial statements.  3. Appraisals or documents evidencing ownership of fine arts, jewelry, antiques, furs, or other valuables.  4. Promissory notes and mortgages.  5. Inventory of stocks, bonds and securities.  6. Assets over which the client has a general or special power of appointment.  7. Safe-deposit box or private safe.  8. Copyrights, trademarks and patents.  9. Royalty agreements.  10. Deeds to current residence and other real estate.  11. Digital assets.  12. Title insurance policies.  13. Proprietary lease and stock certificate for cooperative apartment.  14. Employee benefit statements.  15. Retirement accounts.  16. Loans and debts owed to client.  17. Loans and debts owed by client.  18. Custodian accounts established under New York Uniform Transfers to Minors Act.1

C. Life Insurance

1. All policies owned by client or client’s spouse.

2. All policies owned by client or spouse insuring someone else’s life.

3. All policies on decedent’s life owned by someone other than the decedent, either in trust or outright.

 1See EPTL 7-6.1 to 7-6.26.

 

14  

4. Premium notice regarding insurance policies.

5. Summary Statement of client’s insurance program prepared by insurance agent.

D. Other Insurance

1. Homeowner’s policy.

2. Renter’s policy.  3. Floater or fine arts policy.  4. Automobile policy.  5. Health, hospitalization and major medical policies.  6. Disability income insurance.  7. Long-term care insurance.  8. Umbrella (excess liability) policy.  9. Professional malpractice insurance.  10. Annuity .  11. Fraternal benefits. 

E. Business Interests

1. Agreements concerning joint ventures.

2. Partnership agreements.  3. Shareholders’ agreements.  4. Stock redemption agreements.  5. Life insurance incident to an agreement.

F. Tax Returns

1. Copies of state and federal income tax returns for past three years.

 

15  

2. Copies of state and federal gift tax returns that have been filed.  3. Copies of estate tax returns for predeceased spouse and those estates in which the client has received any interest.

III. FACT-GATHERING CHECKLIST  Provides starting point for preparing and organizing estate plan and assists in four phases of estate planning process: (1) ascertaining facts, (2) analyzing facts, (3) formulating plan, (4) implementing plan.  Checklist also reveals problem areas not obvious to the client:

1. Insufficient life, medical, liability, long-term care or disability insurance coverage.

2. Need for more liquidity to meet estate tax obligations.  3. Forgotten obligations created under existing agreements.  4. Need for durable general power of attorney.  5. Need to secure appointment for guardian and standby guardian for developmentally disabled child, pursuant to SCPA Article 17-A.  6. Need for designation of successor custodian pursuant to EPTL 7-6.18 to obviate need for court proceeding if custodian dies before minor attains age of majority.  7. Death of nominated fiduciaries and intended beneficiaries.

A. Ascertaining Facts

1. Personal data-client.

a. Name.

b. Address.

i. Home.

ii. Business.

c. Phone.

i. Home.

ii. Business.

 

16  

d. Social security number.

e. Aliases, nicknames, surnames.

f. Date and place of birth.

g. Citizenship.

h. Other residences.

i. Marital status.

i. Date and place of marriage.

ii. Pre- or postnuptial agreement.

j. Prior marriages.

i. Date and place.

ii. How terminated.

(a) Certified copies of decrees or judgments.

(b) Potential obligations surviving death.

k. Resided with spouse in community property states?

i. Community property jurisdictions: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.

ii. Potential problems—decisions in jurisdictions showed no consistent pat- tern regarding disposition of property which was community property or derived from community property.

iii. Uniform Disposition of Community Property Rights at Death Act, Uniform Laws Annotated, Master Edition, Volume 8A, 1-13, adopted by Colorado (1973), Hawaii (1973), Oregon (1973), Kentucky (1974), Michigan (1975), North Carolina (1981), New York (1981), Arkansas (1981), Virginia (1982), Alaska (1984), Connecticut (1985), Wyoming (1985), Montana (1989), Florida (1992), Utah (2012) and Minnesota (2013).

iv. New York law—EPTL 6-6.1 to 6-6.7 codifies this act; cannot dispose of surviving spouse’s share of the community property; deceased spouse’s interest in community property is not subject to right of election; step-up

 

17   in basis of value of all community property.

l. Date of adoption, if applicable.  m. Occupation.  n. Employer.  o. If retired, former occupation and employer.  p. Military service—branch, grade, serial number.  q. Health problems, if any.  r. Location of safe-deposit box.  2. Personal data—client’s spouse.  3. Personal data—client’s children.  a. Adopted children.  i. Formal adoption.  ii. Equitable adoption.  b. Non-marital children.

4. Family tree of client and spouse.  a. Client may die residing in, or owning real estate in, jurisdiction with solemn form of probate.  b. Indicates client’s natural objects of bounty and prospective fiduciaries.  c. May be required at client’s death—for example, see Uniform Rules for Surrogate’s Court § 207.16(c).  5. Assets, type of ownership and location.

a. Personal property.

i. Collectibles.  ii. Antiques.  iii. Works of art.  iv. Furs and jewelry. 

 

18   v. Coin or stamp collection.  vi. Furnishings.  vii. Motor vehicles.  viii. Library.  ix. Pets.  x. Guns.  xi. Professional practice assets.  b. Cash and cash equivalents.

i. Savings accounts.  ii. Checking accounts.  iii. “In trust for” accounts.  iv. Money market accounts.  v. Treasury bills.  vi. Credit union accounts.  vii. Frequent flier mileage accounts and credit card rewards plans.  viii. Cash hoards.  ix. Gold, Silver and other precious metals.  c. Securities.

i. Stocks.  ii. Tax-exempt bonds.  iii. Corporate bonds.  iv. U.S. Treasury securities.  v. Custody management accounts.  vi. Savings bonds.  vii. Investment management accounts. 

 

19   viii. Promissory notes and mortgages.  d. Life insurance, annuities and employee benefits.

i. Face amount of life and group insurance owned on self.  ii. Face amount of life and group insurance owned on others.  iii. Stock options and restricted stock awards.  iv. Deferred compensation.  v. Post-death salary.  vi. Vested pension rights and profit-sharing plans.  vii. Employee benefit plan statements, summary plan statements and employment literature to determine other benefits.  viii. IRA.  ix. 401(k) and other retirement plans.  e. Business interests.

i. Proprietorship.  ii. Professional practice.  iii. Closely held business interests.  iv. Tax shelters.  v. Joint ventures.  vi. Partnership interest.  vii. LLC, LLP and other limited liability entities.  viii. Royalties.  ix. Commissions.  f. Real estate.

i. Principal residence.  ii. Vacation residence, including time shares.  iii. Other residences.

 

20    iv. Undeveloped property.  v. Farm land.  vi. Oil, gas and mineral interests.  g. Digital assets.

i. Email accounts.  ii. Websites.  iii. Blogs.  iv. Social networking profiles.  v. Domain names.  6. Liabilities.

a. Judgments.  b. Bank loans.  c. Promissory notes.  d. Accounts payable.  e. Pledges.  f. Secured loans.  g. Unsecured loans.  h. Intra-family loans.  i. Accrued taxes.  7. Advisors.

a. Physician.  b. Life insurance agent.  c. Casualty insurance broker.  d. Accountant.  e. Attorney.

 

21    f. Investment advisor.  g. Securities custodian.  h. Banker.  i. Clergyman.

B. Analyzing Facts

C. Formulating Plan

1. Unlimited marital deduction—shifting ownership of assets.

2. Gift giving to reduce taxable estate and reduce income generated from those assets.  3. Consider splitting assets to take advantage of applicable exclusion amount and generation- skipping tax exemption.  4. Joint ownership of real property in other jurisdictions or creating a revocable trust to avoid ancillary proceedings.  5. Consider purchasing additional life insurance to meet anticipated estate tax obligations.  6. Use of durable power of attorney as estate planning tool.  7. Consider relevancy of health care proxy, living will and HIPAA authorization form.  8. Determine if client has charitable intentions and discuss vehicles for making charitable dispositions, if applicable.  9. Establish a revocable trust for asset management during lifetime and after death.  10. Establish an irrevocable life insurance trust to use as a gift-making vehicle.  11. Review and update, if necessary, beneficiary designations for life insurance, IRAs, 401(K) plans and other retirement plans.  12. Estate planning with increasingly more emphasis on income tax and lifetime planning.  13. Tailor plan to meet client’s objectives.

 

22 







 ESTATE PLANNING GLOSSARY

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24 EstatePlanningGlossary  Estateplanning,wills,andtrustsofteninvolvealotofunfamiliar"legalese."Congress, statelegislatures,courts,judges,andlawyersuseanarrayoflegalterms,suchas"per stirpes,"manyofwhichareunfamiliartothelayperson.Sometimesthesewordsmust beusedincertaindocuments.Tohelpyouunderstandestateplanningtermsbetter,we haveputtogetherthisglossary.  AͲBTrust AlsocalledabyͲpasstrustoracreditsheltertrust.ThepurposeofanAͲBTrustisto helpmarriedcouplesavoidfederalestatetaxes.Typicallyaspouseleaveshis/her separateassetsandshareofcommunity/maritalpropertytoatrust(TrustAandTrustB) insteadoftotheotherspouse.Thesurvivingspousereceivestheincomeearnedonthe assetsofthedeceasedspouse'strustforlife.Thetrusteeisalsodirectedtopay principaltomeetthesurvivingspouse'sneedfor"health,education,supportand maintenance"duringhisorherlifetime.Onthesurvivingspouse'sdeath,theremaining assetsofthetrustaredistributedtothebeneficiariesselectedbytheTrustMaker, typicallyhisorherchildren.Becausetheassetsofthetrustneverbelongedtothe secondspouse,theyarenotcountedaspartofthatspouse'sestatefortaxpurposes.   Extinguishedorwithdrawn.Thistermisusedtodescribethesituationinwhichaspecial giftofproperty(whetherasumofmoneyoranitemofpersonalpropertyorreal property)intendedforabeneficiaryataperson'sdeathcan'tbegiven.Thismight happenbecausethepropertywasgiventothebeneficiaryduringthedeceased's lifetimeorbecausethepropertythatwastobegivenasaspecialgifthasbeensold, lost,orotherwisedisposedofbytheownerandisnotpartoftheestateatthetimeof his/herdeath.  Administrator(orthefeminine,Administratix) Personnamedbyaprobatecourttorepresenttheestateofadeceasedpersonwhen thereisnowillorthewilldidnotnameanexecutor.Thetermpersonalrepresentative isalsousedtoincludeanadministratorandanexecutor.  Adult Apersonwhohasreachedtheageatwhichheorsheisabletoenterintobindinglegal agreements.Insomestates,apersonisregardedasanadultonhisorher18thbirthday. Insomeotherjurisdictionstheageis21.  Annulment Madelegallyvoid,asifitneverhappened.Amarriagethathasbeenannulledistreated asifitneveroccurred(formostpurposes).  

25 AttorneyͲinͲFact Apersongivenauthoritytoactonbehalfofanotherperson,whoiscalledtheprincipal. AnattorneyͲinͲfactcanbeanyadultwhotheprincipalselects.(Heorsheneednotbea lawyer.)Typically,peopleappointanattorneyͲinͲfactinawrittenpowerofattorney, grantingtheattorneyͲinͲfactthepowertotransactbusiness(enterintoagreements, contracts,maketransfersofproperty,etc.).TheauthorityoftheattorneyͲinͲfactcannot lastbeyondthelifeoftheprincipal. BackͲupTrustee(alsocalledtheSuccessorTrustee) Thepersonorinstitutionnamedinatrustagreementwhowillassumecontrolofthe trustiftheoriginaltrusteedies,resigns,orbecomesunableorunwillingtoact.In sportingterms,itislikesomeonewhositsonthebenchandonlycomesonifaregular teammemberisinjuredorplaysbadly.TherecanbeseverallayersofbackͲuptrustees whotakeoverintheorderthetrustcreatordesignates.  BeneficiaryͲ Apersonororganizationthatistoreceiveabenefit.Thebenefitmayflowfroman insurancepolicyoranothersuchasatrustorawill.  ByͲPassTrustͲͲSeeAͲBTrust.  CharitableLeadUnitrust(CLUT) Atrustsetuptobenefitacharityduringthedonor'slifetimeorforafixedtermofyears. Whilethedonorisalivetheincomefromthetrustgoestooneormorecharitable foundations.Whenthedonordiestheassetsinthetrustgototheheirsorbeneficiaries namedinthetrust.Thiskindoftrustisgenerallyfortheveryrichandforthosewhose childrenwon'tneedtheincomeuntilyearslaterwhenthetrustends.  CharitableTrust Oneofseveraldifferenttypesoftruststhatbenefitacharityorthepublic,including CharitableLeadTrustsandCharitableRemainderTrusts.Typically,charitabletrustsare establishedaspartofanestateplantoloweroravoidimpositionoffederal(andsome state)estateandgifttaxesand/ortosavecapitalgainstax.  CharitableRemainderTrust(CRT) Atrustwherethedonorreceivesanincomefromthetrustassetsduringhisorher lifetime.Whenthedonordiestheassetsofthetrustgotoacharity.Thedonorortrust creatorcanselltheassetswithoutpayingcapitalgainstaxandreceivesanannual income.Heorshewillalsoreceiveataxdeductionforthecharitablegiftandeliminate appreciatedassetsfromhisorherestate.  CharitableRemainderAnnuityTrust Acharitableremaindertrustinwhichthetrustdonorispaidanannualfixeddollar amount. 

26 CharitableRemainderUnitrust Acharitableremaindertrustinwhichthetrustdonorispaidanannualfixedpercentage ofthefluctuatingvalueoftrustassets.  Codicil Awrittenchangeoramendmenttoawill;itmightrevoke,explain,oraddtoprovisions intheexistingwill.Acodicilmustbeexecutedwiththesameformalityasanoriginal will.  Cohabitation Livingtogetherwithoutbeingmarriedtoeachother.  Commingle Tomixtogether.Ifseparateproperty(nonmaritalproperty)ofahusbandandwifeis commingledandcannotbetracedtoitssource,thepropertyislikelytobecome communityproperty(maritalproperty).Seealsotransmute.  CommunityProperty Propertyacquiredduringamarriageandwhilelivinginoneofthe9community propertystates(seebelow).Asageneralrule,everythingderivedfromtheearningsof eitherspouseissharedequallybyahusbandandwife.EachspouseownsonlyoneͲhalf ofthecommunitypropertybecausetheotherhalfbelongstotheotherspouse. Communitypropertyrulescanbemodifiedbypremaritalandpostmaritalagreements. Seealsoseparateproperty,commingle,quasiͲcommunityproperty,maritalproperty, andnonmaritalproperty.  CommunityPropertyStates Statesinwhichcommunitypropertylawsapplyare:Arizona,California,Idaho, Louisiana,Nevada,NewMexico,Texas,WashingtonState,andWisconsin.  ConflictsofInterest Actualorpotentialconflictingobjectives.Conflictsofinterestoftenarisewhenacourse ofactionwouldbenefitonespousebutrestrictornegativelyimpacttheother.  Conservator ThepersonappointedbyacourttobelegallyresponsibleforthecareandwellͲbeingof anotherperson,typicallyapersonwhohasbecomeincompetentorincapacitated, and/ortomanagetheperson'spropertyandfinancialaffairs.Thecourtmayappoint differentconservatorsforthepersonandfortheestate.Aconservatorisunderthe supervisionofthecourtandmustreportallactionsandfinancialdealingsmadeon behalfoftheincompetentpersontothecourt.Insomeplaces,aconservatormaybe calledaguardianoracurator.  

27 Conservatorship AcourtͲcontrolledprogramforpersonswhoareunabletomanagetheirownpersonal andfinancialaffairsduetophysicalincapacityormentalincompetence.Insomerespect thisisakintoprobate,butforalivingperson.  CorporateorInstitutionalTrustee Acorporationthathandlesthemanagementoftrusts.Underthelawsofmoststates onlybanksandtrustcompaniescanbecorporatetrustees.(Californiaalsopermitstrust branchesoftitleinsurancecompaniestoserveastrustees.)  CostBasis Thetaxbasisisthevaluethatisusedtodeterminegainorlossforincometaxpurposes. Costbasismeansusingtheamountoriginallypaidforthepropertytocalculatethetax basis.Generally,thetaxbasiswillequalthepurchaseprice,plusthecostofcapital improvements,lessdepreciation.Subtractthisamountfromthesalepriceofthe property,andyouhavetheamountthepropertyhasgainedinvalue.Thesellermay owecapitalgainstaxonthisamount.Oncethepropertyistransferredupontheowner's death,itisrevaluedasofthedateofdeath;thisiscalledthesteppedͲupBasisfor FederalIncomeTaxpurposes.  CrummeyLetter Awrittennotificationtothebeneficiarieswhohavewithdrawalrightsthatcontributions ofmoneyͲͲtypicallytoanirrevocablelifeinsurancetrustͲͲhavebeenreceivedontheir behalf.Thebeneficiariesthenhaveaperiodoftimetowithdrawthefunds.Useofa CrummeyLettercanavoidcertainpotentialtaxproblemsarisingfromthegiftofa futureinterestandisarecordoftheamountofgiftsgivenforpurposesoftheannual gifttaxexemptionof$12,000perperson.[2008]  Decedent Apersonwhohasdied,alsocalledthedeceased.  Devise Agiftmadebyawilloratrust.Adeviseismadetoabeneficiaryunderthetermsofthe willortrust.Insomestatesthistermisonlyusedtorefertogiftsofrealproperty.In otherstatesadeviseisthesamethingasabequestandcanapplytoanykindof property.  Domicile Aperson'spermanentlegalresidence.Whileapersonmayhavemorethanone residence,heorshecanhaveonlyonedomicile.Typically,thedomicileisthesame placeyouuseforpurposesofvoterregistration.Youarepresumedtohaveyour domicileinthecountryofyourbirthorwhereyourparentswerebornunlessyouhave brokentieswiththatcountry. 

28 DurablePower Apower(typicallyapowerofattorney)thatcontinuesdespitementalorphysical incapacityoftheprincipal.Adurablepowermayariseonlywhentheprincipalbecomes incapacitated.SeealsoPowerofAttorneyandAttorneyͲinͲFact.  DurablePowerofAttorneyforHealthCare Adocumentthatgrantsaperson,sometimesknownasahealthcareagentorhealth careproxy,thelegalauthoritytomakehealthcaredecisionsforanotherintheevent thatthelatterpersonisunabletomakethemforhim/herself.  Estate Thetotalofallassets,alldebts,andotherobligationsofanindividual.Atthetimeof deaththetotalamountofbenefits(lifeinsurance,annuity,andretirementbenefits)to bepaidtobeneficiariesareoftenalsoconsideredpartoftheestateforFederalEstate Taxpurposes  Executor(orthefeminine,Executrix) Apersonorinstitutionnamedinawillandappointedbyaprobatecourttocarryoutthe will'sinstructionsandtomanagetheprobateestate.Thedutiesoftheexecutorinclude makinganinventoryofallproperty,payingdebtsandexpenses,anddistributingthe remainingestatetothebeneficiaries.Anexecutorisknownasthepersonal representativeinCalifornia.  Execution Theactofproperlysigninglegaldocuments,suchasapowerofattorney,aTrustora will.Forexample,properexecutionofawillismorethan"justsigning"andnormally requiresatleasttwowitnesseswhoarenotbeneficiariesunderthewill.Forapowerof attorneyoratrust,properexecutioninvolveshavinganotarypubliccertifyyour signature.Statelawdefinestheproperexecutionofdocuments.Forexample,some statesrestrictwhomaybeawitnesstodocumentslikeadurablepowerofattorneyfor healthcare.  FamilyLimitedPartnership Alegalpartnershipagreementbetweenmembersofafamilyforthemanagementand controlofpropertyforthebenefitofallparties.Sometimesusedtominimizegiftand estatetaxes.  FederalEstateTaxes TaxesimposedbytheUSGovernmentonthevalueofaperson'sestateuponhisorher death.Tobeoversimplistic,theFederalEstateTaxforindividualcitizensis45%on amountsinexcessoftheexemptionamount,whichis$2millionasof2008.The exemptionamountwillbe$3.5millionin2009,andthentheestatetaxwillberepealed in2010.In2011theestatetaxwillbereinstatedwithanexemptionamountof$1

29 million,unlessCongresspassesanewlaw.Somestatesalsoimposeastateestatetaxor inheritancetax.  Fiduciary Apersoninwhomoneplacesgreatconfidenceanduponwhomonereliesforhisorher integrity,trust,andgoodfaith.Afiduciaryhasthelegaldutytoactinthebestinterest andbenefitofanotherandthereforeisheldtotheveryhighestlegalstandards.A trusteeoranattorneyͲinͲfactisafiduciary.  FutureInterest Aninterestinpropertythatoccursinthefuture,aftercertaineventshavetakenplace. Seealsoremainderman.  Gain Thedifferencebetweenthetaxbasis(theamountoriginallypaidforpropertywith certainadjustments)andtheamountreceivedforthepropertywhenitwassold.This valueisusedtodeterminetheamountofcapitalgainstaxdueontheincomefromthe sale.SeealsocostbasisandsteppedͲupbasis.  GenerationͲskippingtransfertax(GSTTax) A46%taximposedontransfersofmoneyorproperty,whichskipsagenerationof familymembers.madeduringthelifetimeoronthedeathofthedecedent.For example,ifagrandparentleavesmoneydirectlytoagrandchildratherthantohisown son/daughter(thegrandchild'sparent),thetransfermayincurGSTtax.TheGSTtaxalso appliestotransferstononͲfamilymembersmorethan37andahalfyearsyoungerthan thepersonmakingthetransfer.Fortunately,eachpersonhasalifetimeGSTtax exemptionof$1million.Soonlytransfersofmorethanthatamountperpersonwould besubjecttothetax.The$12,000perpersonperyeargiftsthatareexemptfromthe gifttaxarealsoexemptfromtheGST.  Grantor Thepersonwhosetsuporcreatesthetrust;alsocalleda,trustcreator,trust maker,ortrustor.  GrossEstate Thevalueofanestatebeforethedebtsarepaidandwithoutconsideringliensonestate propertyorprobatecosts.Inafewstatesprobatestatutoryattorneyfeesandpersonal representativefeesarecalculatedbasedonthegrossvalueoftheestate.Forexample, thevalueofthehomeiscalculatedbeforedeductingtheamountdueonthemortgage. Ifadeceased'sassetsareahouseworth$500,000witha$400,000mortgage,hergross estateis$500,000,althoughthenetvalueisonly$100,000.  

30 Guardian Thepersonresponsibleforthehealth,education,andwelfareofaminorchildand/or forhandlingtheminorchild'sfinancialaffairs.Thepersonwhomakesdecisionsabout thechild'sdayͲtoͲdaylife,suchasmedicalcare,education,anddailycare,iscalledthe guardianoftheperson.Thepersonwhotakescareofthechild'sfinancesiscalledthe guardianoftheestate.Onepersoncanfillbothroles.  Guardianship AcourtͲcontrolledrelationshipbetweenaguardianandtheminorchildwhoissubject totheguardianshipforthepurposeofcaringforandmanagingtheaffairsofminor children.  Healthcareagentorhealthcareproxy Persondesignatedtomakehealthcaredecisionsforanindividual.  Holographicwill Ahandwrittenwillthatisdatedandsignedbythepersonmakingthewill.The requirementsforavalidholographicwillvaryfromstatetostateandsomestatesdon't recognizethematall.Becauseholographicwillsaren'tfavoredbycourtstheyshouldbe avoidedifpossible.  Incapacity/incompetent Legallyunabletomanageone'sownaffairsduetomentaldisability.Thismaybe temporaryorpermanent.  Informedconsent Anauthorizationtoproceedbyapersonwhohasbeengivenandunderstandsallofthe relevantfacts.Theconceptofinformedconsentisoftenusedwithrespecttomedical decisions.Iftheprocedurestobeusedandtheassociatedrisksandbenefitsofthe procedureshavebeenfullyexplainedsothatapersonunderstandsthem,thatpersonis inapositiontogiveinformedconsent.  Inheritancetax Ataximposedbyaminorityofstatesatthetimeofaperson'sdeaththatisbasedupon thetotalvalueofthedecedent'sestate.  InterͲvivos ALatintermwhichmeans"betweentheliving."Thisisusedtodescribetrustsmade duringone'slifetime,suchasalivingtrust.Alivingtrusttakeseffectwhilethetrust creatorisstillalive.Incontrast,atestamentarytrustisatrustthattakeseffectaftera personhasdied.  

31 Interlineation SomethingwritteninͲbetween;oftenachangetoatypeddocumentthatismadeby crossingoutwordsandenteringinreplacementwords.Neverchangeanexecutedwill ortrustbyinterlineation.  InͲTerrorumClause InͲTerrorumisaLatintermmeaning"infear."Itisusedtodescribeaprovisionofawill ortrustthatdisinheritsapersonifheorshechallengesthetermsofthewillortrust.It issometimescalledaNoͲContestClause.Ifthechallengetoawillortrustissuccessful, theinͲterrorumclausemayalsobeinvalid.  Intestate Havingdiedwithoutawillorwithoutprovidinglegallybindinginstructionsforthe distributionofone'spropertyafterhisorherdeath.Seealsotestateandprobate.  Irrevocable Somethingthatcannotbealtered,changed,ormodified.Anirrevocabletrustisonethat cannotbechanged,canceled,orrevokedonceitisestablished.  Issue Referstoaperson'sdescendantsͲͲchildren,grandchildren,greatͲgrandchildren,greatͲ greatͲgrandchildren,etc.  JointTenancy Awaythatpropertymaybeownedbytwoormorepeople.Inajointtenancywhenone ofthejointownersdies,allofhis/herinterestinthepropertyistransferred immediately,byoperationoflaw,totheothersurvivingowner(s).Ifthejointtenancy existsbetweenahusbandandwife,itmaybecalledatenancyͲbyͲtheentirety. ComparewithtenancyͲinͲcommon.  Judgment Anofficialcourtorderregardingtherightsorclaimsofthepartiestoalegalactionor proceeding.  ͲͲSeeBeneficiary.  Livingtrust(sometimescalledaninterͲvivostrust) Atrustestablishedduringaperson'slifetimeintowhichsheorheplacesproperty.The writtendocumentsettingupthelivingtrustcontainsinstructionsformanagementand distributionofthetrustpropertyduringhisorherlifetimeaswellasuponhisorher deathordisability.Alivingtrustistypicallyrevocable,whichmeansapersoncanchange itatanytime,solongastheheorsheremainslegallycompetent.  

32 Livingwill(alsoknownasanaturaldeathdeclaration) AdocumentthatdefinesthecircumstancesͲͲsuchasifthepersonissufferingfroma terminalillnesswithnoexpectationofrecoveryͲͲunderwhichhealthcareprofessionals shouldwithholdorremoveartificiallifesupport,orrefrainfromusingheroicmeasures, whenthepatientisunabletogiveinformedconsentduetoincapacity.Seealsohealth careagent.  LookͲbackperiod Theperiodoftimeastatewillreviewforgiftsortransfersofassetsforpeopleapplying forMedicaid.Thetimeperiodis36months,or60monthsforestablishingatrust.A personmaybeineligibleforMedicaidifassetshavebeengivenawayortransferred duringthisperiod.  Maritalproperty PropertybelongingtobothspousesinamarriageinanonͲcommunitypropertystate. Thisiscomparabletocommunitypropertyinacommunitypropertystate.See communityproperty,separateproperty,nonmaritalproperty,andtransmute.  Medicaid Amedicalinsuranceprogramfundedbystateandfederalfunds,whosebenefitsare basedonneed.Medicaidisoftenusedtopayfornursinghomeandresthomecare.  Medicare Afederalhealthcareinsuranceavailabletoseniorsandsomedisabledpersons.There areseveraldifferentoptionsforcoverage.  MinorChild Achildunderthelegalageofadulthood.Theagevariesbystatebutachildisusually consideredanadultbyhisorher18thor21stbirthday.  Naturaldeathdeclaration AformofLivingWillapprovedinsomestates,alsoknownasDirectivetoPhysicians.See livingwill.  NetͲincomecharitableremainderunitrust(NICRUT) Aformofcharitabletrustinwhichthedonorispaidafixedpercentageofthetrust assetsannually.Inthistypeoftrustthereisnodistributiontothedonorunlessthetrust hasearnedenoughinteresttocoverthepayment.Inotherwords,theprincipalassetsof thetrustarenotdistributed.  Netincomewithmakeupcharitableremainderunitrust(NIMCRUT) SameasanNICRUTbutifthetrustearnsmorethanthefixedpercentageduringalater year,theunitrustisabletomakeupanearliershortfalltotheamountthatitsearned incomeismorethanitsfixedpercentage.

33  Netvalue Thevalueofanestateafteralldebtshavebeenpaid.Federalestatetaxesarebasedon thenetvalueofanestate.ComparewithGrossEstate. Nonmaritalproperty PropertybelongingtoonlyonespouseinamarriageinanonͲcommunitypropertystate. Thisiscomparabletoseparatepropertyinacommunitypropertystate.Seecommunity property,separateproperty,maritalproperty,andtransmute.  Notarypublic Apersonwhohasbeenauthorizedtoadministeroathsandwitnessdocuments.Some legaldocuments,suchasdeeds,requiretheservicesofanotarypublic.Thepowersofa notaryvarysomewhatfromstatetostate.  Ownershipinterest Thelegalrighttomanage,sell,orgiveawayproperty.  PerCapita Ameansbywhichagrantorcandistributehisorherestatesothateachofthesurviving descendantswillshareequally,regardlessofgeneration.Forexample,ifthedeceased hastwosurvivingchildrenandtwosurvivinggrandchildren,underapercapita distributiontheywouldeachreceive25%.Comparewithperstirpes.  Personalproperty Movableproperty,includingfurniture,antiques,automobiles,businessequipment, cash,andstocks.Comparewithrealproperty.  PersonalrepresentativeͲͲSeeexecutorandadministrator.  PerStirpes Amethodofdividinganestateamongone'ssurvivingdescendants.Eachsurvivor receivesonlytheamount,oraportionoftheamount,thathis/herimmediateancestor wouldhavereceivedifthatancestorhadbeenaliveatthetimeofthegrantor'sdeath. Thefollowingexamplemaymakethisclearer:Assumeapersonhas4childrenͲͲ3sons and1daughterͲͲandleaveseverythingto"thechildrenortheirsurvivors,perstirpes." Ifall4childrensurvivetheparent,eachofthe4childrenwouldreceive25%ofthe estate,andthegrandchildrenwouldreceivenothing.If1ofthe3sonsandthedaughter diebeforetheparent,thatleavesonly2ofthesonsalive.Ifthereis1childofthe deceasedson(agrandchild)and2grandchildrenfromthedeceaseddaughter,undera perstirpesdistributionthe2sonswouldeachget25%,the1grandchildofthedeceased sonwouldgethis/herfather'sshareof25%,andthe2childrenofthedeceased daughterwouldsplither25%shareandreceive12.5%each.Comparewithpercapita.  

34 PooledͲincomefund(PIF) Thesearefundsfromseveraldonorsthatarepooledandinvestedbyacharity.Donors getataxdeductionandannualincomebasedonthetheirunitsofparticipationinthe fund.Whenadonordiestheportionofthefundassetsdonatedbythedeceasedgoto thecharity.  Postmaritalagreement(alsocalledapostͲnuptialagreement) Anagreemententeredintobetweenahusbandandwifethatdefineseachspouse's respectiverightstoproperty.Theseagreementsaregovernedbystatelawanddiffer fromstatetostate.  Pouroverwill Ashortwilloftenusedwithalivingtrust,whichstatesthatanypropertyleftoutofthe livingtrustwillbecomepartof(or"pourover"into)thetrustupondeath.  Powerofappointment Thelegalauthoritytodecidewhowillreceivepropertybelongingtosomeoneelse. Oftenusedwhenapersonisgiventheauthoritytodirecttheultimatedistributionof propertyunderthetermsofanotherperson'swillortrust.  Powerofattorney Alegaldocumentthatgivesanotherperson,theattorneyͲinͲfact,legalauthoritytoact ontheprincipal'sbehalf.Thisauthorityendsatthedeathofeithertheprincipalorthe attorneyͲinͲfact.Adurablepowerofattorneyisvalidthroughtheprincipal'sdisability. Ifapowerofattorneyisunrestricted,itiscalledageneralpowerofattorney.Ifthere arerestrictions,itiscalledalimitedpowerofattorney,suchasoneforaveryspecific purpose(tosellahome,forinstance).Ifthepoweronlybecomeseffectiveuponcertain conditions,itisconsideredaspringingpowerofattorney.  Premaritalagreement(AlsocalledaPreͲnuptialagreement) Anagreemententeredintobetweenamanandawomanpriortotheirmarriagethat candefinetherespectivelegalrightsandobligationstoproperty,whetheracquired beforeorafterthemarriage.Theseagreementsaregovernedbystatelaw,whichvaries fromstatetostate.  Principal (1)Apersonwhoistheoriginalsourceofauthority,oftenusedwhentheownerof propertyauthorizesanotherperson,throughapowerofattorney,toactinhis/her stead.(2)Capitalororiginalpropertyofatrustorfundasopposedtointerestorother earningsderivedfromthatproperty.  Probate Theprocessthroughwhichthelegaltitletopropertyistransferredfromadecedentto thebeneficiaries.Ifapersondieswithawill(testate),theprobatecourtdeterminesif

35 thewillisvalid,hearsanyobjectionstothewill,ordersthatcreditorsbepaid,and supervisestheprocesstoassurethatpropertyisdistributedbythepersonal representativeorexecutoraccordingtothetermsofthewill.Ifapersondieswithouta will(intestate)theprobatecourtappointsanadministratorwhoreceivesallclaims, payscreditors,andthendistributesallpropertyaccordingtothelawsofthestate.  Property Anythingthatisownedorpossessed.Seealsorealpropertyandpersonalproperty.  QuasiͲCommunityProperty Propertyacquiredduringamarriagewhilenotlivinginoneofthe9community propertystatesthatwouldhavebeencommunitypropertyifthecouplewerelivingina communitypropertystate.Asageneralrule,everythingderivedfromtheearningsof eitherspouseinoneofthenonͲcommunitypropertystateswillbequasiͲcommunity property.Seealsocommunityproperty,separateproperty,maritalproperty,and nonmaritalproperty.QuasiͲcommunitypropertyrulescanbemodifiedbypremarital andpostmaritalagreementsmadebythespouses.  Realproperty Landandpropertythatis"permanently"attachedtothelandsuchasahouseorbarn. Comparewithpersonalproperty.  Remainderman Apersonwhoreceiveswhatisleft,typicallyfromawillortrust,usuallyafteralifeestate orinterestthatlastsduringonelifetime.Childrenandgrandchildrenareoften remaindermen.Forexample,ahusbandmayleavepropertyinatrustwiththeincome togotohiswifeduringherlife.Uponherdeath,theremainingestategoestothe couple'schildrenortheirsurvivors.  Revocable Subjecttoalteration,change,ormodification.  RevocableTrust Atrustinwhichthepersonwhocreateditretainsthepowertochange,cancel,or revokethetrustduringhis/herlifetime(assumingheorsheremainscompetent).  Revocation Theactofterminatingwhathasbeendone.Oftenusedinconnectionwithtakingback theauthoritygrantedunderapowerofattorney,theterminationofaninterͲvivostrust duringaperson'slifetime,orvoidingawill.  Separateproperty Propertyacquiredbyeitherhusbandorwifebeforeamarriageorafterthetermination ofamarriage.Inaddition,propertyacquiredduringamarriagebygiftorinheritanceby

36 onespousethatiskeptseparateanddistinctfromcommunitypropertyremains separateproperty.Seealsocommingle,communityproperty,quasiͲcommunity property,maritalproperty,nonmaritalproperty,andtransmute.  Separation Theactoftakingapart.Oftenusedwhenamarriedcoupledecidesthattheynolonger intendtoliveashusbandandwife.Thismayhaveanimportantimpactoncommunity property.  Settlor Apersonwhoownsthepropertythatisplacedintoatrust.Alsocalledagrantor,trust creator,trustmaker,ortrustor.  Soleownership Propertythatisownedbyonlyoneperson.  SpecialGift Aspecificallyidentifieditemofproperty,suchasahome,aring,antique,orasumof money,earmarkedinawillortrusttogotoaparticularpersonorcharity,beforeany otherdistributionismade.  Spouse Ahusbandorwife.  Springingpowerofattorney Apowerofattorneythatbecomeseffectiveonlywhenaspecifiedeventoccurs,such onethatonlybecomeeffectiveiftwophysiciansfindthattheprincipalisunableto managehis/herownaffairs.Seepowerofattorney.  StateestatetaxͲͲSeeinheritancetax.  SteppedͲupbasis Therevaluation(fortaxpurposes)ofpropertyuponaperson'sdeath.Forexample,ifa personboughtahomein1965for$25,000andatthetimeofhisorherdeathin1999 thehomewasworth$200,000,hisorherheirswouldhaveataxbasisof$200,000,not $25,000,inthatproperty.TheimportanceofasteppedͲupͲbasisisthatnoincomeor capitalgainstaxispaidonthe$175,000increaseinvalue,shouldtheheirssellthehome for$200,000.Seecostbasis.  TaxbasisͲͲSeecostbasis.  TenancyͲinͲcommon Aformofownershipofpropertyinwhichtwoormorepersonsshareownership(may beequalorunequalshares).AtthedeathofatenantͲinͲcommonhis/hershareinthe

37 propertytransferstohis/herheirs,ratherthantotheothersurvivingowner(s).Compare withjointtenancy.  Testamentarytrust Atrustsetupinawillthattakeseffectafterthedeathofthetrustcreator.Compare withlivingtrust.  Testate Theconditionofapersonwhodieswithavalidwill.Seealsointestateandprobate.  Transfertax Thecombinedfederalestateandgifttax.Asingleexemptioncreditapplieswhetherthe propertywastransferredduringaperson'slifetime(gifttax)orisheldbyapersonat thetimeofhisorherdeath(estatetax).  Transmute Thistermisusedtodescribethetransferofseparatepropertyornonmaritalproperty tocommunitypropertyormaritalproperty(orthereverse).  Trust Alongrecognizedlegalconcept(firstusedinancientGreeceduringthetimesof SocratesandPlato)inwhichsomeorallpropertyofatrustcreatorisheldonbehalfofa beneficiary(whichmaybeorincludethetrustcreator)inthenameofthetrustee.The termalsoreferstothelegaldocumentthatcontainstheprovisionsforthecontrol, management,anddistributionofproperty.Therightsofthebeneficiaries,andthe rights,powersanddutiesofthetrustee,aresetforthinthetrustagreement.Thatis whyitissoimportantthatatrustbeproperlyprepared.  Trustee Apersonorinstitutionresponsibleforthemanagementanddistributionofproperty heldinatrust.Thetrusteehastheauthoritytoactaccordingtotheinstructions providedinthetrustagreement.Seefiduciary.  Trustmakerortrustor Apersonwhoownsthepropertythatisplacedintoatrust.Alsocalledacreator, grantor,orsettlor.  Unifiedcreditexemption Theamountofpropertythefederalgovernmentallowsapersontotransferduringlife orafterdeathwithoutpayinggiftorestatetaxes(jointlycalledtransfertaxes).That exemptionamountis$2millionin2008andwillgoupto$3.5millionin2009.In2010 theestatetaxwillberepealedandthenreinstatedin2011withanexemptionof$1 million,unlessCongresspassesanewlaw.Currently,annualgiftsofupto$12,000toas manyindividualsasonewishesmaybemadeineachcalendaryearbyanindividual(and

38 giftsofupto$24,000maybemadebyamarriedcouple)withoutcountingagainstthe lifetimecreditexemption.  Will Awrittendocumentthatprovidesinstructionsfordisposingofaperson'spropertyupon theperson'sdeath.Awillgenerallyalsonamesanexecutororpersonalrepresentative tohandletheestate.Awillmustbesignedand(unlessitisaholographicwill)properly witnessedinordertobevalid.Upontheperson'sdeathawillmustgothroughthe probateprocessinordertohavethedeceased'sinstructionscarriedout. 

39 40