Washington Estate Planning Law Blog

Clearer Trustee Duties

John Hugg — Fri, 02 Dec 2011 16:53:04 -0800

Effective January 1, 2012, a number of changes to Washington law pertaining to trusts and estates will become effective. One of these changes is the codification of a trustee’s duty to notify the beneficiaries of the existence of a trust and keep those beneficiaries informed regarding the trust’s administration. This rule will apply to irrevocable trusts established after December 31, 2011, and to revocable trusts that become irrevocable after this date. Another important component to this change is that the maker of a trust, otherwise known as a “trustor”, cannot relieve the trustee of this duty. Previously, the law has been a bit unclear as to what, when and to whom information about a trust and its assets has to be provided.

Advance Directives Seminar

John Hugg — Mon, 31 Oct 2011 09:04:52 -0800

On Wednesday, December 14, 2011, at 10:00 a.m., I will be conducting a seminar on Advance Directives at the Mill Creek Senior Center in Mill Creek, Washington. The class focuses on all aspects of Powers of Attorney, Living Wills and the POLST form. The program is sponsored by Evergreen Healthcare.

Explain Why You Gave One Child More

John Hugg — Thu, 15 Sep 2011 14:43:16 -0800

A number of my clients leave different amounts to children via their Wills. In my experience, this occurs most often after parents give one of their children money to help out while they are alive, but not all children. The thought behind giving more through a Will is to give the child who did not receive money while mom and dad were alive a little more at death to equal things out. Of course there can be other reasons for unequal bequests including estrangement or other non-financial issues. A recent Wall Street Journal article notes that when this situation occurs, you should take steps to reduce the likelihood of conflict. Two good ways to reduce the likelihood of a Will contest are writing or videotaping an explanation of the unequal distribution and, under certain circumstances, taking additional steps to show a clear mind when you signed the Will.

Is Gifting Right For You?

John Hugg — Mon, 12 Sep 2011 11:51:59 -0800

For many people, making large gifts to children and grandchildren may not be the wisest action to take. For example, if you are a married couple aged 70 with a nicely sized combined estate, gifting may ultimately do more harm than good. Remember that if you are now on a fixed income, inflation will significantly eat into your purchasing power over time. Also, certain costs have historically increased far faster than the overall rate of inflation. Long term care is one such cost. Medical expenses are another fast rising cost. So before you give everything away, think about how much money you will really need to live on during your golden years.

Business Succession Planning Tips

John Hugg — Sun, 04 Sep 2011 11:46:28 -0800

If you are planning to pass your business to your children here are some tips and options you may want to consider:

Carefully evaluate the interest and desire of the next generation to work in the business. If a child lacks the necessary interest and desire he or she will certainly fail to maintain the company.
Turn over control slowly and over time. This will enable the second generation to become familiar with the business and the challenges of running it, allow children to make mistakes without jeopardizing the enterprise and allow you to make course corrections if the chosen heir is not working out.
Structure a transfer that requires the next generation to “earn” the company. Set up a purchase over time so you receive much needed cash for retirement, the child or children get the business while learning it has to be earned – it is not merely a gift.
Consider having family members who do not participate in running the business be creditors rather than owners. Non-participating family can receive a stream of income while not negatively affecting management of the business.
Communicate with all family members about what you are doing and why.

Bothell's Second Annual Senior Celebration

John Hugg — Tue, 30 Aug 2011 11:40:29 -0800

Once again the City of Bothell, the Bothell Chamber and a variety of local businesses look forward to honoring our greatest generation.

On Tuesday, September 13, 2011, come take a stroll down Main Street, visit the shops, the restaurants and celebrate our seniors. Enjoy free give-a-ways, food, shopping, discounts, historical tours, entertainment, prizes and more. If it’s anything like last year, you may even find yourself dancing in the street! The City will wrap up the festivities with its annual dedication of Senior Citizen’s Day.

We welcome all seniors and their families. The activities begin at 9:00 a.m. and conclude just after 2:00, so come for an hour or make it a day. In addition to free parking, a shuttle service will run from various retirement communities, and the Northshore Senior Center will provide additional shuttle service to and from Downtown Bothell at regular times throughout the day. Come join us! You won’t want to miss this special event!

Summer Estate Planning Presentation

John Hugg — Mon, 01 Aug 2011 11:34:48 -0800

This Wednesday, August 3, 2011, I will be conducting another “Are Your Affairs In Order?” class at the Maltby Church in Snohomish, Washington. The class focuses on all aspects of Wills, Trusts, Powers of Attorney and Living Wills. The program is sponsored by Evergreen Healthcare.

Tips in Creating Your Power of Attorney

John Hugg — Tue, 24 May 2011 11:20:44 -0800

The Wall Street Journal recently ran an article about Durable Powers of Attorney and their potential for abuse. The article set out several recommendations to ensure your Power of Attorney will be honored and adhered to, as well as tips to minimize the potential for fraud. Among the recommendations:

Use different Power of Attorney documents for the different states in which you may reside;
Require regular reporting of financial transactions and investments to remaining family members;
Have all children agree or consent to certain major financial decisions;
Check with your bank or other financial institution to make sure the form will be honored; and
Limit access or the original Power of Attorney document.

Given the potential for abuse in this area, it is almost always a good idea to build in more safeguards than less.

POLST Forms

John Hugg — Fri, 20 May 2011 11:05:38 -0800

I get a fair number of questions about the POLST form. So here’s a brief synopsis. POLST stands for Physicians Order for Life Sustaining Treatment. The POLST form is not a substitute for an advance directive, or Living Will, but is intended to “summarize” a person’s wishes regarding life sustaining treatment. The form is not created by an attorney. It is supposed to be provided only by a physician and to be effective must be signed by both the patient and physician. The form contains sections covering administration of CPR, other medical interventions, administration of antibiotics, administration of artificially provided nutrition and a summary of goals. As with most everything the POLST form is appropriate for some people and not others. So give some thought as to when and under what circumstances you should complete the form.

Spring Estate Planning Events

John Hugg — Tue, 05 Apr 2011 11:29:49 -0800

In addition to the seminar on Advance Directives I am scheduled to give on April 15 at the Peter Kirk Community Center in Kirkland that was already posted, I am also speaking on general estate planning topics at two additional events. One is on April 21, 2011, from 6:30 p.m. to 7:30 p.m. at the Northshore Y in Bothell and the other is on May 11, 2011, at the Redmond Senior Center in Redmond, Washington.

Business Succession Planning

John Hugg — Wed, 30 Mar 2011 08:57:44 -0800

If you are a business owner you need to think not only about routine estate planning but also what will happen with your business when you retire, die or become incapacitated. Recent studies show that approximately 27% of family owned or family managed businesses worldwide will change hands in the next five years. However, less than 50% of such businesses have any sort of succession plan in place.

There are a number of different succession planning options available to business owners. One option is to sell your ownership interest to a partner or partners. If you do not have a business partner, or you want a child to take over your share of the business, you can bequeath your ownership stake to your children through your will, or use any number of lifetime transfer techniques to gift some or all of the business to your children. Other options include selling the business to a child or children, to employees or to an unrelated third party. Any one of these options may allow you to achieve your goals. However, depending on your situation one of the preceding options will generally stand out as the best choice.

If your business is small and one or more children are interested in the business, you may want to simply pass ownership through your will. If the business is larger and you need to reduce the size of your estate for tax purposes or you need money for retirement, some form of gift or sale to a child may be the optimal strategy. Lastly, if you do not have a child with any desire for the business, he or she is not the proper person to run the business or you foresee years of friction and squabbling between family members, you may want to sell out to an unrelated party. Most importantly, you should start thinking about business succession early and consult with qualified advisors to assist you with planning and implementation.

End-of-Life Seminar

John Hugg — Mon, 21 Mar 2011 14:23:23 -0800

I am scheduled to give a seminar on Advance Directives and End-of-Life issues at the Peter Kirk Community Center in Kirkland, Washington on April 15, 2011. Recently, the Wall Street Journal ran a good article touching on a number of issues I’ll be covering.

Now is a Great Time to Gift

John Hugg — Mon, 14 Feb 2011 15:45:32 -0800

The changes to the federal estate tax laws on January 1, 2011, include a wonderful opportunity to gift away a portion of your estate without incurring gift taxes. Along with the increase in the federal estate tax exemption limit to $5 million per person, Congress increased the gift tax exemption limit to $5 million per person. The previous limit was $1 million per person. The annual exemption limit remains $13,000 per person, however, you may now give away up to $5 million of your estate while you are alive without paying any gift tax. Any gifts made in excess of this amount would incur tax at the newly reduced rate of 35%. Adding to the benefits of implementing a gifting strategy, Washington State does not currently have a gift tax. One caveat, this opportunity may not last. The current estate and gift tax laws are set to expire at the end of 2012.

Estate Tax Revival

John Hugg — Wed, 08 Dec 2010 09:42:49 -0800

As most everyone knows by now, Congress and the President have reached an agreement to extend the Bush Era tax cuts for another two years. Included in this agreement is the return of the federal estate tax. The proposed reinstatement will carry an exemption of $5 million per person and a tax rate of 35%. This is good news for most people as a relatively small percentage of Americans will be hit with a federal estate tax. But remember, Washington State still has its own estate tax with a $2 million per person exemption and a top tax rate of 19%.

Revocable Living Trusts

John Hugg — Tue, 16 Nov 2010 13:41:32 -0800

As an estate planner, I see a lot of revocable living trusts. Either because I draft them for clients, assist clients with making changes to them or help with administration after a death. So what is a revocable living trust? What are the advantages and pitfalls of such a trust? And, when is it a good idea to use a revocable living trust?

Revocable living trusts go by a number of different names. Generally, they are referred to as Living Trusts or Family Trusts or some variation of those names. I’ll use the name “Living Trust.” A Living Trust is a trust that you create while you are alive. You are the maker of the trust, or grantor, you are frequently the trustee of the trust, so you maintain control over the assets of the trust, and you are the primary beneficiary of the trust. Thus you can use the assets or income of the trust while you are alive.

The key aspect of a Living Trust is that it is “revocable.” This means you can terminate or change the trust any time you desire. You can also add or remove property from the trust at any time. This can be a very handy tool to have at your disposal. For instance, most Living Trusts say that all trust assets will be used for the makers of the trust while either are alive then pass to children equally. However, if you have a falling out with a child, you can change the terms or the property of the trust to reduce or eliminate that child’s inheritance.

There can be many benefits to a living trust depending on your situation. The most universal benefit is that, if planned correctly, you can avoid probate and its costs and hassles. In Washington State, however, this may or may not be a big deal. Unlike some other states, probate in Washington is often a fairly streamlined process. Also, if you desire privacy, a Living Trust can be quite valuable. While probate is a public process, administration of a Living Trust is generally a private matter.

However, there are some pitfalls to Living Trusts. First, you generally cannot protect assets in a Living Trust from the IRS or other creditors. Second, this type of trust has no present income, gift or estate tax benefits because the IRS generally doesn’t even recognize the trust (that can change once one spouse dies). Additionally, at least in Washington, a Living Trust will not help you or your spouse qualify for Medicaid if that is something that needs to be done.

While there may be other reasons, a Living Trust is useful where you have real property in multiple states, as it can eliminate the need for a probate in two or more states. This will reduce cost and hassle. If you want privacy, the Living Trust is also very effective, and if you want to avoid probate in the state where you live the Living Trust may do that as well.

Fall Estate Planning Presentation

John Hugg — Thu, 28 Oct 2010 13:19:56 -0800

I will be one of several presenters speaking at the Cascade Club at Trilogy at Redmond Ridge on Tuesday, November 9, 2010, from 6:00-8:00 p.m. Topics I will be covering include wills, trusts, probate and Medicaid planning.

Cinderella Should Have Been a Trust Beneficiary

John Hugg — Mon, 11 Oct 2010 09:36:57 -0800

Recently, I was watching Cinderella with my three year old and thought – Wow, if only she was a trust beneficiary she wouldn’t be locked in the tower slaving for her step-sisters. For those who don’t recall, the setup for the story is that Cinderella’s mother passed away; then her father remarried the evil step-mother; her father dies and the step-mother squanders his estate on her two daughters. But had Cinderella’s father placed his assets in trust for his daughter and chosen a responsible, independent trustee, her step-mother would never have gotten her hands on the money. This may be an odd thing to take away from a children's movie, but lessons can be learned from almost any source. The lesson here is to plan your estate to protect your children.

Key Interest Rates Near Their Lows

John Hugg — Thu, 30 Sep 2010 08:14:18 -0800

A number of wealth transfer strategies utilize interest rates published by the IRS. One such rate is the Section 7520 Interest Rate, and in October it will be only 2%. That’s tied for an all-time low. Other interest rates used for such strategies are near their all-time lows. These interest rates mean certain strategies, including Grantor Retained Annuity Trusts, installment sales to grantor trusts and intra-family loans, are particularly attractive. If you’ve been contemplating transferring assets such as business interests or real estate, or helping a family member with a loan, now is a good time to act.

Bothell Celebrates the 'Greatest Generation'

John Hugg — Mon, 09 Aug 2010 10:12:54 -0800

For the first time, the City of Bothell and The Greater Bothell Chamber of Commerce have come together to celebrate the members of what Tom Brokaw called the “Greatest Generation” – our senior citizens.

On Tuesday, September 14, 2010, Downtown Bothell businesses and other Chamber Members will honor our seniors with free give-a-ways, shopping, eating, discounts, historical tours, entertainment, prizes and even a wine tasting. The City will wrap up the festivities dedicating the day as Senior Citizen’s Day.

All senior citizens and their families are welcome to attend this all day event. While you can come any time, live entertainment is provided between 10:00 a.m. and 2:00 p.m. Parking is free and a shuttle service, available to all, will run from various retirement communities and the Northshore Senior Center to Downtown Bothell at regular times throughout the day.

Don't Delay Estate Planning

John Hugg — Fri, 06 Aug 2010 09:36:14 -0800

Last Sunday, the Seattle Times Newspaper, ran an article by syndicated columnist Chuck Jaffe that crystallized perhaps the best reason to plan your estate sooner rather than later. What I took from the article was you do not want to spend time thinking about getting your affairs in order if you only have a short time to live. Mr. Jaffe noted his late brother did his estate plan before becoming ill, and he was thankful he did not have to waste one precious minute worrying about wills, trusts and finances. When time is of the essence, you should focus on what really matters in life rather than the mundane details of what happens after death. There certainly is no better reason to plan sooner rather than later.