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4. What is the difference between a Living Will, Health Care Directive, Advance Directive and Do Not Resuscitate Order? Living Will, Health Care Directive, and Advance Directive are interchangeable terms for the legal document that instructs your physicians to remove you from life support should you be in a terminal condition or irreversible coma. This document also can provide customized instruction for end of life care (for example, specific instructions mandated by conscience or faith). We recommend all of our clients possess a current Living Will/Health Care Directive/Advance Directive. In contrast, a Do Not Resuscitate Order is a document appropriate only for the seriously ill, as it instructs physicians not to make efforts to revive you from cardiac arrest. This instruction is not appropriate for all clients and should only be given after consultation with your physician. 5. How often should I update my Last Will? Unlike baked bread, pop music and designer clothes, your Will does not grow stale with time. A Will written in 1945 still may be valid and effective today. However, your Will may get out of line with your intentions as your family and financial circumstances change, or as estate tax laws are revised. For example, the $5 million gift to charity may no longer make sense when your net worth declines from $20 million to $10 million. Likewise, the nomination of Uncle Jim as Executor becomes inappropriate when Jim develops dementia or moves out of state. Rather than updating your Will with the passing of time, use significant changes in financial or family circumstances, or tax laws, as a trigger to review your Will. 6. What is a qualified personal residence trust? A qualified personal residence trust (“QPRT”) is an estate tax savings strategy that uses your personal residence to make a gift during your lifetime that will ultimately save estate taxes. For instance, if you make a gift of your home to your children now, you can reserve the right to live there for a number of years. The right to live there has a value, which is deducted from the value of your home in determining the amount of the gift. You save estate taxes because, if you survive for the number of years you reserved, the house passes as a gift to your children and is not in your “gross estate” for estate tax purposes. The amount of the gift consumes a lower portion of your gift/estate tax exemption that otherwise would occur, so there is more of your exemption left to shelter other assets. 7. When is a gift tax return required and what happens if I don’t file one? Gift tax returns are due by April 15th of the year following the gift and are most commonly required when an indi10
vidual gives any one person gifts during the calendar year that total more than $13,000. While there are penalties for failure to file gift tax returns, the penalties are generally based upon the tax due and often no tax is due. Even so, the tax community has seen an increase in gift tax reporting enforcement, including the IRS working with state agencies to obtain land records for intra-family transfers. Though historically rare, the IRS has examined hundreds of taxpayers in recent years. We suggest you meet with a professional advisor to determine if you are required to file a gift tax return. 8. How do I avoid Probate? First of all, this question assumes probate should be avoided. Because Washington has a relatively simple probate process, many people do not have much to fear from probate. Nevertheless, avoiding probate is generally done by employing a “Revocable Living Trust.” A Living Trust gives title of your assets to a Trustee (usually you) to hold for your benefit. At your death, your named successor Trustee holds legal title to your property and may transfer your assets to your named beneficiaries without probate. Probate is also avoided if all of your significant assets are held as “joint tenants with rights of survivorship” or have beneficiary designations. There are pros and cons to consider, so whether you should avoid probate, and how to best accomplish it should be discussed with your estate planning attorney. 9. What is a GST trust? Why should I create one in 2012? “GST” tax refers to the federal generation-skipping transfer tax. In general, the GST tax applies to the transfer of property (during life or at death) to grandchildren or more remote descendants. However, every taxpayer has an exemption from the GST tax. By funding a GST trust (also called a “dynasty trust”) and using your GST exemption, you can make property available to your children, grandchildren, or more remote descendants in a way that will avoid transfer taxes that may otherwise apply to your children’s estates. In other words, the estate tax is “skipped” at the death of the children. Right now, we have a very generous GST exemption of $5 million. Under current federal law, the GST exemption will decrease to $1 million in 2013. Therefore, 2012 is an excellent time to consider creating a GST trust. For more information, please contact any member of Ryan Swanson’s Estates & Trusts Practice Group: Lance Losey: (206) 654-2256; losey@ryanlaw.com Nancy Kennedy: (206) 654-2233; kennedy@ryanlaw.com Kari Brotherton: (206) 654-2227; brotherton@ryanlaw.com