Karen Kirkpatrick

Attorney and Counsellor at Law
16063 Hamilton Station Road, Waterford, VA 20197
Phone: (703) 909-0581

• What basic documents are generally recommended to ensure effective estate planning?
• What is the purpose of each of the above “Basic Documents?”
• What is a Trust?
• Living Trusts vs. Testamentary Trusts
• Revocable Trusts vs. Irrevocable Trusts
• How can I minimize the taxes my estate must pay??

• What basic documents are generally recommended to ensure effective estate planning?
  
  Each person’s family, life-circumstances, and estate planning needs are different, so it is important to have an experienced professional review one’s circumstances and desires to make specific recommendations to ensure the effective handling of one’s affairs and estate and to maximize wealth and minimize costs and taxes. Nevertheless, there are some basic documents that all people should put in place to plan for certain eventualities in life. The minimum that I recommend everyone consider executing are:
  
  1) Power of Attorney
  2) Living Will (also known as an Advance Medical Directive)
  3) Last Will and Testament
  
  From the Law Office of Karen Kirkpatrick 16063 Hamilton Station Road, Waterford, VA 20197 (703) 909-0581
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• What is the purpose of each of the above “Basic Documents?”
  1) Power of Attorney (POA)
  
  A Power of Attorney will give one’s designee the legal authority to do anything which one has authorized him or her to do in one’s stead and on one’s behalf during one’s lifetime. The moment one passes away, a Power of Attorney loses its effect, and one’s Will and other estate-planning documents will come into effect.
  
  A Power of Attorney can either be specific, granting limited authority to perform specified acts on one’s behalf, or a Power of Attorney can be general, granting full and virtually unlimited authority to act on one’s behalf in all of one’s affairs.
  
  Subject to the limitations specified in the document, a Power of Attorney will continue to be effective and to grant the given authority until it is revoked in writing. The document should specify, however, whether the person executing the document wants it to remain legal and in full force in the case of subsequent incompetence. (i.e. if one goes into a coma or becomes otherwise incapable of revoking the Power of Attorney, should the previously granted authority remain in effect, or should it be automatically revoked, null, and void if one becomes incompetent?)
  
  **Be sure that the POA has the appropriate language necessary to handle IRA’s, 401(k) plans, and other retirement plans if that is part of one’s estate.
  
  
  2) Living Will (Advance Medical Directive)
  
  A Living Will does NOT distribute one’s estate. That is the purpose of one’s Last Will and Testament.
  
  A Living Will is used to specify in advance one’s wishes and desires with respect to the medical treatment one is or is not to receive in the case of advanced illness or incapacitation.
  
  A Living Will should specify which medical procedures one specifically refuses and under what terms. For example, one can absolutely refuse to be put on a ventilator—ever—or one can refuse to be put on a ventilator if and when the attending medical professionals have determined that there is no real and meaningful hope for recovery from a given medical condition.
  
  Finally, a Living Will should designate someone to make medical decisions on one’s behalf in case one becomes incapable at some point of doing so oneself. Make sure that the Living Will gives the designated person authority to access one’s medical records, or their hands may be tied under the HIPAA.
  
  
  3) Last Will and Testament
  
  One’s Last Will and Testament establishes the basic framework for the ultimate distribution of one’s estate. There are four basic things that should be covered in one’s Last Will and Testament:
  
  a. the appointment of an executor, or the party responsible for carrying out one’s desires as expressed in the Last Will and Testament
  b. the designation of authority and powers that the executor will have
  c. the designation of who will inherit your estate and under what limiting terms and conditions, if any, and
  d. the designation of how one’s estate will ultimately be transferred to your intended beneficiaries
  
  
  **Be sure that the Last Will and Testament sufficiently provides for heirs who may still be minors at the time the Will goes into effect**
  
  Provision for minor heirs, incapacitated heirs, and spendthrift heirs will normally require the establishment of a Testamentary Trust (more below).
  
  Make sure that one’s Last Will and Testament includes a mechanism for resolving disputes that may arise (i.e. with regards to the distribution of the personal property or “stuff” that is left for distribution). Typically, one’s executor may have authority to resolve disputes. I’ve even had clients specify that all disputes shall be resolved by a coin toss! It sure saves litigation fees.
  
  From the Law Office of Karen Kirkpatrick 16063 Hamilton Station Road, Waterford, VA 20197 (703) 909-0581
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• What is a Trust?
  In its most basic form, a Trust is simply a legal agreement that has three parties to it:
  
  a. Trustmaker -- The person who creates the trust agreement, also commonly referred to as the Grantor, Trustor or Settlor.
  
  b. Trustee -- The person or entity responsible for managing the property that the Trustmaker decides to title in the name of the trust.
  
  c. Beneficiary - The person or entity who is to receive the benefits of the property that is titled in the name of the trust.
  
  ** Be VERY careful and deliberate about whether one should serve as the sole Trustee of one’s Trust, especially if married. Discuss this issue with an experienced professional and seriously consider drafting one’s Trust to designate Co-Trustees, “either of whom may act.” **
  
  The purpose of a Trust is for the Trustmaker to transfer ownership of certain assets to the Trustee who will manage the assets for the benefit of the Beneficiary. There are many different ways to do so and many different reasons for doing so, and it is prudent and wise to consult a legal professional to determine whether a Trust will be necessary or beneficial as well as what kind of Trust will achieve the purposes of one’s estate plan.
  
  From the Law Office of Karen Kirkpatrick 16063 Hamilton Station Road, Waterford, VA 20197 (703) 909-0581
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• Living Trusts vs. Testamentary Trusts
  A Trust can either go into effect during one’s lifetime or upon one’s passing. If the trust is to go into effect during the Trustmaker's lifetime, then it is referred to as an "inter vivos trust" or "living trust."
  If the trust has been created to go into effect only after the Trustmaker dies, then it is referred to as a "testamentary trust."
  
  Generally speaking, a Testamentary Trust will be established in conjunction with one’s Last Will and Testament.
  
  From the Law Office of Karen Kirkpatrick 16063 Hamilton Station Road, Waterford, VA 20197 (703) 909-0581
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• Revocable Trusts vs. Irrevocable Trusts
  A Trust is Revocable if the act of putting assets into the Trust can be reversed and the assets taken out of the Trust. Normally, under a Revocable Trust, the Grantor, the Trustee, and the Beneficiary will all be the same person. The most common uses of Revocable Living Trust are to provide for mental disability or incapacitation and to avoid probate of the assets that have been funded into the trust prior to the Grantor’s death.
  
  A Trust is irrevocable if the act of placing the assets into the Trust cannot be undone. In these circumstances, the Grantor cannot also be the Trustee and Beneficiary. Rather, a neutral trustee would be appointed, and the beneficiaries would be the Grantor’s intended recipients. Normally, an irrevocable trust is established to move assets out of the Trustmaker’s name and down to the next generation for their use and enjoyment. This is one way of reducing the value of the Trustmaker’s estate for estate tax purposes.
  
  More information on Trusts and the use of Trusts to minimize estate taxes due is found below.
  
  From the Law Office of Karen Kirkpatrick 16063 Hamilton Station Road, Waterford, VA 20197 (703) 909-0581
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• How can I minimize the taxes my estate must pay??
  Questions concerning minimizing taxes and avoiding Probate are probably the most frequently asked. There are so many considerations and potential avenues that it is impossible to fully answer that question in a brief “FAQ” piece. However, there are some basic considerations and bits of information everyone needs to consider.
  
  There are several ways to reduce the amount of Estate Taxes which must be paid:
  
  1. Spend, spend, spend: The government can only assess taxes on money still in one’s estate, so, within reason, it is beneficial to spend one’s money prior to passing away. Unless one’s wealth is significant, however, most people don’t feel comfortable spending flagrantly.
  
  2. Gift assets prior to passing: As above, unless one has accumulated great wealth, most people will feel uncomfortable giving away excessive amounts of money. Remember, however, that, under current law, one can give away $13,000.00 per year and not have to pay taxes on that gift. Be aware that there is a lifetime gift tax exclusion of $5,120,000.00.
  
  3. Create Trusts, where appropriate:
  
  a. Current tax law provides for “portability” so that married couples may add any unused portion of the estate tax exemption of the first spouse to die to the surviving spouse's estate tax exemption. This is currently only authorized through 2012, so you may want to consider a Trust as well—especially if you live in a state which does not recognize “portability” with regards to state estate taxes or which still authorizes only $1,000,000.00 for Estate Tax exemptions (Maine, Maryland, Massachusetts, Minnesota, New York, Tennessee, and Oregon).
  
  b. Married couples may want to consider establishing AB or ABC Trusts, where appropriate. Using AB, or ABC Trusts, each spouse can take full advantage of the maximum Federal Estate Tax Exemption and defer the payment of any taxes which may be due above that given exemption amount.
  
  c. Also, many choose to establish ILIT Trusts (Irrevocable Life Insurance Trusts). An ILIT is irrevocable, which means the Grantor has renounced all incidents of ownership (see above). The insurance proceeds will go directly to the trust, and the proceeds will not be calculated in one’s “Taxable Estate” for federal estate tax purposes. The proceeds cannot be reached by creditors or subsequent spouses or step-children either.
  
  d. Family Limited Liability Company/Partnership: A business entity used to manage assets and distribute income while avoiding tax consequences and protecting assets from creditors.
  
  e. Qualified Personal Residence Trusts. A fantastic tool for transferring real estate at a reduced value. The owner/Grantor will transfer real estate to the intended beneficiaries but retain an interest for a given number of years, which reduces the value of the property. Thus, a property “valued” at $1,000,000.00 may be transferred at a given value of only $400,000.00. Over time, the property is likely to increase in value, but the “value” given is locked at the initial $400,000.00. Thus, the overall estate is minimized, and the “gift tax exemptions” are locked at the lower value as well.
  
  f. Charitable Remainder Trust. Obtain the tax benefits of distributing assets to a charity while retaining the interest for life for your beneficiaries.
  
  From the Law Office of Karen Kirkpatrick 16063 Hamilton Station Road, Waterford, VA 20197 (703) 909-0581
  
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