Brown & Associates - Attorneys & Counselors at Law, P.L.L.C.

FINAL THOUGHTS ON ESTATE PLANNING
(Part 5 of a 5-Part Series)
(3/31/02)

Over the past four weeks, I've tried to answer many of the common estate planning questions posed to me by clients and attendees at the various seminars we conduct. This week, I want to conclude this 5-part series with a few last minute thoughts on the subject of planning and managing your estate now to avoid problems later.

First, what many people don't realize is that every U.S. citizen is entitled to a $1 Million exemption from federal income tax. More importantly, they don't realize that when they leave everything to their spouse, they are availing themselves of an unlimited marital deduction and avoiding taxes NOW-but forfeiting this $1 Million exemption. The tax consequences of not thinking through these actions can be severe.

With proper planning, however, both you and your spouse can avail yourselves of your respective $1 Million exemptions, thus avoiding tax on $2 Million worth of assets passed to your beneficiaries.

I've been told a Revocable Trust can reduce or eliminate estate taxes?

Actually, either a Will or a Revocable Trust can help minimize or eliminate estate taxes. You do so by including specific language to take advantage of both spousal exemptions, thus sheltering up to $2 Million from federal estate tax.

How difficult is it to set up a Revocable Trust Estate Plan?

It's really not difficult at all, but you will need to make some basic decisions. You will want to meet with an estate planning professional who can walk you through all the planning steps, help you evaluate what documents you will need, and point out the decisions that only you can make. For example, you need to decide who you want as your Trustee, Successor Trustee(s), Guardian of minor children, Personal Representative of your Will, agent under your power of attorney, health care proxy of your Advanced Directive for Health Care, and-last but not least-the beneficiaries of your bounty.

Once you and your attorney decide what legal documents should be included in your estate plan, he or she will prepare them in accordance with your decisions. You will need to review each of these documents with your attorney, be sure you understand what they say and how they work, and if they accomplish your intentions, sign the documents, normally in front of witnesses and a notary public.

If you establish a Revocable Trust, this is just the first step in the preparation of your estate plan. Now you have to "fund" it. All you have now is an empty shell. It needs to be filled.

You should sign a Bill of Sale and an Assignment to "transfer" your personal property to the Trust. If you own real estate, you will probably want to sign a Quit Claim Deed transferring the land to your Trust. You also need to contact bankers, tag offices, and account representatives to be sure you finalize the transfer of this property to your Revocable Trust.

Do I need to fund my Revocable Trust now or can I wait?

If you want the continuity of control and management I've been discussing, you must (or at least should) fund your Living Trust now while you're able. Your Trust can only control the assets actually transferred into it.

How hard is it "transfer" assets to my Trust?

It's really not that difficult, but you need to be sure to complete all the necessary paperwork. Your attorney, accountant, banker and insurance agent can all help. As I said above, you will want to file deeds, change car titles and registrations, redo your bank and investment accounts, and make sure all your other assets, like CDs and even your safe deposit box, are titled in the name of the Trust.

Tax deferred savings plans, like IRAs and 401(k) plans are exceptions. If you are married, for example, there may be valid tax reasons for you to name your spouse as first beneficiary and your Trust as second beneficiary. You may also want to sign a specialized beneficiary designation form to take advantage of the "stretch" opportunities I've discussed previously and not name your Trust at all. You'll want to discuss these options with your attorney and tax advisor. You may also want to review my previous articles on this topic (see website at www.brownlaw-ok.com).

How hard is it to change titles and beneficiaries?

This takes some time, but it is still better to take care of it now, rather than leaving it to the courts to do later. You are probably the only one who knows what you own and who should receive what once you are gone. That way, if there is a problem with a deed or title, you can fix it now and not leave it to become a bigger (and far more expensive) problem later. That's one of the primary benefits of a Revocable Trust. It forces you to make decisions now and to organize your accounts and assets under a plan with specific instructions. After you are gone, no one has to guess what you wanted or to whom you intended certain property to be distributed.

Do I need to have an attorney prepare my Trust?

Yes, and not just any attorney. You need one who is experienced in estate planning and who specializes in Revocable Trusts. Almost any attorney can and will prepare a simple Will for you, but if you need more than that, you need to go to a specialist. And don't rely on one of the many "do-it-yourself" trust programs you can buy at your local department store. None of the ones I've reviewed come even close to meeting Oklahoma law requirements and fulfilling the family's needs.

Is it expensive to establish a Revocable Trust?

The cost of a Revocable Trust depends on the complexity of your estate and whether you need tax planning. A Will is usually less expensive up front, but because a Trust avoids probate later, the cost of administering your estate could be significantly less, if you have a Trust rather than a Will. It is usually a question of "pay me now or pay me later." If you don't want or need continuity of control and management of assets should you become disabled, you probably are just as well off with a Will as with a Revocable Trust.

Finally, when should I set up a Revocable Trust?

NOW is the time to establish your estate plan, while you are healthy and don't think you need one. Remember, with estate planning you don't get a second chance to do it or to do it right. This concludes my 5-part series on Estate Planning. I hope it has been helpful. If you missed any of the earlier installment, you can find them on our website. Good luck and good planning.

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