EstateTHE BASICS

Part 1: Getting Started

Planning~ ~ ~ ~ ~ ~ ~

People spend a lifetime working and building resources to carry themthrough their retirement years: an estate. To many, "estate planning"sounds like something only for the rich. YetJew families today can dowithout it.

Some people avoid estate planning because it deals with attitudes andfeelings about death, property ownership, business arrangements,marriage, and family relationships. Others neglect or postpone estateplanning with such excuses as "I'm too young," "It's too expensive, "or "J don't have time. " But isn't it worth investing some time andmoney now to avoid the confusion, delay, expense, and family quarrel-ing that might occur if you die without an estate plan? Jfyou don't makea plan, state and federal law decide what happens to your estate.

Accept the fact that you are going todie someday. Ask yourself: "If! shoulddie before tomorrow-• what would happen to the property

I've worked a lifetime for?• who would care for my minor

children or aging parents?• would my spouse and children be

provided for in a fair and equitablemanner?

• would the family business continue?• would the estate settlement be

conducted by someone with myfamily's interest and needs in mind?

• would estate and inheritance taxes,probate fees, and other administrativeor legal costs be held to a minimum?"If you have not considered these and

other related questions, now is the timeto get started in estate planning.

What is estate planning?Basically, estate planning is the

process of arranging your affairs tomeet your objectives regarding the use,conservation, and disposal of yourproperty. It involves the coordination ofall your properties (stocks, bonds, cash,real estate, business interests, lifeinsurance, retirement benefits, and otherassets) into a total program.

You can't take these "riches" withyou Someone is going to inherit yourproperty, so it seems only sensible to

have the results of your efforts distrib-uted according to your wishes andconserved, as much as possible, fromestate and inheritance taxes and othercosts of estate settlement.

standings? One way is to use thispublication as a conversation piece.Share what you learn with other familymembers. Encourage them to read thematerial.

Other ways to stimulate conversationinclude: reading books, magazinearticles, and publications from banks,trust companies, and other reputablesources; or attending estate planningseminars or meetings. These may serveas the basis of discussion and illustratethe benefits of planning (and theconsequences of not planning).

Other opportunities can come fromvisits with attorneys, bankers, accoun-tants, and insurance representatives. Adiscussion of estate matters may comeup in an incidental fashion and serve toinitiate action. It's tragic-but true-that the death of a neighbor, friend, orrelative may lead a family to realize thatestate planning is not a subject to beoverlooked.

Once the discussion is initiated, itshould be easier to discuss the family'ssituation, concerns, and objectives.Difficult decisions may need to bemade. But the alternative is lettingsomeone else decide.

Step 2- Take stock of the presentThe next step is to make a critical

review of your present financialsituation. This step is crucial because itis the foundation of your entire estateplan. The end result will be satisfactoryonly if the information is complete.

The checklist on page 3, "What YourAttorney Should Know," will give youan idea of the information needed. Itasks for family information, locations oflegal and business papers, and namesand addresses of persons you consult foradvice. The checklist also will help youdetermine what your estate contains(liabilities as well as assets), its value,and how ownership of property is held(see the discussion on property owner-ship on page 3). It is a good idea toreview with professionals everydocument that bears on your personaland business situation to avoid "sur-prises" later.

Basic steps in estate planningThere are six basic steps in the estate

planning process:I. Initiate the discussion;2. Take stock of the present;3. Develop objectives;4. Choose professional advisers and

discuss objectives;5. Consider alternatives and imple-

ment the plan; and6. Review and modify.

Step I-Initiate the discussionPerhaps the greatest hurdle in the path

of most families is lack of communica-tion. All too often, family members arehesitant to discuss estate planning.Parents considering retirement maywish to delay any discussion because ofthe unpleasant overtones connected withgrowing old and dying. Adult childrenmay hesitate mentioning estate planningto avoid placing additional stress ontheir parents and grandparents andbecause they do not wish to appeargreedy or as trying to "take over."

How do family members initiate adiscussion about the need to develop anestate plan without causing misunder-

Step 3-Develop objectivesAs you begin forming an estate plan,

think about objectives for your estate.What do you want to accomplish?Objectives vary from family to familydue to differences in liabilities andassets, abilities and ages of survivors,number of children, and values that areimportant to the person making theestate plan. The objectives of eachfamily member, as well as overallfamily objectives, should be considered.Remember that objectives may changewith your age, marital status, income,amount and kind of property, and othercircumstances.

Step 4-Cboose proCessionaladvisers and discuss objectives

Estate planning is technical andcomplex. Most people do not haveenough time to learn all they need toknow to plan an estate thoroughly or tokeep up with changes in state andfederal laws. That's where profession-als, such as attorneys, accountants,financial advisers, trust officers, and lifeinsurance underwriters, can help.

An attorney with expertise andexperience in property law, probate,trusts, tax law, and other estate settle-ment issues generally serves as the keyperson on the team, coordinating thework of other team members.

Some common estate planning objectives are listed below. Check those that apply toyour situation and list any you wish to add. If there is conflict among the objectives,they should be ranked in order of importance.

__ 1. Provide security for surviving spouse.

__ 2. Relieve surviving spouse of estate management responsibilities.

__ 3. Provide security for both spouses after retirement.

__ 4. Retire at age_.

__ 5. Provide security for an incapacitated family member.

6. Assure continuity of farm, ranch, or other business.

Provide educational opportunities for beneficiaries.

Assist beneficiaries, including in-laws, to get started in business.

Minimize estate and inheritance taxes.

Name guardians, conservators, or trustees for minor children.

Name the personal representative (executor) of the estate.

Provide means for paying expenses of estate settlement, taxes, andother debts.

Provide equitable (not necessarily equal) treatment of family members.

Transfer specific property to specific people.

Make gifts to family members and others during lifetime.

Reduce income taxes by disposing of income property during life.

Transfer property during Iife by installment sale.

Provide for charitable bequests to a favorite charity or organization.

Minimize probate and settlement costs.

Review current operation and ownership of farm, ranch, or otherbusiness.

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Other _

When working with professionals todesign and implement an estate plan, beaware that they may have differentopinions. You have the fmal say,however. It's important that you be asknowledgeable as possible about yourobjectives, your situation, and variousestate planning alternatives and theirconsequences. Ask questions. Insist onunderstanding the plan and its implica-tions.

Step 5-Consider alternatives andimplement tbe plan

There may be several ways to reachyour objectives. Ask your professionaladvisers to explain the alternatives.Explore the consequences of each one.Decide who is to receive what, when,and how.

You may need a sounding board-someone to talk things over with, tryideas on, and get reactions from. Thismay be your spouse, a friend, a partner,or one of your professional advisers. Asounding board can help you explorethe needs of your beneficiaries, yourproperty and its value to your family,and the proper balance betweenproviding for your own future andmeeting your estate planning objectives.

Once the plan has been formulated, itis important to implement it. Otherwise,the time, energy, and money involved inthe previous steps may have beenwasted.

Step 6-Review and modifyOnce your estate plan is completed,

you can relax-but only temporarily.We live in a world of continuouschange, so your plan should changewith your circumstances. For example,the value or nature of your property maychange; your objectives may change;recipients may marry, divorce, die, orhave children; or tax laws may berevised.

Some professional advisers suggest areview of an estate plan every three tofive years, or whenever there is a majorchange in your situation or the tax laws.

What can a plan do for you?A good estate plan can help provide

financial security for you and yourfamily, now and in the future. A properlydesigned plan may save thousands ofdollars in income taxes, federal estate orgift taxes, Kansas inheritance taxes, andvarious estate settlement costs.

A well-thought-out estate plan canprotect your family from bitter quarrelsby providing for contingencies. It canprevent the forced sale or disposition of afarm, ranch, or family business. It canprovide for skillful property managementfor younger family members, as well asfor older family members who can nolonger manage their own financialaffairs.

No one is going to force you to makean estate plan. You may do nothing, ifyou wish. However, not making an estateplan is, in fact, making one. For example.your solely owned property and share oftenancy in common property will pass tothe persons and in the proportionsprescribed by Kansas law. This mayormay not be the way you would preferyour estate to be disposed of.

What your attorney should knowYou can save time and money by

having necessary information anddocuments in hand for that first visit toyour attorney and other estate planningprofessionals. The following checklist isa condensed summary of informationyour attorney will need. Actual docu-ments also may be needed, such as wills;deeds; major debt instruments; past gifttax returns; income tax returns andfmancial statements for the past fiveyears; trust instruments; informationrelative to income tax basis of property;and any other document where you arenot sure (after checking the document)how the property is titled or who wouldbe responsible for the debt.o Personal information (family mem-

bers' names, birth dates, addresses,occupations, social security numbers)

o Real estate (type of property and size,location and description, year ac-quired, cost, how titled, market value)

o Personal property (motor vehicles,machinery, livestock, crop inventory,home furnishings, jewelry, art,

antiques, personal items=-describe,include cost, value, who owns, howtitled)

o Bank and savings accounts (name ofinstitution and location, exact nameson accounts, amount in each account,how titled on signature card, numberfor each account)

o Stocks, bonds, and other securities(description, when purchased,number, exact name of owner, facevalue, cost)

o Life insurance (company and address,policy number, face amount and anysupplemental values, cash value andany outstanding policy loan, exactname of owner, name of insured,beneficiary)

o Trusts (type, location, trustee, whoestablished, exact name of benefi-ciary, value of trust property)

o Notes, mortgages, and other accountsreceivable (description, year acquired,value, person who owes you,repayment plan)

o Mortgages and other real estate debts(description, name of creditor, datedue and amount remaining to be paid,whether debt is an individual or jointresponsibility, whether insured)

o Liens against personal property(description, name of creditor, datedue, remaining amount to be paid,whether debt is an individual or jointresponsibility, whether insured)

o Other personal liabilities (unsecurednotes, notes endorsed, real estatetaxes, personal property taxes, statetaxes, federal taxes, unsettledclaims-name of creditor, date due,amount remaining to be paid, whetherdebt is an individual or joint responsi-bility, whether insured)

o Retirement benefits (pensions, profitsharing, deferred compensation,individual retirement accounts, socialsecurity, qualified domestic relationsorders-amount invested, accruedbenefits, annual benefits, deathbenefits)

o Other financial information (incomelast year, current income, salary,qualified domestic relations orders,retirement income, annuities, rents,interest, bonuses, dividends, trusts,capital gains)

o Taxable gifts (amounts, when made)o Where important papers are kept

(husband's and wife's wills, trustdocuments, deeds, insurance policies,stocks and bonds, financial state-ments, income tax returns for last fiveyears, gift tax returns, contracts,partnerships and corporation agree-ments, profit sharing plans, divorcedecrees, pre- and post-nuptialagreements, employment contracts,pension benefits)The publication, Our Valuable

Records, MF-685, may help youidentify and pull together some of thisinformation.

Property ownershipEstate planning requires an under-

standing of property and property rightsassociated with its ownership. The formof property ownership has an importantimpact on the degree of control duringlife, as well as how property will betaxed and distributed after death.

Property can be broadly categorizedas real or personal. Real propertyincludes land, attached structures, andmineral rights. Personal propertyincludes both tangible and intangibleproperty. Tangible personal propertyencompasses such things as householdgoods, automobiles, business or farmequipment, and stored grain. Intangiblepersonal property includes bankdeposits, life insurance policies, stocks,and bonds.

There are two major elements inproperty ownership: degree of interestin (or control over) the property and therelationship between co-owners (whenthere is more than one person with apresent interest in the property). It isimportant to note that there is no suchthing as absolute ownership of property.In all civilizations, governments mayreserve the right to levy taxes onproperty, to regulate ways in which itmay be used, and to appropriate privateland for public use by the power ofeminent domain.

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Fee simple absolute. The closestthing to absolute ownership is called"fee simple absolute." With propertyheld this way, the owner (or owners)generally has power to sell it, borrowagainst it, receive income from it, leaseit, and transfer it to others during life orat death.

Life estates and remainder inter-ests. A more limited form of propertyinterest is a life estate. Holders of a lifeestate-or life tenants-share propertyinterests with "remaindermen" (personsdesignated to receive a transfer of theproperty after death of the life tenant).

Life tenants manage and receiveincome from property during theirlifetimes, but cannot dispose of theproperty at death. Life tenants generallymay not sell or mortgage the propertywithout the permission of theremaindermen and are responsible forproperty taxes, mortgage payments, andadequate property maintenance. Itshould be noted that the terms andprovisions of a life estate may vary,depending on the instrument creating it.

Sole ownership. With sole owner-ship, only one name appears on the deedor title. All solely owned propertybecomes a part of the owner's grossestate and, upon death, passes to namedbeneficiaries under a will or to heirsaccording to Kansas law (if there is nowill).

Co-ownership. Co-ownership ofproperty occurs when two or morepersons hold legal title to the property.There are two types of co-ownership inKansas: tenancy in common and jointtenancy.

Tenancy in common. Involvesmultiple owners, each of whom has apartial, undivided interest in theproperty. A tenancy in common isgenerally created by the words "to Aand B." A transfer "to A or B" or "to Aand/or B" also denotes tenancy incommon. Should one of the tenantswish to dispose of his or her interest inthe property, this can be done by mutualagreement or the court can decide howbest to dissolve the co-ownership.

When a tenant in common dies, his orher undivided property share passes to

the beneficiaries specified by will or, ifno will exists, to heirs under Kansaslaw. The property does not pass to theco-owner unless named as the benefi-ciary in the will or unless the co-owneris considered an heir under state law.Only the portion of the property ownedby the deceased tenant in common isincluded in the gross estate for federalestate and Kansas inheritance taxpurposes.

Joint tenancy. Carries with it the rightof survivorship. It is generally createdby the words "to A and B as jointtenants with right of survivorship andnot as tenants in common." In thisinstance, two or more persons ownproperty together, again with undividedinterests. Each owner can terminate co-ownership upon agreement or byrequesting the court to partition theproperty or sell it and divide theproceeds.

The right of survivorship controls thedisposition of property at the death ofone co-owner. Property owned in jointtenancy immediately passes to thesurviving joint tenant(s). Wills or stateintestate laws do not control propertyheld in joint tenancy. Even if listed in awill, property held in joint tenancy withright of survivorship supersedes orbypasses instructions in a will.

Some people are tempted to use jointtenancy with right of survivorship as analternative to a will. This form of co-ownership does have some advantages.For example, it is a quick and conve-nient way to pass property to survivingjoint tenants; it may provide quickaccess to funds or property for thesurviving joint tenants; and it can savesome of the delays and expenseassociated with probate. However, thereare also several potential disadvantages.

Joint ownership gives another personequal control over jointly held property.For example, a joint owner couldwithdraw all the funds in a joint bank orsavings account, without permission ofthe other joint tenant. Permission fromall joint owners may be needed beforejointly held real estate can be sold. Thiscould become a significant problem ifone of the joint tenants becomes

incapacitated or incompetent. Jointlyheld property may be subject toinclusion in marital property (forpurposes of dividing property during adivorce, for example), or have a lienplaced upon it because of a lawsuitsettlement against one of the jointtenants. If a joint tenancy is created withsomeone other than a spouse, the entirevalue of the property is included in thegross estate of the first joint tenant todie (for federal estate and state inherit-ance tax purposes), unless the estate ofthe deceased joint tenant can provecontribution by the surviving jointtenant(s) to the acquisition or mainte-nance of the property. Further, formarried couples with large estates,having property in joint tenancy withright of survivorship may result in asubstantial federal estate tax liabilityupon the death of the second spouse.

It should be noted that under Kansaslaw, transfers to two or more personscreates a tenancy in common, ratherthan a joint tenancy, unless it is clearthat a joint tenancy was created.

ReferencesThis publication was primarily

adapted from Getting Started in EstatePlanning by Carol A. Stoltz, formerspecialist, Cooperative ExtensionService, Kansas State University.

Other references include:Douglas F. Beech, Sam Brownback,

and Martin B. Dickinson, Farm EstatePlanning, Cooperative ExtensionService, Kansas State University, S-24,January 1985.

Marsha Goetting, Estate Planning:Property Ownership, CooperativeExtension Service, Montana StateUniversity, MT 8907, November 1989.

Neil E. Harl, What My AttorneyShould Know, Iowa State University.

Neil E. Harl, Estate Planning:Planning for Tomorrow, CooperativeExtension Service, Iowa State Univer-sity, Pm-993, August 1988.

Philip E. Harris, Farm EstatePlanning Workshop, CooperativeExtension Service, University ofWisconsin-Madison, July 1989.

Kansas Bar Association, JointTenancy, January 1989.

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Kansas Department on Aging, LegalGuide for Senior Citizens, September1990.

Sidney Kess and Bertil Westlin, eCREstate Planning Guide, 1991 Edition,Commerce Clearing House, Inc., July1991.

Carol S. Kramer, former specialist,Estate Planning for Families: A Reviewof Changes in the Estate Tax Laws,Cooperative Extension Service, KansasState University, GT-176a, February1983.

The author would like to thank thefollowing for their review of thispublication:

Theron E. Fry, Tim O'Sullivan,Cheryl Cook Boushka, and StevenBrown, members of the ExecutiveCommittee of the Real Estate, Probate,and Trust Law Section of the KansasBar Association.

Douglas F. Beech, ExtensionAgricultural Economist, CooperativeExtension Service, Kansas StateUniversity.

This publication is not intended toprovide a substitute for legal advice.Nor is it intended to serve as a completeand exhaustive text on estate planning.Rather, it is designed to provide basic,general information about the funda-mentals of estate planning so you willbe better prepared to work withprofessional advisers to design andimplement an effective estate plan.

Information in this publication isbased on the laws in force on the date ofpublication.

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Joyce E. JonesExtension Specialist

Family Financial Management

I?QOPi:_RAT.1YEi:,xTENSION SERVICE, MANHA'ITAN, KANSASL-849 May 1992b;~ic\(-.rtIiten"CcofCoopc.Mive E~eMioRW~acts~May I. Iftd. JUM .\0. IIJI4. asal"lKncied. K.nsas Slate Unt\lenilY,COWKy E1tensiMCaDc:ils.aftd United Slates Oepar1l"Reftloi Apio:ulturr C~J. Ri<harcID. W_IOII. A_ Dim:rar. AMccI..,..ion>l pro••.•••••and "':lIeriol. II< .Ylilable wi,IIoo' difCrimi•• 'ion Oft'" _ofnee, color. "'ion:allJri~in,se... 'ce. or tuadicap.

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