Estate Planning Advisor Should Your Home Be Owned by Your Trust? - - PDF document

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Estate Planning Advisor

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2 Miller Nash Graham & Dunn’s Trusts & Estates Team 3 Ethical Will: An Ancient Tradition Made New Again 4 Why Does It Matter Where I Live for Estate Tax Purposes? When we work with a client to design a comprehensive estate plan, we consider the importance of owning a home in a trust. Several factors must be given weight in deciding whether to deed a person’s home into his or her trust. First, how the home is currently titled must be reviewed. Homes can be owned by tenants in common, by joint tenants with right of survivorship, and by tenants by the entirety. When property is held by tenants in common and an owner dies, that owner’s inter- est must pass through probate. When property is held by joint tenants with right of survivorship, the property does not pass through probate; it passes automatically to the survivor upon the filing of a death certificate in land

• records. Couples may own property

in the third form of ownership, called “tenancy by the entirety.” This form

• f ownership allows the home to pass

directly to the spouse upon the filing of a death certificate in land records, and it also allows the couple to enjoy superior creditor protection during their joint lifetimes. Second, incapacity planning must be a consideration. None of the forms

• f real estate ownership address the

capacity of the individual. If the owner becomes incapacitated, the property cannot be sold unless a durable power

• f attorney was executed before the on-

set of incapacity or until a conservator is court-appointed for the individual. Ad- ditionally, none of these forms of own- ership address what happens in case of the death of both owners of a property. For example, if the couple expire simul- taneously, then the real property must go through probate in order to pass to the couple’s heirs, despite owning the home as tenants by the entirety. Third, probate avoidance must be

• considered. Probate is the court’s over-

sight of a person’s estate to ensure that the property goes where it is supposed to go, whether that be in accordance with a person’s last will and testament

• r in accordance with the intestate heirs

as delineated in each state’s estate laws. In some cases, probate is an appropri- ate venue in which to handle a person’s

• estate. In other cases, clients are well

advised to avoid the probate process, probate expenses, and time delays. I prefer that clients either transfer a home into a trust to avoid probate and all that it entails or make use of a transfer-on-death deed.

Transfer Into Trust

The upside of transferring a home into trust is that doing so can be great for an individual. If an individual owns a home solely, then transferring the home into trust will be effective to avoid probate entirely. The additional benefit to the individual is that the trust can include express provisions allowing the home to be maintained, rented, or sold in case of the individual’s incapac-

• ity. This alone can bring great peace
• f mind to my clients and is often the

guiding decision factor. Also, upon the person’s death, the trust could provide that the home be maintained in trust for a particular beneficiary, rented as an income-producing property, distributed directly to particular heirs, or sold and the proceeds earmarked for heirs.

Should Your Home Be Owned by Your Trust?

by Lori K. Murphy

lori.murphy@millernash.com 541.749.3305

Miller Nash Graham & Dunn’s Trusts & Estates Team

2015 promises to be an exciting year for our Trusts and Estates team. On January 1, the two long-standing Northwest firms

• f Miller Nash and Graham & Dunn combined to form Miller Nash Graham & Dunn. With nearly 160 attorneys and offices

in Washington, Oregon, and California, the combined firm offers our clients broadened capabilities. The combination also resulted in an expanded Trusts & Estates team, allowing us to better serve our estate planning clients.

Our Expanded Team

I am very pleased to introduce Marcia Fujimoto, a partner from the legacy Graham & Dunn firm. I have known Marcia for a number of years, and in addition to being a terrific person, she is a well-respected and accomplished estate planner. Three paralegals also joined

• ur team: Nicki Brown, who has extensive experience in probate administration; Kim Sand-

strom, who assists with drafting documents; and Elizabeth Pitman, who is new to our area

• f law and focuses primarily on probate administration. Below is a brief biography of Marcia.

Marcia has more than 30 years of experience counseling individuals and families about wealth transfer and succession planning, including estate planning and administration, probate, trusts, and related tax matters. She attended the University of Michigan for both undergraduate and law school. She is a fellow in the American College of Trust and Estate Counsel (ACTEC) and has been included in Washington Super Lawyers magazine and listed as one of the top 50 Women Washington Super Lawyers. She is a frequent speaker at profes- sional conferences and is active in the Seattle charitable community. The legacy Miller Nash Trusts & Estates team members all look forward to working with

• ur new colleagues and introducing them to our clients.

Sincerely,

Adrienne P. Jeffrey, Editor, Estate Planning Advisor

adrienne.jeffrey@millernash.com 206.777.7512

Marcia K. Fujimoto

marcia.fujimoto@millernash.com 206.777.7475

Estate Planning Advisor | miller nash graham & dunn llp | 2

Estate Planning Advisor | miller nash graham & dunn llp | 3 The typical will is a set of instruc- tions to a person charged with the duty

• f carrying out those instructions.

The usual instructions center on pay- ing debts and taxes and distributing the rest of the property of the testator (person who made the will) to various loved ones and charities. This type of will is not designed to share the ethical values of the testator. This has been a problem for many people who want to pass on their ethical values along with their worldly possessions. It seems that this has ever been so, because ethical wills are nothing new. Ethical wills have been known for

• ver 3,000 years. They were a tradition

particularly among Jewish men and were initially an oral tradition. Modern practice is to write an ethical will at the intersection of one’s life and is certainly not limited to gender or religion. An ethical will may be referred to as a “legacy letter” and is used in connec- tion with a last will and testament (or a revocable living trust) to give context to the distributions of worldly goods at death or gifts during one’s lifetime. An ethical will may also be in the form of a written blessing from the author to the next generation. In concept, ethical wills are documents designed to pass ethical values from one generation to the next. While each ethical will is unique to its author, there are common themes, such as the following:

• Announcement of personal values

and beliefs;

• Explanation of spiritual values;
• Articulation of the hopes and bless-

ings for future generations;

• Sharing life’s lessons learned;
• Declaration of love;
• Expression of forgiveness of others;

and

• Asking for forgiveness.

Ethical wills provide a way for the author to be remembered by future generations; to tell the author’s story or the family’s story; to identify important values in hopes of continuing these val- ues in the next generation; to become more self-aware; to come to terms with the author’s mortality; and to provide a sense of completion. People often write an ethical will upon an engagement to marry of a loved one. An ethical will can be that writing that shares the lessons of mar- riage learned by a father and passed

• n to a son, or a mother to a daughter.

Think of writing to a new parent upon the birth of a first child to articulate the hopes and blessings for that new

• generation. Other transitions in life

also call for deeper connections and a sharing among the generations, such as upon a divorce in the family, a child’s leaving home for college or the military, upon reaching middle age or old age, and finally the last transition at the end

• f life.

The transitions in life provide the context for writing an ethical will, but those transitions do not provide guid- ance on how to get started. This article will help you navigate the ethical will process. First, identify the audience. One poignant ethical will was written by a father to his 18-year-old son on the eve

• f the son’s departure to France. The

father expressed his love for his son and shared his hope that his son pursue his heart’s desire upon returning from WWI. Second, consider your intentions. Is the intention to provide guidance or to scold? Is it to explain your personal beliefs and values? Is it to bestow your hopes for the future of a grandchild? What is chosen will set the tone. Some ethical wills that have survived down through the ages are specific instructions from parent to child on how each moment of each day is to be

• lived. Others are seeking forgiveness

for the wounds caused over the years. Still others are expressions of love and statements of personal values. Third, reflect on what to say. In get- ting started, it is useful to write down ideas—a few words or a sentence or two about things such as:

• Your beliefs and opinions;
• Things you did to act on your val-

ues;

• Something

you learned from grandparents/parents/siblings/ spouse/children;

• Something that you are grateful

for;

• Your hopes for the future.

Fourth, decide when to share the ethical will. An ethical will can be shared at a special moment in the re- cipient’s life, such as a birth, wedding,

• r milestone birthday. Some, if not

most, wait until the end of life. There are no rules except to search your own heart to know the appropriate moment for you to share it. Fifth, do no harm. Take care that the words written or spoken are re- ceived as the author intended. Ethical

Ethical Will: An Ancient Tradition Made New Again

by Kay B. Abramowitz

kay.abramowitz@millernash.com 503.205.2336

(continued on page 4)

Estate Planning Advisor | miller nash graham & dunn llp | 3

Estate Planning Advisor | miller nash graham & dunn llp | 4

by June M. Wiyrick Flores

june.wiyrickflores@millernash.com 503.205.2408

Why Does It Matter Where I Live for Estate Tax Purposes?

The estate tax is a transfer tax

• n the assets you own when you pass
• away. Currently, a federal estate tax is

imposed when the decedent’s estate is at least $5,430,000 (the federal exclusion amount). While most states do not have a separate estate

• r

inheritance tax, several states do—in addition to the federal estate tax. Even among those states that impose an estate/inheritance tax, the rate and exemptions vary

• widely. Out here on the West Coast, the

difference can be readily seen. Wash- ington imposes an estate tax when the value of the decedent’s assets exceeds $2,064,000. Oregon imposes an estate tax when the value of the decedent’s as- sets exceeds $1 million. California does not have an estate tax. If you want to minimize estate tax, where you reside when you die does

• matter. So should you change your

state of residence to a state that does not have an estate tax? Changing residency is not always enough to avoid a state’s estate tax. In Washington and Oregon, your residency alone doesn’t determine whether or not you are subject to the state estate tax—it also depends on what types of assets you own. If you are an Oregon resident, then all of your real estate and tangible personal property (these are things such as art, vehicles, jewelry) located in Oregon and all of your intangible property (stocks, bonds, etc.) are subject to Oregon estate

• tax. If you are not an Oregon resident,

then only the real estate and tangible property located in Oregon are subject to Oregon estate taxes. For example, if you are a California resident, but own a condo in Portland, then the condo is still subject to Oregon estate taxes. One common misconception is that so long as the value of the property in Oregon or Washington is less than the state’s exclusion amount, then the assets are not subject to state estate tax. This is incorrect—the determination whether tax is due depends on the decedent’s gross estate, not just the as- sets located in the state. In the example above, if the Portland condo and its contents are valued at $750,000 and the decedent’s assets in California are valued at $1 million, then Oregon estate taxes are owing. How can you avoid owing estate tax in Oregon and Washington? If you live part of the year in another state (such as California), consider changing your residency and the character of the property you own in Oregon or Wash- ington to intangible property by creating a limited liability company (“LLC”). An owner- ship interest in an LLC is in- tangible property. You create an LLC and transfer ownership of your real property and tangible property to the

• LLC. So instead of owning real property
• r tangible property, you own intan-

gible property—the LLC. If you are not a resident of Oregon or Washington, then intangible property in Oregon or Washington is not subject to the state’s estate tax. There are other issues in- volved in changing your residency that are beyond the scope of this article. Estate Planning Advisor | miller nash graham & dunn llp | 4 Ethical Will: An Ancient Tradition Made New Again | Continued from page 3

• Barry K. Baines, M.D., The Ethi-

cal Will Resource Kit (Josaba Ltd., 1998)

• Barry K. Baines, M.D., Putting

Your Values on Paper: The Ethi- cal Will Writing Guide Workbook (Josaba Ltd., 2001) wills have the potential to be wielded as a weapon or as an expression of love and gratitude. Once written, review the ethical will as if you were the recipient. Ask yourself how you would respond upon receiving the document. If you want to learn more, here are some resources:

• www.ethicalwill.com

“While most states do not have a separate estate or inheritance tax, several states do—in addition to the federal estate tax.”

• Susan B. Turnbull, The Wealth of

Your Life: A Step-by-Step Guide for Creating Your Ethical Will (Bene- dict Press, 2d ed 2007)

Estate Planning Advisor | miller nash llp | 7 Should Your Home Be Owned by Your Trust? | Continued from page 1 Estate Planning Advisor | miller nash graham & dunn llp | 5 For my couple-clients, transferring a home into trust will be effective to avoid probate whether one of the couple dies or if both expire together. It is also effective to address the same incapac- ity issues that a sole owner would face. Also, a couple’s trust could address how the real property is handled after one of the couple dies and what happens to the real property after the first and second

• f the couple die.

If a home is in trust and the trust addresses whether the home is to be maintained, rented, distributed, or sold, then there is no need to make use of a durable power of attorney or a court-appointed conservator. There are two downsides when transferring a home into trust: First, a risk is taken if the home is mortgaged. Typically, lender consent is required to transfer a home from the cli- ent’s name into a trust name. Many lenders consider this change to be a refinance action and charge associated costs. Second, if the home was previously owned by ten- ants by the entirety, there is a risk that a transfer into a trust would destroy the beloved creditor protection associ- ated with such a deed. Although some states have adopted statutes expressly authorizing the continuation of creditor protection when a couple transfers their home into trust for estate planning pur- poses, Oregon has not yet adopted such an express statute.

Transfer-on-Death Deed

As an alternative to transferring a home into trust, clients may consider the transfer-on-death deed, which is authorized by Oregon law and that of some other states. Use of this method does not require the home to be deeded into a person’s trust. Instead, a deed is drafted to convey the home to a person

• r persons after the owner’s death; it

functions much like a last will and testament, but only as to the real prop-

• erty. Upon the owner’s death, the home

passes by operation of law to the next persons named on the transfer-on-death

• deed. The benefit to this method is that

the home passes outside of probate. This method can be an inexpensive, fast, and easy way to address transfer of real property at death. Furthermore, the

• wner is not restricted from selling the

home before death. But the transfer-on-death-deed method fails to address a client’s poten- tial incapacity. For example, if a single client suffers incapacity, the home may need to be sold before death. A trans- fer-on-death deed has no impact on the ability to sell the property. In fact, a power of attorney or court-appointed conservator must take control of the property. Additionally, the transfer-on-death deed does not work well for couples. Even if a couple made use of a transfer-

• n-death deed, it would work well only

in case of simultaneous death. If one of the couple died, the original deed and its tenancy would control. For example, if the couple owned property by tenants by the entirety, the property would pass to the survivor solely, despite there being a transfer-on-death deed in land

• records. That sole survivor could then

change the beneficiary of that property

• n his or her own.

Conclusion

When considering how to advise clients on how best to address their

• wnership of real property, my col-

leagues and I came to a general conclu- sion that for clients in high-risk profes- sions (ones that are subject to high-risk lawsuits), such as those in the medical profession or home builders, then it is more important to maintain the creditor protection offered by the tenants by the entirety form of ownership instead of focusing solely on incapacity planning

• r probate avoidance. For our clients

who are not in high-risk professions, then probate avoidance and incapacity planning seem to be better goals. For the latter clients, making use

• f the transfer into trust or the

transfer-on-death deed is ap- propriate.

“For my couple-clients, transferring a home into trust will be effective to avoid probate whether one of the couple dies or if both expire together.”

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