Question

U.S.A estate planning

1. Mindy is married to Mork, but she wants to get a divorce. Mindy asks you to explain how community and separate property works. Give Mindy your best explanation.

2. Explain the difference between dying testate, intestate, and partially intestate.

3. What is the probate process?

4. Give an example of a non-probate asset and a probate asset. Explain your answer.

5. Explain the difference between an irrevocable trust and a revocable trust.

Answer 1

1. Mindy is married to Mork, but she wants to get a divorce. Mindy asks you to explain how community and separate property works. Give Mindy your best explanation.

Ans: Community Property:

a. Community property is everything that a husband and wife own together.

b. This means both the husband and wife equally own all money earned by either one of them from the beginning of the marriage until the date of separation.

c. In addition, all property acquired during the marriage with "community" money is owned equally by both the wife and husband, regardless of who purchased it.

d. Like community assets, all debts contracted from the beginning of the marriage until the date of separation are community debts.

e. Therefore, each spouse is equally liable for debts. In most cases, this includes unpaid balances on credit cards, home mortgages and car loan balances.

Separate Property:

a.Separate property, on the other hand, is everything a husband and wife own separately

b. Separate property does not need to be divided between the spouses. In most cases, separate property includes:

1. Anything owned prior to marriage
2. Anything inherited or received as a gift during the marriage
3. Anything either spouse earned after the date of separation

c. Separate property can also include anything that one spouse gives up to the other spouse in writing.

d. In certain cases, separate property can become mixed with community property.

e. Similar to separate property, separate debts belong to one spouse. All debts incurred before marriage are separate debts.

In the present Case, when

More Separate assets and less separate debts - Separate property

More Separate property and more separate debts - Community property

Less separate assets and more separate debts - community property

More community property - Community property

Less Community Assets and more community debts - Separate Property

When there are no separate assets - Community property works better

When there are only separate aseets - separate property works better

2. Explain the difference between dying testate, intestate, and partially intestate.

The difference between Dying estate and Intestate

Dying Testate	Intestate
Died with a valid Will	No valid Will
Will was signed by the Testator (person who made the Will)	—
“Testate” Decedent with a “Testate” Estate (with a Will)	“Intestate” Decedent, having an “Intestate” Estate (without a Will)
Petition for Probate of Will & Letters Testamentary	Petition for Letters of Administration
“Executor” of Will	“Administrator” of the Estate
Personal Representative was named in the Will	Personal Representative is appointed according to Priority List in State Statute
Distributees (a person entitled to take or share in the property of a decedent) are called “Beneficiaries”	Distributees are “Heirs” or “Heirs-at-Law”
Distributees are named in the Will	Distributees are determined by State statute
Beneficiaries receive whole items	Heirs receive shares of the Estate

In Partially Intestate Property, where the deceased person is said to have died partially intestate where they die leaving a valid will which disposes of some of the property comprised in their estate.

Partial intestacy can occur for a number of reasons. The deceased may have tried to hide wealth from loved ones or written the will before they accrued the assets in question. Some people may simply have forgotten to include parts of their estate or been unaware they had ownership.

In a partial intestacy, the provisions of the will are implemented first, and then the intestacy rules apply to the parts of the estate not covered by the will. In principle, the parts of the estate not covered by the will are divided according to the same order of priorities. But there are some complicated modifications to the rules, so specialist professional advice would be needed.

3. What is the probate process?

Ans. Probate refers to the process whereby certain of decedent's debts may be settled and legal title to the decedent's property held in the decedent's name alone and not otherwise distributed by law is transferred to heirs and beneficiaries. If there is no will, someone must ask the court to appoint him or her as administrator of the decedent's estate. Often, this is the spouse or an adult child of the decedent. Once appointed by the court, the executor or administrator becomes the legal representative of the estate.

The Four Basic Steps to Probate

1. File a petition and give notice to heirs and beneficiaries.

2. Following appointment by the court, the personal representative must give notice to all known creditors of the estate and take an inventory of the estate property.

3. All estate and funeral expenses, debts and taxes must be paid from the estate.

4. Legal title in property is transferred according to the will or under the laws of intestacy (if the decedent did not have a will).

In short, a properly drafted will, updated regularly to account for life changes, organized records of debts, personal property and other assets simplifies the probate process. The easier it is for your personal representative to trace your steps after you're gone, the easier the process.

4. Give an example of a non-probate asset and a probate asset. Explain your answer.

Probate is the process through which a court determines how to distribute your property after you die. Some assets are distributed to heirs by the court (probate assets) and some assets bypass the court process and go directly to your beneficiaries (non-probate assets).

The probate process includes filing a will and appointing an executor or administrator, collecting assets, paying bills, filing taxes, distributing property to heirs, and filing a final account. This can be a costly and time-consuming process, which is why some people try to avoid probate by having only non-probate assets.

Probate assets are any assets that are owned solely by the decedent. This can include the following:

• Real property that is titled solely in the decedent's name or held as a tenant in common
• Personal property, such as jewelry, furniture, and automobiles
• Bank accounts that are solely in the decedent's name
• An interest in a partnership, corporation, or limited liability company
• Any life insurance policy or brokerage account that lists either the decedent or the estate as the beneficiary

Non-probate assets can include the following:

• Property that is held in joint tenancy or as tenants by the entirety
• Bank or brokerage accounts held in joint tenancy or with payable on death (POD) or transfer on death (TOD) beneficiaries
• Property held in a trust
• Life insurance or brokerage accounts that list someone other than the decedent as the beneficiary
• Retirement accounts

5. Explain the difference between an irrevocable trust and a revocable trust.

Ans. The two basic types of trusts are a revocable trust, also known as a revocable living trust or simply a living trust, and an irrevocable trust.

	Revocable Trust	Irrevocable Trust
Assets	trust owns assets	trust owns assets
Management of Assets	Trustee	Trustee
Beneficiary	Assessee and their spouse while living	Assessee and their spouse while living, children or other institutions
Flexibility	Assessee can change theit trust at will	Very Little. The trustee can be replaced
Control	Assessee has complete control	If assessee has any interest in an irrevocable trust, the iRS will likely consider it a Grantor Trust for tax purposes
Estate Taxes	Alamost no impact. Trust income is reported on the Assessee's tax return	Depends on how it's set up. In any case, if you are the beneficiary of any income from the trust, that income is reported on your income tax return.
Pour-Over will	Assessee need a pour-over will or rather a provision in the last will and testament to move any assets the assessee didn't move to the trust into the trust upon death	Trust provisions govern the trust. Pour Over will has no effect..
EIN	Assessee don;t need one until after the assessee death. The executor will need to get one.	The assessee may need one depending on th provisions of the trust.