Who likes to talk about death? Or estate planning? Or trusts? Well, status-oriented people, financial advisers, and distant relatives, all like to talk about trusts, but not many other people do. So, if you were to talk about death or estate planning, what do you need? (Pro Tip: you probably do not need a living trust, but I’ll address that in more detail below). When I say ‘you’, I mean the 90% of people only need simple estate plans: a will, power of attorney, health care directive, and if you own real estate, then a transfer on death deed for each piece of real estate you own.
This article is intended for general informational purposes only and should not be considered legal advice. For legal advice pertaining to your specific business, please consult one of our attorneys.
Author: Dubs Herschlip
Situations that Will Complicate Your Estate Plan
For the more complicated, call our firm, and we can help you. You may have a complicated estate plan if either person is a non-U.S. citizen, there are children from other marriages or subsequent marriages (who need pre-nups, etc.), you own property outside this state, or have permanent dependents. For those who can and want to keep it simple, here’s an overview of what you need, how you might be able to do your estate plan yourself, and how we can help.
Planning for Medical Care and Emotional Support
First, let’s separate death from assets. Your death should be planned too. Many people believe that there is a safety net, or some beautiful place waiting for you when you’re ready to pass. No, there is no safety net. No, Medicare will not pay all your bills. Yes, there is a Medicaid spend-down that you should plan for as 80% of all medical dollars are spend in the last six months of life. Most of us will not have homes that are set up for providing homecare in our twilight years. We will need some kind of homecare when we get to the last six months of life. Homecare will involve emotional strain and strenuous physical activity such as, lifting us into and out of bed, assisting us to the bathroom, the shower, etc. Most spouses and children cannot do this on their own and only trained nursing staff is capable of caring for most medical needs. I am not a medical practitioner, so let’s just leave it at: get long-term care insurance, or plan on paying for nursing care out of pocket until your last moments of life. One option is hospice care where a medical professional will come to your home to provide supportive care that focuses on your comfort and quality of life. Once you’re thinking about hospice, think about another less known option, a death doula, a non-medical companion who can provide emotional and spiritual support to the dying person and their family. There are many out there, and I can’t think of a better way to spend my last days and dollars than on making my last moments of life pleasant and surrounded by loved ones. While I’m surrounded by loved ones, I think I’d like to go out like Bilbo Baggins: gifting all my worldly possessions to my friends and family while I’m still alive.
Developing a Gifting Strategy
Coming up with a gifting strategy is a great place to start thinking about an estate plan. For example, in 2021 (the amount changes almost every year), the annual gift-tax exclusion is $15,000 per donor, per recipient. You can give anyone up to $15,000 in assets a year, free of federal gift and estate taxes to you, and federal income tax to them. Your spouse can do the same. So, for a family of four with two married children, one couple could gift $60,000 per year to their kids and their kids’ spouses, reducing the taxable estate. For some, this might be too complicated if you’re thinking about gifting property and having to value those assets to keep within the threshold. We recommend talking to a tax advisor before implementing gifting as part of your estate plan. Let’s keep it simple. Your estate plan is really a question about who gets what?
Taking Care of Your Financial Accounts
Let’s start with what we know you have: Bank Accounts.
In some ways, estate planning is easy because you probably already set up payable on death beneficiaries when you opened each of your financial accounts: checking and savings accounts, money markets, life insurance, 401k, 503b, IRA’s, Roth IRA’s, etc. If you have done this, the hard part is done. Now, you just want to organize what you have for your beneficiaries. Request copies of your beneficiary designation pages for each financial account because they are non-probate assets, not governed by your will, but solely by their own terms. So, request copies to confirm that they conform to your plan. If they are incorrect because of a divorce or death in the family, follow the financial institution’s policies to change them. Keep those copies with your original will, and an informal index of your beneficiary designation pages for each financial account by account provider’s name and mailing address, account number and estimated balance. So, that takes care of your finances. Remember, because they’re non-probate assets, the financial beneficiaries will receive the fixed amount or the percentages you designated without regard to your will.
Let’s back up for a moment and define what “probate” is. Probate is defined as the legal or court process that manages the assets and debts of the deceased person. If probate is needed to settle your estate, there will be court costs and fees to open the probate case, an attorney will most likely need to be retained to file the necessary motions and follow the appropriate laws. If you follow the suggestions such as ensuring you have beneficiary designation pages and a transfer on death deed (explained below), if may eliminate the need or at least reduce the probate cost to your heirs.
So, with all of the money handled, most people’s other big asset is their house. Guess what, you can designate beneficiaries outside of probate for your real estate in Washington, too.
Transfer on Death Deed for Real Estate
Second, Washington’s Chapter 64.80 RCW, the Uniform Real Property Transfer on Death allows us to record in the county recorder’s office (in the county where the real property is located) who you want to receive your real estate, your primary and secondary beneficiary designations as a person, a group of people, a trustee of a trust, etc., after your passing. This is done by executing and filing a Transfer on Death Deed and filing it with the county before your passing. The effect is that when you pass, your beneficiary can present your death certificate then title transfers to whoever you have designated outside probate and without real estate excise tax per WAC 458-61A-202. That should take care of all, but your personal and digital property.
Distributing Personal Property
Third, your personal property (cars, furniture, jewelry, guns, art and sentimental items) can be transferred outside your will in a tangible personal property list per RCW 11.12.260 as long as you make reference to it in your will, and the list signed and dated by you. The is the preferred method as there are risks in including personal property distribution in your will.
So, now, you need a power of attorney, and a health care directive, and you’re done.
Do You Need a Living Trust?
But, what about the living trust? Your parents say you need a trust like they have? OK, most people can write whatever trust terms they want into their will, called a testamentary trust (for the benefit of your minor children, for example, or as a spousal credit shelter trust) without the cost and hassle of drafting and funding a trust while you’re alive. Here is the simple test for whether you need a living trust:
If your answer to these questions is no, then most likely you do not need a living trust. By following the advice above, you have a complete estate plan for all your assets. Now, let’s get back to talking about death, particularly after death.
Guidance for Your Family
For after your death, you will want a statement regarding the disposition of your remains, whether you prefer burial, cremation, or some other alternative. Here are some interesting alternative resources:
Still Have Questions?
Still unsure of what you need to prepare yourself and your family? Whether you can't tell if you need a trust, or don't know what to include in your property list, our experienced attorneys are here to answer your questions. Schedule a call today to being setting up for you future.