Don’t Get Buried in the Paperwork

Joan Koonce, Ph.D., AFC®

Professor and Extension Financial Planning

Specialist

Presentation Overview

• What is Estate Planning?• Why People Fail to Do Estate

Planning.• Documents and Strategies used in

Estate Planning.– Documents Used to Transfer Assets.– Documents Used to Handle Other Estate

Planning Issues.

What is Estate Planning?

• Accumulating Assets– Saving and investing

• Protecting Assets– Managing risks– Purchasing insurance

• Distributing (Transferring) Assets– During life– After death

Why People Fail to Do Estate Planning

• Estate planning is needed by the elderly and wealthy people only.

• A simple will lasts a lifetime.

• The state has laws to protect my estate.

• Joint ownership with my spouse (for married people) is a practical substitute for an estate plan.

• Estate planning is too expensive.

Documents and Strategies Used in Estate Planning

• Documents and Strategies Used to Transfer Assets– Property Titling– Beneficiary Designations– Trusts– Gifts– Wills

Property Titling

• Transfers by Title (Non-Probate)– Joint Tenancy With Right of Survivorship

(JTWROS)– Tenancy By The Entirety (TE)

• Transfers via Will or State Law (Probate)– Fee Simple (Sole Ownership)– Tenants in Common (TC)– ½ Community Property– Personal Property

Beneficiary Designations

• Transfers by Contract (Non-Probate)– Life Insurance– Retirement Accounts (IRAs, 403(b)s,

401(k)s, Annuities)– Pay-on-death (POD) accounts

• Bank Accounts

– Transfer-on-death (TOD) accounts• Investments (Mutual Funds, Stocks, Bonds)

• Can have one or more primary and secondary beneficiaries

Trusts

• Trusts (Non-Probate)• The title to a person’s assets are

transferred to another party for the benefit of others.

• Parties– Grantor (Creator): Person who creates

the trust– Trustee: Person who manages the trust– Beneficiaries: Persons who benefit from

trust assets

Trusts

• Two Classifications of Trusts– Inter Vivos (Living) or Testamentary

Trusts– Revocable or Irrevocable Trusts

• Purposes of Trusts– Manage assets for another– Protection from creditors– Split assets– Avoid probate– Avoid estate taxes

Gifts

• Gifts are taxable, but there are exclusions and exceptions that can prevent taxation.

• No Gift Tax Transfers– Annual Exclusion = $13,000 per person,

per year– Lifetime Exclusion = $1,000,000

Gifts

– Qualified transfers to educational and medical facilities

– Child support– Alimony and property settlements of

divorced couples– Gifts to spouses– Charitable gifts

Wills

• Legal document providing you (will maker) the opportunity to control how your property (assets) is distributed at death– Distribute your property to your heirs– Appoint an executor or executrix– Appoint a guardian for your children

• Prevents your property from be distributed according to state laws (intestacy laws)

• Property passed via will or state law goes through probate.

Legal Requirements for Wills in Georgia

• You must be at least 14 years old.• You must be of sufficient mind and

memory that you are creating a document to distribute your property after you die.

• The will must be in writing.• The will must be signed by you and

witnessed by at least two people who are not recipients of property distributed via the will.

Dying Intestate

• What does it mean?– Dying without a valid will or– Dying with a will that does not provide

instructions for distributing all of your property

• If you have a valid will when you die, then you have died testate.

• When would your will be considered invalid?

Intestacy Laws

• What are Georgia’s intestacy laws?

Distribution Based on Georgia Intestacy Laws

• www.mystatewill.com/states/GA/GAintcalc.htm

Disadvantages of Dying Intestate

• Your assets may be distributed equally between your spouse and children.

• Your surviving spouse may give assets to their family (your in-laws).

• Your children may be given an equal amount, but their needs may be different.

• Probate court decides who will be the administrator or administratrix of your estate.

• Probate court decides who will be the guardian of your minor children or other dependents.

Will Limitations

• Disinherited parties can still contest your

will.

• Courts can invalidate certain restrictions

or sections of your will if deemed

necessary.

• State statutes may override parts of a will

(i.e., a Year’s Support award for spouse

and minor children).

Will Limitations

• Will does not supersede automatic transfers after your death (i.e., contract or title).

• Will does not eliminate the payment of debts from your estate.

What Type of Will?

• Statutory Will• Be aware of the advantages and

disadvantages of a:– joint will and – mutual or reciprocal wills.

• Codicil– Supplement that modifies, explains

and/or amends a current will

Documents and Strategies Used in Estate Planning

• Documents and Strategies Used to Handle Other Estate Planning Issues

– Letter of Last Instruction

– Power of Attorney

– Living Will

– Georgia Advance Directive for Health Care

Letter of Last Instruction

• Provides details of your desires regarding:– the distribution of specific tangible

items and– your funeral and burial instructions.

• Letter is not legallybinding.

Powers of Attorney

• Legal documents authorizing another person (agent) to act on the behalf of another (principal).– May be revoked

• Should your powers of attorney be durable?

• Your powers of attorney do not continue after you die.

Advantage and Disadvantage ofPowers of Attorney

• Advantage– You reduces the need for

someone to go to court to get approval to make decisions on your behalf.

• Disadvantage– The person you choose

can abuse their power.

Types of Powers of Attorney

• Durable Power of Attorney for Finances– Appoints a person to manage your property

and finances

• Durable Power of Attorney for Health Care– Appoints a person to make health care

decisions

• You can also consider a springing power of attorney.

Living Wills

• Also referred to as an Advance Medical

Directive or Health Care Proxy

• Legal document expressing your desires regarding the use of life sustaining equipment if you are not able to make the decision

• Georgia Medical Consent Law

– Emergency Situations

– Non-emergency Situations

Georgia’s New Form

• Combines Durable Power of Attorney for Health Care, Living Will and Guardianship in one form

• Georgia Advance Directive for Health Care– www.gabar.org/news/new_advance_direc

tive_for_health_care_act_signed/

Living Will: A Friend’s Response

• MY LIVING WILL

Last night, my friend and I were sitting in the living room and I said to her, “I never want to live in a vegetative state, dependent on some machine and fluids from a bottle. If that ever happens, just pull the plug.”

She got up, unplugged the TV, and threw out my wine.

Estate Planning Documents Needed Scenario

• Carlos (age 42) and Tatyanna (25) are married with 3 minor children (1 child from Carlos’ first marriage).

• Carlos’ net worth equals $450,000• Carlos’ complications with his

diabetes has left him in a coma.• Carlos’ lifetime health insurance

benefit of 1 million dollars has been reached.

• Hospital costs are between $5,000 and $14,000 per day.

• Carlos has no estate planning documents.

Estate Planning Documents Needed Scenario

• No living will: Carlos’ net worth will be depleted soon.

• No Power of Attorney: Wife has to go to court to get approval in order to make decisions on Carlos’ behalf.– What if Tatyanna is a stay at home mom with no

income or assets?

• No will: Carlos’ assets may not be distributed according his wishes particularly with a child from a previous marriage.