My goal for your estate structure is to have a simple approach that allows
for efficient and intended management, use, and distribution of your assets
during the enjoyment of life and after death.
Family Wealth preservation Trust. Oklahoma has a very progressive law/trust commonly known as the Oklahoma Family Wealth Preservation Trust. This specific trust allows contribution of Oklahoma assets which are then, generally exempt from creditors. Please contact me to discuss the unique requirements and an benefits of this trust.
Wills, Trusts and Estate Taxes:
This memorandum addresses the questions
regarding Wills and Trusts that I receive most often during the structuring of an
estate plan. It is not intended to favor either Wills or Trusts.
My basic philosophy is to keep things simple. A structured estate should be
established for estates of any size. Frequently this can be done equally well with
either a Will or Trust(s). Be aware that, for the average estate, trusts save some
time and some legal costs, but these savings are not so great that a Trust is
therefore always the proper choice over a Will.
You should take some time to consider your options, and then take informed
action. The most common mistake is taking that no action at all.
Estate Structure and Getting Started:
Your Estate Structure includes all that
"death stuff" like Wills, Trusts, Power of Attorney, Health Care Directives and
Estate Tax planning. But, just as important, Estate Structure should consider the
financial management and your well-being during your enjoyment of life.
Although every situation is unique, proper planning can help you achieve
objectives such as:
- Understanding the current status, extent and organization of your assets
- Achieve a simplified, organized, and productive plan for managing your
assets during your life
- A directive for the management of your assets and your personal care in the
event you need assistance
- Easing the organization and administration of your estate after your death
- Ensuring that your heirs will receive what you intend them to receive
- Reducing costs and estate taxes as well as protecting your privacy
- Protecting family assets and business interests
The most difficult part of estate planning is making the decision to get started.
Generally, we meet 2 to 3 times over a two week period. At our first meeting, I
need only a rough outline of your assets and a basic idea of how you would like
your assets distributed upon your death. These do not need to be in writing. I will
then advise you of your options and make recommendations.
Based on your
decision, I will prepare the necessary documents or draft a plan. We will review
my work, finalize any necessary documents and, where necessary and requested,
I can assist with asset transfers or management. The process can take as few as
two meetings or as many meetings as you desire, so that you are informed and
satisfied with any action taken.
Wills and Probate:
A Will is a formal legal document giving instruction to the
Court as to how your assets are to be administered and distributed after your
death. A Will is subject to strict rules of signing and execution and is not effective
until your death. Probate is the Court supervised administration and distribution
of your estate. A typical probate is open for six to nine months.
If an estate is
properly structured, the probate is generally very smooth and efficient. Probate is
open to the public, which may or may not be of concern to you. Although
avoiding probate is a valid goal, most probate "horror stories" are for lack of
proper planning.
Transfers on Death (Sometimes "Payable on Death"):
"Transfers on Death"
(TOD) provide that during your life you remain in full ownership and that at your
death the asset will pass to the designated individual. TOD can be an agreement
with a financial institution to transfer your property to a designated person upon
your death. There is not consistent law guiding the individual institutions, you, as
the owner, should discuss your intent and the institution's requirements in detail
to make sure your intended directive will be carried out.
Joint Tenancy with Right of Survivorship (JTWROS):
JTWROS is the "estate
plan" of choice for many because of its simplicity; however, there are advantages
and disadvantages to JTWROS. "Joint Tenancy" reflects the fact that two or more
people own something as a group, not as individuals. "With Rights Of
Survivorship" (actual words necessary) means that when one person in the group
dies, the remaining individuals receive the deceased's share.
With real estate, an
Affidavit of Joint Tenancy and an Oklahoma Estate Tax Release must be filed.
Remember that when the surviving owner (frequently a surviving spouse) dies,
the assets will be probated if the property remains solely in the name of the
survivor.
NEW LAW FOR JOINT OWNERSHIP. Recently, Oklahoma enacted a transfer on death real estate deed which will allow the grantor to revoke the transfer latter in life. This is helpful because it will enable the grantor (frequently a parent) to remove the grantee (frequently a child) without seeking the grantee's cooperation. This is important in the event the grantee runs into creditor problems or falls out of favor with the grantor.
JTWROS as Compared to Transfer on Death?
| JTWROS |
TOD |
| Title passes upon death. Avoids probate. |
Title passes upon death. Avoids Probate |
| Supersedes provisions of your will or trust. |
Supersedes provisions of your will or trust. |
| Cooperation of joint tenant may be necessary. |
Owner acts independently. |
| Creditors of either joint tenant may be able to seize Joint Tenancy assets. |
Creditors of Beneficiaries have NO claim against account assets prior to owner's death. |
| Possible gift or estate tax consequences. |
No gift tax, but possible estate tax. |
| Joint tenant could petition the court to sell their interest. |
Beneficiaries have no current interest. |
| Joint tenant could predecease first owner. |
Owner can name contingent beneficiaries. |
| Possibly less than full step up in basis at death. |
Full step up in basis at death. |
| Divorce of either tenant can create special problems. |
Owner remains in control. |
Generally, if joint ownership is
preferred, I recommend Transfer On
Death rather than Joint Tenancy for
bank accounts. For Real Estate, each
situation must be evaluated.
Trusts:
A Trust is basically a contract, a
set of instructions that specifies how you
would like your assets managed during
your life and distributed to your
beneficiaries at your death. It is created
by a legal document that specifies the
terms of management and distribution,
then names a Trustee who is to carry out
the provisions. The Trustee can generally
be you, another individual, or an
institution. A Trust may be revocable
(and amendable) or irrevocable (and not
amendable).
Generally, there are two common ways in which a Trust becomes active: Understanding the current status, extent and organization of your assets.
- Those which are implemented while you are alive (inter vivos); these are generally amendable and frequently called “Living Trusts” and
- Those that are created through your Will after your death (Testamentary).
A Trust That Is Created by Your Will Is Not Active During Your Life.
Because a Will does not
take effect until you die, it cannot manage your estate or provide for your care and that of your
dependents in the event you become unable to do so yourself. By contrast, a Living Trust allows you
to address those issues before they occur.
Overall, upon death, a Trust "generally" is less costly to administer than a Will. In my opinion,
however, the following are the two basic reasons to create a living trust, not cost savings:
First, You may need extensive assistance with your assets prior to death or your beneficiaries may
need ongoing assistance after your death.
Second, To assist with estate tax planning, estate tax planning can be done through a Will or a Trust,
but for larger estates inter vivos trusts are frequently utilized.
You Must Have a "Pour Over Will" If You Have a Trust. It acts as a safety net in the event there
are assets which have not been transferred into the Trust. This Will is probated only in the event that
such overlooked or omitted assets exist.
Assets in a Trust Are Controlled by the Trustee. You designate the Trustee. The Trustee, under
the guidelines you have provided for in the Trust, controls and manages the assets. Remember, with
a Revocable Trust you can change the terms of the trust. This includes changing who is to serve as
Trustee. You may even name yourself as Trustee. You may name an individual or a corporate entity
as your successor Trustee. Deciding who to entrust your financial well-being and that of your
beneficiaries is important.
Estate Taxes From the Federal Standpoint:
"There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody
does so, rich or poor; and all do right. Nobody owes any public duty to pay more than the law
demands; taxes are enforced exactions, not voluntary contributions." - Judge Learned Hand.
There are two entities that tax estates: Federal and State. Most estates are not large enough to be
subject to Federal Estate Taxes because they do not exceed the allowed exemption (Unified Tax
Credit discussed below). If no tax is owed, generally, a Federal return is not filed.
On June 7, 2001, President Bush signed Public Law 107-16 which made significant changes
to estate taxes, phases them out by 2010, and returns them in 2011. This law could be easily
changed, and likely will, by another congress before 2010. Do not be overjoyed with this new law;
it may increase the income tax to your beneficiaries when they sell the inherited assets.
IMPORTANT NOTE: Prior to 2010 it was universally believed by tax practitioners that Congress would reestablish an estate tax along with a large exclusion credit. However, as of January 2010 Congress has not. Below is the law as of January 2010. After January 2010 my website and the below may not be updated with this developing law. Please contact me after January 2010 to find out the state of the then current law.
Highlights of new law:
- Decreasing top estate tax rate from 55% to 45% through year 2007.
- Increase the Unified Credit Exemption as identified in the below Unified Credit Equivalent chart.
- In 2004 the family owned business deduction is repealed.
- Allowed step-up in basis will be reduced by year 2010. Amounts less than $1.3 million can be stepped up (plus an additional $3 million to the spouse).
Assets Subject to Estate Tax. Often an individual does not realize how large the estate has become.
The gross estate, which must be computed when considering estate taxes, includes all assets owned
by the decedent at fair market value at the time of death. It is easy to consider the value of Cash,
Savings and Financial Investments. Frequently overlooked assets---which greatly increase the gross
value of an estate--- are: Collectibles, Jewelry, Real Property, Retirement Plans, proceeds from Life
Insurance and inheritance from family later in life.
Tax Planning.
The IRS treats transfers, during life or at death, of assets in two separate and distinct ways:
- Nonmarital transfers (transfers to someone other than your spouse), which are taxable transfers, and
- Marital transfers (to a spouse), which are non-taxable transfers.
Unified Credit.
Federal tax law allows a tax credit to offset taxes on transfers. Rather than
identify the exact tax credit each year, it is easier for discussion purposes to compare it to its
equivalent amount of total assets that may be transferred free of tax. Referred to as the Unified
Credit Equivalent (UCE), the following is the Unified Credit Equivalent, by year, pursuant to the
new Act:
Federal Unified Credit Equivalent Effective with P.L. 107-16, June 7, 2001
| Year |
Effective Exemption |
| 1999 |
$650,000 |
| 2000 |
$675,000 |
| 2001 |
$675,000 |
| 2002 |
$1,000,000 |
| 2003 |
$1,000,000 |
| 2004 |
$1,500,000 |
| 2005 |
$1,500,000 |
| 2006-2008 |
$2,000,000 |
| 2009 |
$3,500,000 |
| 2010 |
Estate Tax Repealed! (This law will change in 2010) |
| 2011 |
NEW LAW - CALL |
Oklahoma.
After January 1, 2010, there is no Oklahoma estate tax!
In 2006 the Legislators passed a graduating repeal of the Oklahoma Estate Tax. The legislation increased the Oklahoma estate tax exemption to One Million Dollars ($1,000,000) for individuals dying in 2006 and 2007. Then in 2008, the estate tax exemption was Two Million Dollars ($2,000,000). And in 2009, the estate tax exemption went to Three Million Dollars ($3,000,000) and has been repealed entirely after 2009.
I encourage you to review all estate structuring options with either myself or a
qualified estate attorney. Understanding the costs, risks, and long-term impact of
your decision can make a significant difference, both in a monetary amount and
in family harmony.
In my practice, I consider all options on any estate of any size. I advise each client
individually of the appropriate estate structure for them and strive to keep it
simple.
Please contact my office if I can answer any questions or be of assistance. There
is no cost for initial consultations.
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