Estate Planning

Whether you know it or not, estate planning is a critical part of any comprehensive financial plan. Once we’ve helped guide our clients toward a strong financial foundation, we do everything we can to protect and aim to grow their legacies for future generations. Our advisors help determine clients’ estate planning goals and work closely with tax and legal advisors to ensure that your unique financial plan accurately reflects your specific estate planning needs.

What is an estate plan?

An estate plan is composed of two parts: asset planning and personal planning. With regard to asset planning, an Estate Plan is simply an arrangement for the management and disposition of a person’s property during lifetime and at death. This can be accomplished in a variety of ways…by a will, trusts, gifts made during life, or a combination of these. With regard to personal planning, an estate plan is similarly an arrangement for the care and management of a person and his or her assets during life. Although different people might have different documents that make up their estate plan, for most people, an estate plan is composed of one or more of the following:

  1. Community Property Agreement
  2. Will
  3. Powers of Attorney for medical and financial decisions
  4. Health Care Directive (also called a Living Will)
  5. Authorization for Disclosure of Protected Health Information
  6. Trust Agreements
  7. Insurance Contracts
  8. Business Agreements
  9. Other Contracts

What is a power of attorney?

A power of attorney is a legal instrument that authorizes someone to act as the principal’s agent…to act in the principal’s place as if the principal were making the decision. If the power of attorney survives the incompetence of the principal, it is called a durable power of attorney. A power of attorney that gives the agent the broadest powers is called a general power of attorney. Alternatively, if the power of attorney is only for specific acts, it is a special power of attorney.

In 2017, the Washington legislature enacted an all-new Power of Attorney Act which represents one of the most significant changes to Powers of Attorneys in decades.

Will I have to pay estate taxes?

There are two potentially applicable estate taxes for Washington residents: federal and Washington state estate tax. And, to understand if you pay estate tax, you must first understand the concept of your gross estate. The gross estate is the value of all that you own and specifically includes life insurance payable on your death. The inclusion of insurance can push an otherwise tax-free estate into taxable territory.

As of 2017, the federal estate tax applies to gross estate valued at over $5.49 Million.

The State of Washington also imposes an estate tax on gross estates that are valued at over $2,129,000 (for 2017).

What is the difference between probate and non-probate assets?

Your estate is made up of probate and non-probate assets. And, different devices control the disposition of the probate and non-probate assets. For example, a Will can control who receives your house upon your death, but it generally cannot control who receives your IRA which is a non-probate assets. An estate planner will need to implement devices to control the disposition of both probate and non-probate assets.

What is a Will?

The use of a Will in estate planning is the primary method for passing property in Washington State. A will generally covers all probate property and generally does not apply to non-probate property. In a will, you can name a guardian for your minor children, specify how you want your property to pass, and even set up testamentary trusts for your spouse or children. Often times a parent desires to keep their assets in a trust after their death until their children reach a certain specified age to help the children use the money wisely. All of this can be accomplished by a will.

The distribution scheme in your will can be as varied as your imagination. However, the most typical distribution scheme is where a person gives everything to his or her spouse and if the spouse is not alive, then the estate passes to the children. And, the property can pass to the children either in trust or outside of trust. Another provision in most wills addresses where your property goes should a child of yours predecease you. This type of distribution concerning the children is called Per Stirpes or it is also referred to as distribution by right of representation. It provides that in the event a child of yours predeceases you then his or her share will instead go to his or her own children to be shared equally. If your deceased child has no children, then his or her share is reallocated equally among your remaining children.

What is a living trust?

The living trust is an alternate means to dispose of your estate. The benefits of a living trust is that it allows your estate to avoid probate and it is more private because it need not be filed with the court like a Will. However, the living trust is generally more expensive to establish and more complex to administer because it requires a person to transfer all of his or her assets into the trust. No longer would you own your house outright. Instead, you would own your house as the Trustee of your trust. Additionally, in some states like California, the cost of probate is determined as a percentage of the estate which can make probate very expensive. In Washington, this is not the case. Though your choice, in Washington, in most cases a Will works better for most people. Also, probate can be avoided by the use of a Community Property Agreement. However, you must also seek competent legal advice as to which process — be it a will, a trust or a community property agreement—will best meet your estate planning needs.

What is a community property agreement? Isn’t all property in Washington community property?

Washington is a community property state. However, this is different from two spouses signing a Community Property Agreement. A Community Property Agreement is an agreement that specifies three things: (1) all property owned by the husband and wife is community property; (2) all property acquired in the future by the husband and wife is community property; and (3) it provides for the disposition of the property at the death of one of the spouses. Even though this might sound similar to the provisions contained in the will, the use of the community property agreement generally allows the spouses to avoid probate when the first of the couple passes away. Without some form of estate planning there is no requirement that all of one spouse’s property goes to the surviving spouse at death. Planning is necessary. Before using a community property agreement, competent legal advice should be attained.

What are beneficiary designations and how are they important in my estate plan?

As discussed, your estate consists of both probate and non-probate assets. Non-probate assets such as your retirement accounts and life insurance are not generally covered by a will nor by a trust. When you set up those accounts, you listed beneficiaries. In order to fully integrate your estate plan, your estate planning attorney must provide you with beneficiary designations for those non-probate assets. Then, you will need to update the beneficiary designations with your plan provider in order to make the estate plan fully integrated.

What is probate?

Probate is the legal process through the court system by which the affairs of a deceased person are handled which include settlement of debts and expenses and the transfer of title of the deceased person to his or her beneficiaries. In Washington, the probate process need not be a lengthy process. Each estate probate process is different based on the estate (the property held in the estate and the debts of the decedent) and the documents involved. If there was a will, then a person is said to have died testate and the will controls the disposition of the property and the appointment of who will handle the estate. If a person dies without a will, then the person is said to have died intestate and state law controls who will handle the probate process and the disposition of the property. The probate process in each state is different with a process in Washington being one of the most efficient processes in the United States.

My relative has recently passed away? Do I need to do anything with a lawyer?

When a person dies, necessarily there must be some time of administration to take care of the decedent’s assets. It could be very simple, or it could be more complex. Generally, probate is required unless one of the following three exceptions exist: (1) the decedent died with no real property (land or house) and less than $100,000.00; (2) the decedent is the first to die between two spouse who have a valid Community Property Agreement; or (3) all of the decedent’s assets were placed in a Revocable Living Trust.

Still, even though “probate” may not be necessary, some type of administration is always necessary. For example, state law requires that every Will must be filed with the county courthouse after a death (RCW 11.20.010). Furthermore, state law requires that, upon death, both the Department of Social and Health Services and the Washington State Department of Revenue (RCW 82.32.240) must receive notice of the death.

How are Living Trusts Administered?

In January of 2012, the Washington State legislature made sweeping changes to the Washington Trust Act. Now, in Washington State, the administration of a living trust is substantially the same as the administration of a probate estate wherein the Personal Representative has been granted non-intervention powers. The duties of the Trustee in settling the estate are substantially the same as the duties of the Personal Representative as set forth above and the notice requirements and the advice to seek the advice of legal counsel in major transactions and the process of settling the trust is likewise applicable to Trustees.

The most important change to trust administration is the duty to provide notice of the existence of all irrevocable trusts (a revocable living trust typically becomes irrevocable upon death) as well as periodic notice of the administration of the trust.