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ESTATE PLANNING:
MUMBO JUMBO, OR MATTER FOR CONCERN?

by Christopher G. Stoneman

In this series of articles on estate planning, written at the behest of the Trust Department of Vermont National Bank, I hope to be able to demythologize an area which for some people is a grimly unfamiliar habitat for strange creatures with other-worldly names ("marital deduction", "reverse QTIP", "charitable remainder trust", and "GRAT" come to mind, to mention just four of the more fanciful).

One way to begin such a project might be to rough out what estate planning is all about and to further identify it by listing two or three things that it is not.

The planning of an "estate" (the totality of what one owns or has power to dispose of) is a serious business. It may be summed up as the task of deciding how to arrange one's affairs so that one's wealth passes as desired, in the simplest and least expensive way, to those persons and upon those terms that best reflect one's reasonably informed judgement.

There is no doubt that estate planning can be a complicated undertaking, but it is by no means necessarily so. Most assuredly, it is not just for the wealthy. It is not just concerned with possessions but must also take people's wishes and needs into equal account. It is not simply involved with how things are to be handled after one's death, but can and indeed often should involve transfers of property during one's lifetime. And, despite a widely held contrary opinion, it does not primarily consist of the minimizing of taxes, which in many instances may well be factors of negligible, if any, significance.

To address a topic whose principal relevance results, after all, from the fact of one's mortality may take a certain amount of courageous realism. Rather than try to take control of the process, many people understandably find it less threatening to let a sleeping dog slumber on while the law inexorably decides what will happen to their assets. While this laissez-faire attitude may in some cases work out satisfactorily, it can more frequently produce undesirable results which could easily have been avoided by a little educated fortitude. Later on we will be discussing what happens when a person dies without having properly arranged things - "intestate", as the jargon calls a decedent without a will. And under the "post-mortem planning" rubric, we will also be discussing what possible steps, if any, may be available after death to help straighten things out.

At the risk of stating the obvious, one of the basic requisites for the planning of an estate is an awareness of what one owns. Although it is placing things ahead of people, let's use this as the first stepping stone and in the rest of this article and in the next consider the various elements - the different categories of property interests - which may make up a person's estate.

First, a basic, watertight proposition. All property that a person owns or may dispose of at death falls into one or the other of two basic categories. This is so regardless of the nature of the property, be it a bank account, a share of stock, a house, an insurance policy, and so forth. It is either probate property or it is nonprobate property. And this classification determines how the property owner must go about disposing of the item in question.

The term "probate" has its roots in the Latin word "probare", meaning to prove. In Vermont (and in Massachusetts, New Hampshire and New York, for example), when a person leaves a will it must be presented in court and proved to be the decedent's true will. The term is also used to describe the process which is required when a person dies intestate and the court must appoint an administrator to handle the estate. A decedent's probate estate is subject to the supervision of the probate court until the administration of the estate has been completed, a process whose duration will largely depend upon the complexity of the estate. More about administration in a later article.

Probate property comprises all that property which must pass through the process of probate at the owner's death before it can be disposed of, whether such disposition is "in kind" ("I give my hunting cabin to my son, Orion") or by way of sale by the executor or administrator of the owner's estate. The property which must pass through the probate mill is that property which a person owned at the time of death in his or her own name. Perhaps some examples will help.

Ron predeceases his wife, Sharon, owning a house (jointly with her, with right of survivorship), a bank account (jointly with his wife), an automobile (in his own name alone), a cabin (in his own name), an insurance policy (made payable to his wife) and a boat (owned by Ron and his brother, Jim, as "tenants in common").

Ron's probate estate consists of three items: his automobile, his cabin and his one-half interest in the boat. The other three items in which he has an interest (residence, bank account and insurance) are nonprobate property since he does not own them in his own name. None of these require court action to get them to their future owners. The bank account and the residence will pass to Ron's wife automatically, since they are owned jointly with right of survivorship; and the insurance will pass to whomever Ron designates as his beneficiary, again without court supervision. But note that if Sharon were to precede Ron in death, the house and the bank account, having lost their "joint" character when they passed to him as sole owner, would have become probate property as part of Ron's probate estate. The life insurance might also have done the same thing, unless Ron had named a back-up, "contingent" beneficiary and that person outlived him.

More on property next time.

Christopher Stoneman

The complete list of Christopher Stoneman articles is:

     

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