estate planning: an idaho guide

Elizabeth Brandt | Linda Kirk Fox | Jeffrey A. Maine

EstateP l a n n i n g

A N

I D A H O

G U I D E

1

Introduction 3

Getting started 4

Dying without a will 6

Figure 1: Intestate succession rules 7

Wills 8

Community Property and other 10forms of property ownership

Trusts 12

Other documents in addition to 14wills and trusts

Estate and gift taxes 15

Life insurance and annunities 20

The probate process 23

Summary 25

Tables and worksheets 26

Table 1: Estate and gift taxes 38

Glossary 39

Table of Contents

2

E S T A T E P L A N N I N G

3

IntroductionThis publication will help you be an informed consumer of estate planning

services. Decisions you make about your estate plan will have long-termeffects on you, your spouse, your partner or “significant other,” and yourchildren. By developing a working knowledge of the basic considerationsinvolved in estate planning and by realistically assessing your own family andfinancial situation, you can develop a plan that best serves your needs.

Estate planning appears complex because it draws upon a diverse body oflaw. In addition to lawyers, many different professionals may be involved insome aspects of estate planning including accountants, financial advisors, trustofficers, and insurance agents.

However, for some families, a simple will may be all that is needed. Forexample, if you and your spouse have not been previously married, have nochildren, do not own a business, do not own property out of state, do nothave extensive debts, are not disabled, and want to leave all your property toeach other, a simple will may be appropriate. However, as families and/orfinancial situations get more complex, planning gets more complex. Estateplanning involves the interrelationship of many facts such as family relation-ships, private property and business property, and legal documents. You will beable to accomplish your objectives best with the help of a lawyer.

If you are using a commercial product such as a “will kit” or computerprogram to produce part of your estate plan, we strongly urge that you havethe final product reviewed by a lawyer. Likewise, we strongly advise that youtake any documents related to your estate, including living trusts you mightpurchase, to a lawyer of your own choosing for review.

As an initial caution, wills, trusts, and probate are governed by state law.The law of each state varies significantly. This publication will discuss Idaholaw. If you live in another state for either some or all of the year, or own realestate in another state, or intend to move to another state in the near future,you should consult the laws of that state. Contact the Cooperative ExtensionSystem in the state to which you move to see if a publication on estateplanning is available specific to that state.

Underlying the creation of any estate plan are profound human concerns:your desire to pass on property to loved ones. So, a good estate plan is anaccurate reflection of your individual spirit. While much of this publication isabout mechanics, methods, and documents, it’s important to remember thatno matter how well you deal with the legal technicalities, your estate planwon’t succeed unless you take human concerns into account, too.

I N T R O D U C T I O N

Estate planning

involves the

interrelationship

of many facts

such as family

relationships,

private property

and business

property, and

legal documents.

Many of the legal terms in this bulletin are italicized bold in the text and defined in a glossary

following page 39.

4


Getting startedThere is plenty that we can do

to ensure that our property affairswill be taken care of through timesof disability and at death. Estateplanning is the process by whichindividuals make effective dispositionof their property according to theirpersonal objectives. Whether youknow it or not, every individualalready has an estate plan. If youhave a simple will, then your estateplan is the will. If you do not have awill, then your estate plan is Idaho’sintestacy statute (which dictateshow your property will be disposedof upon your death. See Fig. 1 page7.) Unfortunately, many people witha simple will need more comprehen-sive planning so as to minimizetaxes and probate costs. Mostpeople without a will would prefernot to have the state decide whathappens to their property. Yourestate planning specialist will assistyou in evaluating your current estateplan and will help you choose thebest plan for the organization anddisposition of your property.

Gathering informationBefore you see your estate

planning specialist, there are anumber of things you can do to savetime and money. An estate plannerneeds accurate information regard-ing your family and assets. TheEstate Planning Questionnaire(Worksheets 1 through 9, beginningon page 26) provided in this guidewill help you analyze your financialsituation and get the information theestate planner needs. Preparing thequestionnaire in advance will saveyou time and money. When listing

your assets on the questionnaire, listrealistic values for each. Your plannerwill need to know the fair marketvalue of each item, not book value.Fair market value is the price youwould sell something in the retailmarket to a willing buyer who hasknowledge of relevant facts and whois not under any compulsion to buy.For example, the fair market value ofa car is the price for which a car ofthe same description, make, model,age, and condition could be pur-chased by the general public. Fairmarket value is the price a used cardealer would pay. For stocks andbonds traded on a stock exchange,use the average between the highestand lowest quoted selling prices asof a recent date. For householditems or personal effects, try toplace a value on each. You may,however, place a single value on agroup of items that have relativelysmall value.

Note that some information anestate planner needs may be pro-vided orally, whereas other informa-tion will need to be verified throughdocumentation. You should beprepared to provide the followingdocumentation:• Existing wills and other estate

planning documents (e.g., trusts,powers of attorney, medicaldirectives, and living wills);

• Real estate deeds and mortgages(including documents, suchas contracts, creating spouses’separate property incommunity property states,like Idaho) (Worksheet 4:Inventory of Tangible PersonalProperty);

The Estate

Planning

Questionnaire

provided in

this guide will

help you analyze

your financial

situation and get

the information

the estate planner

needs.

5

• Life insurance policies (Worksheet5: Life Insurance);

• Existing pension, profit-sharing,stock bonus, Keogh, deferredcompensation or similar plans, orIRAs (Worksheet 6: EmployeeBenefit Plans and IRAs);

• Divorce, separation, and pre-marital agreements;

• Business documents (e.g., articlesof incorporation, bylaws, partner-ship agreements, buy-sell agree-ments) (Worksheet 7: Informa-tion About Closely Held Busi-ness Interests);

• Prior income tax returns (for pastthree years);

• All gift tax returns previously filedby either spouse; and

•Personal and business financialstatements for past years.

You may also be asked to submitother documentation, such as mar-riage certificates, birth certificates(yours and your children), adoptionrecords, stock and mutual fundrecords or certificates, and signaturecards for accounts at financial insti-tutions (Worksheet 2: InformationAbout Financial Assets).

Developing planning objectivesIn addition to gathering informa-

tion about your family and property,you will need to think about yourplanning objectives. Everyone hasunique objectives. Some individualswish to provide for a survivingspouse and provide for children afterthe surviving spouse’s death. Otherswish to keep a family farm or busi-ness within the family. Some wish to

minimize income, gift, and estatetaxes, even if that requires giving upcontrol over property. An estateplanner will have to ascertain yourspecific desires with respect to thedisposition of your assets. You shouldbe prepared to answer the followingtype questions:• Who do you want to receive your

property (your beneficiaries)?

• When do you want the beneficia-ries to get the property (e.g.,now, via a lifetime gift, when aspecific event or conditionoccurs, or upon death)?

• Will you give the recipients unre-stricted outright use of theproperty, or should the propertybe placed in a trust with certainlimitations or conditions on use?

• Who will manage the property(e.g., the person receiving theproperty, a trustee, or an agent)?

• If you are disabled, who will man-age property and make healthcare decisions for you (e.g., arelative, friend, or attorney)?

Once you and the planner haveanalyzed your financial situation andclarified your planning objectives, theplanner will help you choose aneffective plan for the disposition ofyour property. Although more thanone plan is usually under consider-ation, you have the final say in whichplan to adopt. Your estate plannerwill supervise the implementation ofthe plan. Documents may be ex-ecuted, property may be transferred,gift tax returns may be prepared, andfiduciaries may be advised as to theirduties to beneficiaries and others.

G E T T I N G S T A R T E D

In addition to

gathering

information about

your family and

property,

you will need

to think about

your planning

objectives.

6


Dying without a willWhen a person dies without a

will, he or she is said to die “intes-tate.” In such a situation the rela-tives or other interested parties(such as creditors) must ask thecourt to administer the estate. Thecourt will appoint a personalrepresentative for the estate ofthe person. This person is usuallythe spouse or a close relative of thedeceased person. The deceasedperson’s property will then bedistributed in accordance with Idahostate law. (See Fig. 1, Intestate Suc-cession Rule.)

Although the Idaho laws fordistributing a person’s propertyoften approximate what the averageperson would probably do if he orshe made a will, the law can beinflexible and have unforeseenresults. Consider the followingsituations:• Second marriages. A man has a child

from his first marriage. Heremarries and he and his secondwife have a second child. He dieswith a will that leaves all of hisproperty to his second wife. Ifthe second wife dies without awill, all the property will go tothe second child and the childfrom the first marriage willinherit nothing.

• Special needs children. Intestacy lawtreats all children of the de-ceased person equally. Assumethat a family has three children.One is disabled and cannot liveindependently. The other twochildren are adults who havegood jobs and live on their own.If the mother and father arekilled in a car accident, their

estate will be divided evenlybetween the three children eventhough the disabled child has agreater need for support fromthe parents’ estate.

• Simultaneous death. Assume amarried couple who has nochildren is in a car accident. Thehusband is killed instantly, but thewife lives for two weeks afterthe accident eventually dying ofinjuries suffered in the accident.If they do not have wills, thehusband’s property will pass firstto the wife and then the wife’sproperty (including what shereceived from the husband’sestate) will pass to her parentsor brothers and sisters. None ofthe property will pass to thehusband’s parents or relatives.This would be so even if themain item of property owned bythe husband was real estate thathad been given to him by hisparents prior to his death!

• Dying without a will can also result inadditional expenses. It may requirethe appointment of a guardian ifproperty is passed to minorchildren even where one of thechildren’s parents is alive andcaring for them. Such a guardian-ship requires regular accountingto the court, and may requirecourt permission to sell orotherwise deal with assets.

Miscellaneous things toconsider regarding dyingwithout a will

If you are a permanent residentof Idaho when you die, Idaho law willgovern the distribution of yourpersonal property (including stocks,

Although the

Idaho laws for

distributing a

person’s property

often approximate

what the average

person would

probably do if

he or she made

a will, the law can

be inflexible and

have unforeseen

results.

7

Figure 1: Intestate succession rules

Survivors Division of property

Spouse only, no children or parents. All to spouse.

Spouse and parents, no children. Community property to spouse.First $50,000 plus half of the restof separate property to spouse.The remaining separate property,if any, divided equally betweenparents.

Parents only, no children. Divided equally among parents.

Spouse and children who are Community property to spouse.all children of both the deceased First $50,000 plus half of the restperson and the surviving spouse. of separate property to spouse.This provision includes descendants The remaining separate property,such as grandchildren and great- if any, to be divided equally amonggrandchildren. the children (descendants of a

pre-deceased child split that child’sshare).

Spouse and children one or more Community property to theof whom are not the natural or surviving spouse, half of theadopted children of the surviving separate property to thespouse. surviving spouse. The remaining

separate property to be dividedevenly among the children(descendants of a pre-deceasedchild split that child’s share).

Children (including descendants of Divided equally among childrensuch children), no spouse. (descendants of a pre-deceased

child split that child’s share).

Brothers and sisters or descendants Divided equally among brothersof brothers and sisters only. No and sisters (descendants ofspouse, children, or parents. pre-deceased brothers and sisters

split that brother’s or sister’s share).

Grandparents or descendants of Varies depending on relationship.grandparents (such as aunts anduncles).

No relatives. All to State of Idaho.

D Y I N G W I T H O U T A W I L L

8


bonds, accounts, furniture, and otherpersonal effects) no matter wherethat personal property is located. Inaddition, Idaho law will apply to thedistribution of real estate that islocated in Idaho. However, if youown real estate located in anotherstate, the law of that other state willdetermine the distribution of thatreal estate. For example, if you livepermanently in Idaho but have astock brokerage account with aSeattle stock broker, Idaho law willapply to the distribution of thataccount when you die. If, however,you own a house in Seattle, Washing-ton law will apply to the distributionof that real property.

If you are the parent of youngchildren, Idaho law permits you todesignate a guardian for thosechildren in a will should you andyour spouse pass away simulta-neously or should your spousepredecease you. If you die without awill, a court will appoint a guardianfor your children. Preference will begiven to close relatives in such aproceeding, but unforeseen disputescan arise. For example, members ofyour spouse’s family may not agreewith your family about the appropri-ate guardian for your children.

WillsYou can provide for the distribu-

tion of your property to match yourdesires and your family’s needs bymaking a will. A will is a specializeddocument that tells how property isto be distributed after a person dies.A person who makes a will is re-ferred to as the “testator.” A willmust be written, and must be signedby the testator (the person whomakes the will) and the testator’ssignature must be witnessed by atleast two witnesses. Each witnessmust either see the testator sign thewill or hear the testator actuallyacknowledge that the will is his orhers.

A will only takes effect once aperson dies; it has no effect while aperson is still living. Wills can bechanged during the testator’s lifetimeto meet the changing needs of thetestator.

Any person of sound mind whois 18 or older may make a will. Ingeneral, a person is of sound mind ifhe or she knows the general natureand extent of his or her property,and those who would normally beexpected to inherit property be-cause of their relationship to thetestator. In addition to being ofsound mind, a person must also bemaking the will of his or her ownfree will.

The only exception to theserequirements for making a will is the“holographic will” exception. A“holographic will” is one that isentirely in the handwriting of thetestator. Holographic wills need notbe witnessed. However, even thoughnot required, it is always a good ideato have witnesses to the signing of a

A will is a

specialized

document that

tells how

property is to

be distributed

after a

person dies.

9

will in case there are questionsabout the will’s validity.

Once a person dies, the validityof the will must be establishedthrough witnesses. The need toprovide such testimony can beeliminated if the testator and wit-nesses sign a “self-proving” affidavitand attach the affidavit to the will. Itis a good idea to sign this affidavit atthe same time the will is drafted,although it can be signed later on.(See Worksheet 10: Self-ProvingAffidavit, page 37.)

What can a will do?• Provide for property dispositions

that differ from intestacy trans-fers, such as leaving all propertyto a surviving spouse, or dividingproperty unequally betweenchildren.

• Provide for distributions of prop-erty to persons or entities thatare not relatives, such as to yourchurch or other charities or to aclose friend, stepchild, or fosterchild.

• Anticipate future changes in yourfamily such as the birth of achild.

• Designate a guardian for minorchildren.

• Designate a personal representa-tive.

• Include a special provision forpaying debts.

• Include a trust (known as atestamentary trust) or passproperty to a pre-existing trust(known as an “inter vivos,” orliving trust).

• Include cost-saving measures suchas allowing the personal repre-sentative to waive the require-ment of securing a bond orinclude special provisions allow-ing the personal representativeto operate a family business suchas a farm.

What can’t a will do?• Change the beneficiary on an

insurance policy, pension plan, orother similar type of contract.

• Dispose of property held in jointtenancy (this property passes tothe co-owner automatically).

• Dispose of your spouse’s interestin community property.

Can a will be changed?As long as a person is of sound

mind, he or she can change his orher will, either by adding to it,changing particular provisions, or bystarting over from scratch. A personcan add to or change discreetprovisions of a will by executing acodicil. A codicil adds to or amendsa pre-existing will and must meet thesame requirements—signatures andwitnesses—as the original will.

W I L L S

A codicil adds to

or amends a

pre-existing will

and must meet

the same

requirements—

signatures and

witnesses—as the

original will.

10


Community propertyand other forms ofproperty ownership

What is community property?Community property is any

property acquired by you or yourspouse during the marriage with thefollowing exceptions. Property isseparate property if it was acquiredby assets you or your spouse ownedbefore you were married. Alsoproperty acquired by you or yourspouse as a result of a gift to one ofyou, or through inheritance, isseparate property. A gift to both ofyou, however, is generally communityproperty. Your earnings duringmarriage and things purchased withthose earnings are communityproperty. Furthermore, in Idaho,rents and profits of the separateproperty owned by you or yourspouse are community property. Forexample, if you owned stock beforemarriage, the dividends paid on thestock during marriage would becommunity property; but the in-crease in the value of that stockwould not be community property.Interest is another example of rentsand profits of separate property thatwould be community property.Finally, you and your spouse canchange the character of propertyfrom community property to sepa-rate property and vice versa bysigning a contract or deed so stating.

Special estate planningconsiderations forcommunity property•Special informal probate provisions.

Idaho law provides for informalprobate of estates under two

circumstances. The first isstreamlined probate where allthe property is communityproperty, and there is a survivingspouse who is the sole heir. Inaddition, Idaho law allows infor-mal probate of estates wherethere is no will, the property iscommunity property, and wherethere is a surviving spouse.

•Disposition of property by agreement.Idaho law permits spouses toprovide for the disposition oftheir property to each other atdeath through the execution of acommunity property agreement.The agreement need not bewitnessed but must be notarized.If it involves real estate it mustbe filed in the real estate recordsof the county in which thecouple reside and in everycounty in which they own realestate. Property passed pursuantto one of these agreementsavoids probate. Communityproperty agreements, alsosometimes referred to as“devolution agreements,” canhave consequences for divorce,can limit the effect of later wills,and can have tax consequences,so it is recommended that youconsult an attorney beforesigning such an agreement.

• Taxes. Some community propertymay be treated more favorablyfor federal tax purposes. Referto the part of this publicationthat discusses tax treatment ofcommunity property.

• Effect on wills. Each spouse has thepower to dispose of his or her

You and your

spouse can change

the character of

property from

community prop-

erty to separate

property and vice

versa by signing

a contract or deed

so stating.

11

half of each item of communityproperty by will. Exceeding thispower without the agreement ofthe other spouse may enable thesurviving spouse to disrupt theestate plan by electing not toparticipate.

• Quasi-community property. If youresided in another state beforeyou moved to Idaho, propertyacquired in the first state thatwould have been communityproperty had it been acquired inIdaho will be treated as quasi-community property. Idaho lawplaces limits on the ability of theowners of quasi-communityproperty to dispose of thatproperty by will to personsother than their survivingspouses. In general, the survivingspouse is entitled to half of thequasi-community property nomatter what the will provides.This right of a surviving spouseto half of the quasi-communityproperty applies to some non-probate property also.

Other propertyownership issues• Joint tenancy. Joint tenancy is a form

of co-ownership in which thedeed or other written documentprovides that there is a “right ofsurvivorship.” Under this “rightof survivorship,” the propertypasses to the surviving co-ownerwhen the first co-owner dies. InIdaho it is not possible to owncommunity property as jointtenants. If a husband and wifeinvest community property inthe purchase of a house, forexample, and sign a deed that

says “Harold and Wanda Smith,joint tenants,” they have changedthe character of their communityinvestment to a joint tenancy.

• Tenancy in common. Tenancy incommon is a form of jointownership with no survivorshiprights. A will is needed to passeach owner’s share as he or shewishes.

• Tenancy by entireties. Tenancy byentireties is a particular kind ofjoint ownership. It must be realestate and it must be owned by amarried couple.

P R O P E R T Y O W N E R S H I P

In Idaho, it is not

possible to own

community

property as joint

tenants.

12


TrustsWhat is a trust?

A trust is a form of propertyownership under which one person,the trustee, holds and managesproperty for the benefit of others,the beneficiaries. The person(s) whocreates a trust is often referred to asthe settlor or grantor. The person(s)who manages the property is re-ferred to as the trustee. And theperson(s) who benefits from thetrust is referred to as the beneficiary.Property in a trust is often referredto as the “trust property,” the“corpus,” or the “res.” When a trustis created in the settlor’s will thetrust is referred to as a testamentarytrust. When the trust is createdwhile the settlor is alive, it is called aliving trust or an inter vivos trust.

A trust is generally createdthrough a written document, al-though sometimes a written docu-ment is not required. A writtendocument is important even whereit is not required because it enablesthe settlor to give the trusteeinstructions and set limits andconditions on the management ofthe trust property.

When a settlor creates a trust,she or he actually transfers owner-ship of the trust property to thetrustee. The trustee of the trust hasa “fiduciary duty” to manage thetrust property, that is, the trusteemust manage the property in theway that is most prudent to carryout the purposes of the trust andprovide the intended benefit to thebeneficiaries. In addition to manage-ment of the trust assets, the trusteeis also responsible for distributingthe property of the trust according

to the terms of the trust instrument.Saying that the trustee has a fidu-ciary duty means that the trusteehas a special obligation to the trustand beneficiaries and can be heldpersonally responsible for misman-agement.

Because the trustee’s role is soimportant, you should give carefulthought to naming a trustee. Theperson should be someone who hasthe ability to carry out the terms ofthe trust and who is willing to serveas trustee. The trustee of the trustcan be an adult, a bank with trustauthority, a trust company, or acombination of these. When non-family members serve as trustees,they usually charge a fee for theirservices, whereas family memberstypically waive their fees.

Why make a trust?Trusts are flexible devices. The

settlor and trustee can be the sameperson, trusts can be revocable(meaning they can be changed orterminated while the settlor is alive),and they can provide for manage-ment of property during the settlor’slife and after the settlor’s death.

Here are some common usesand benefits of trusts:• unifying the management of assets

in one plan;

• obtaining professional managementof assets;

• providing for disposition of prop-erty at death so as to avoidprobate;

• tax planning;

• insulating assets from creditors;

Because the

trustee’s role is so

important, you

should give careful

thought to naming

a trustee.

13

• planning for incompetency; and

• privacy (living trusts do not gothrough probate and their termsare therefore private).

Not all the purposes of trustscan be accomplished at the sametime in the same trust. Some of thepurposes may require terms thatconflict with each other. Carefulthought should be given to thereasons for using a trust in any givensituation.

Here are some common situa-tions in which a trust might behelpful:• Providing for minor children. Parents

can leave property to a trust forthe benefit of their children.With proper planning all theparents’ assets can be unified inthe trust for the children, includ-ing life insurance proceeds, deathbenefits from pensions, as well asthe proceeds from other assetsof the parents’ estate. Becausethe assets are part of a trust,they are not managed by aguardian.

• Providing for incapacity. Through atrust, a gift of property can bemade to a person who lacks theability to manage the property,such as a surviving spouse orchild who is incapacitated.

• Tax planning. Trusts are often usedby estate planning specialists tominimize the amount of estatetax in certain types of estates,particularly for transfers to asurviving spouse. See the sectionin this publication on Estate andGift Taxes.

What is the differencebetween a testamentary anda living trust?

As mentioned earlier, a testa-mentary trust is set up in a will andcomes into being after the death ofthe settlor/testator, whereas a livingtrust is made during the settlor’s life.Living trusts are commonly used inconjunction with a will, but the trustis a separate instrument. The livingtrust permits flexibility. The trust canbe used during the settlor’s life toaccomplish certain goals such asobtaining professional managementof assets and for tax and creditorprotection. But it also serves as partof the settlor’s estate plan, providingfor the management and/or disposi-tion of the trust assets at thesettlor’s death. The biggest disadvan-tage of using a living trust is itspotential complexity. Serious nega-tive consequences can occur if thesettlor changes his or her will butoverlooks changing the trust or viceversa. The advantage of a testamen-tary trust is simplicity. Only one legaldocument is involved. However, it isnot possible to avoid probate using atestamentary trust; nor is it possibleto obtain benefits from trust man-agement during the settlor’s lifetime.

Whether a testamentary orliving trust is the right planningdevice for any given estate dependson the purposes of the estate planand the individual client’s situation. Iflifetime management and probateavoidance are not your top goals foran estate plan, and if you are worriedabout being saddled with a complexplan, a testamentary trust could bethe answer. You should discuss thepros and cons with an expert.

T R U S T S

Whether a

testamentary or

living trust is the

right planning

device for any

given estate

depends on the

purposes of the

estate plan

and the individual

client’s situation.

14


What are the advantages of arevocable vs. irrevocable trust?

Living trusts can be either revo-cable or irrevocable. A revocabletrust can be altered or terminatedby the settlor, whereas an irrevo-cable trust is a final and completedisposition of the trust property. Arevocable trust can be flexiblebecause it can be changed to reflectthe settlor’s changing situation.However, if the settlor has thepower to revoke the trust, she or hewill be treated as the owner of thetrust property for at least somepurposes. Thus, the income on thetrust property may be taxable to thesettlor of the trust, the settlor’screditors may be able to attach thetrust assets, and the transfer ofproperty to the trust may not beconsidered a completed gift for gifttax purposes. In comparison, anirrevocable trust is treated as acompleted transfer of the propertyfor all purposes—the trust propertywill not be treated as belonging tothe settlor. Neither will the settlorbe able to change the trust toaccount for unanticipated events.

Other documents inaddition to wills and trustsLiving will and durable power ofattorney for health care

While you are involved in estateplanning you may also want toconsider completing a Living Willand a Durable Power of Attorney forHealth Care. These two documentsallow you to designate the level oflife sustaining medical treatment tobe given you in case of your incapac-ity and specify a particular individualwho is authorized to make yourhealth care decisions. The durablepower of attorney for health care iskey if you want health care decisionsto be made by an individual who isnot your spouse or immediaterelative.

NOTE: A comprehensive guide forcompleting a Living Will and DurablePower of Attorney for Health Care canbe obtained for $3 from the IdahoMedical Association at 305 WestJefferson, P.O. Box 2668, Boise, Idaho83701.

Living trusts can

be either revocable

or irrevocable.

15

Estate and gift taxesYou are undoubtedly familiar

with the federal income tax. You maynot be familiar, however, with thefederal gift tax and the federal estatetax. Single individuals or marriedcouples with estates valued over$600,000 should generally under-stand gift and estate tax and theplanning tools available to minimizetheir impact.

The federal gift tax is imposedon transfers of property during life,and the federal estate tax on trans-fers at death. Both are imposed onthe transferor (donor or decedent’sestate) and both use the same multi-purpose, graduated rate table (seeTable 1: Estate and Gift Taxes, page38). Taxes on transfers from onegeneration to the next cannot beavoided by making lifetime gifts.

Federal estate taxThe amount of the estate tax

depends on the size of a decedent’sgross estate and the deductions andcredits available. The gross estateincludes a broad category of items. Itconsists not only of property actu-ally owned by a deceased person atdeath (e.g., what one normally thinksof as the probate estate under Idaholaw), but also consists of some itemspassing outside of probate, such ascertain life insurance and jointly-owned property.

Gross estateThe gross estate includes the

following:• Property (whether real or per-

sonal, tangible or intangible) thatis owned solely by the decedentat the time of his or her death;

• One-half of community property,and one-half of property heldby the decedent and his or herspouse as tenants by theentirety or joint tenants withrights of survivorship;

• All property held jointly by thedecedent and a person otherthan his or her spouse (excludingthat part of the entire value aswas attributable to considerationfurnished by the other jointowner or owners), and thedecedent’s interest in propertyheld in tenancy in common;

• Life insurance proceeds payable tothe decedent’s estate (or for thebenefit of the estate) or payableto other beneficiaries where thedecedent at the time of deathretained any “incidents ofownership” in the policy (e.g.,the power to change beneficia-ries or to cancel, surrender, orborrow against the policy);

• Property over which the decedentpossessed a power of appoint-ment exercisable in favor of thedecedent, his estate, his credi-tors, or the creditors of hisestate;

• Property transferred before death,but over which the decedentretained some right of enjoy-ment (e.g., right to income fromthe property transferred for life)or some power or control;

• Certain property (such as lifeinsurance) that was transferredwithin three years of death; and

• The value of an annuity or otherpayment receivable by any

E S T A T E A N D G I F T T A X E S

Single individuals

or married couples

with estates valued

over $600,000

should generally

understand gift

and estate tax

and the planning

tools available

to minimize their

impact.

16


beneficiary, by reason of surviv-ing the decedent, to the extentthat the value of the annuity orpayment is attributable to contri-butions by the decedent or thedecedent’s employer.

The value of property includedin a decedent’s gross estate is its fairmarket value at the time of thedecedent’s death. The personalrepresentative may elect to value allproperty six months after thedecedent’s death if the alternativevaluation date decreases both thegross estate and the estate tax. Anexecutor may also make a specialelection to value certain real prop-erty used as a farm or in a closelyheld business on the basis of itsactual use, which may be lower thanits fair market value. This specialvaluation method, however, cannotreduce a decedent’s gross estate bymore than $750,000. Because severalstringent requirements must be metbefore these special valuation rulesapply, you should consult an estateplanning specialist.

DeductionsSeveral allowable deductions and

credits exist to reduce the estatetax. Allowable deductions from thegross estate include:• Funeral and administration ex-

penses, including compensationto the personal representative,attorney’s fees, court costs, feesfor selling estate property, andmedical expenses if not deductedon the decedent’s final incometax return;

• Debts of the decedent and unpaidmortgages or other claimsagainst the estate;

• Casualty and theft losses occurringduring the settlementof the estate;

• Contributions to charitable, reli-gious, educational, or govern-mental organizations; and

• The value of property passing fromthe decedent to the survivingspouse (the “marital deduc-tion”).

The marital deduction is themost important deduction from aplanning perspective. As is apparent,a decedent can easily wipe out his orher gross estate by passing propertyto his or her surviving spouse. Itshould be noted, however, thatproperty passing to the survivingspouse will be taxed in the survivingspouse’s gross estate to the extenthe or she retains the property untilhis or her death. Hence, the maritaldeduction merely postpones pay-ment of the federal estate tax untilthe death of the surviving spouse.

CreditsA number of credits against the

estate tax are allowed. The mostimportant is the “unified credit,” acredit of $192,800 allowed to theestate of every decedent. Because$192,800 is the amount of taxcomputed under the multi-purpose,graduated rate table (see Table 1,page 38) on $600,000, the unifiedcredit effectively shields $600,000 ofproperty from the estate tax. There-fore, maximum use of the credit isan important estate planning objective.

The marital

deduction is the

most important

deduction from

a planning

perspective.

17

An important role of the estateplanner is balancing the use of themarital deduction against the use ofthe unified credit. As noted above,the marital deduction serves only topostpone payment of tax until thesecond spouse dies, whereas theunified credit avoids tax on $600,000altogether. Accordingly, the unifiedcredit should always be utilized tothe fullest extent possible. Estateplanners have a number of funda-mental tools to prevent the deduc-tion from defeating or wasting thecredit. A “credit shelter” or “bypass”trust can be utilized. Your estateplanning specialist can ensure thatthe correct amount of property isput in such a trust.

Depending on your objectives,your planner may recommend asecond trust, sometimes called a“marital deduction” trust. A com-mon marital deduction trust used ina second marriage is known as theQTIP trust. Because these arecomplicated, you are advised toconsult a specialist for guidance.

Another credit allowed againstthe federal estate tax is a credit forany inheritance or death taxesactually paid to any state. Theamount of the state death tax creditis subject to a maximum dollar limitprovided in the Internal RevenueCode.

Idaho death taxIdaho has what is commonly

referred to as a “pick-up” tax. Inshort, Idaho taxes the estate only tothe extent of the maximum federalstate death tax credit allowed by theInternal Revenue Code. Thus, theestate does not pay any more taxesthan it would have paid anyway. It

just pays the State of Idaho ratherthan the federal government.

Federal gift taxThe federal gift tax serves to

backstop the estate tax; without agift tax, taxes on transfers from onegeneration to the next could beavoided by making lifetime gifts. Agift occurs whenever there is acomplete transfer of propertywithout receipt by the transferor offull and adequate consideration. Thevalue of a gift for gift tax purposes issimilar to the value of property forestate tax purposes: the price aninformed and willing buyer wouldpay an informed seller not under acompulsion to sell. There are com-plex, special valuation rules fortransfers of interests in corpora-tions, partnerships, and trusts be-tween related family members. Yourestate planner can suggest planningopportunities in the wake of thesespecial rules.

ExclusionsA number of important exclu-

sions are available to reduce the gifttax liability. As the donor, you canexclude the first $10,000 of giftsmade per donee per year if the giftsare of present interests in property.Accordingly, you can transfer taxfree up to $10,000 each year to anunlimited number of donees and socan your spouse. A couple caneffectively double the annual exclu-sion and transfer tax free up to$20,000 annually to each donee.Because the annual exclusion isavailable only for gifts of presentinterests in property, the questionoften arises whether a gift to a


You can transfer

tax free up to

$10,000 each year

to an unlimited

number of donees

and so can your

spouse.

18


guardian or trustee for the benefit ofa minor qualifies for the annualexclusion. Properly drafted, trustsmay be set up for the benefit ofminors that qualify for the annual gifttax exclusion.

In addition to the annual gift taxexclusion, an unlimited exclusion isavailable for amounts paid, on behalfof an individual, directly to an educa-tional institution for tuition, ordirectly to a health care provider formedical expenses.

DeductionsAs with the estate tax, certain

deductions are allowed to reducethe gift tax. For instance, a deductionexists for gifts made to certaincharitable, religious, educational, andgovernmental organizations. Moreimportantly, an unlimited maritaldeduction exists for lifetime giftsmade to a spouse. Such gifts becomeespecially important if you ownsubstantial property and yourspouse does not. For example, if youown substantial property and diefirst, you will be able to use yourunified credit. If your spouse whoowns little or no property dies first,however, her unified credit is wasted.

One way for spouses to fullyutilize the credit shelter of the lesswealthy spouse is to balance theestates using the gift tax maritaldeduction. For example, you canmake tax-free lifetime gifts to reduceyour estate and utilize the spouse’stax credit. Your estate planner canhelp determine which type ofproperty is best to transfer andhow much.

Unified creditYou may recall that a credit of

$192,800 is allowed against thefederal estate tax. That same credit(the “unified credit”) may be usedagainst the federal gift tax. When theunified credit is used to offset gifttax, however, the amount of creditavailable to offset estate tax isreduced. In sum, taxpayers cannotoffset $192,800 of gift tax liabilityand $192,800 of estate tax liability.The credit is used effectively tooffset only $192,800 of gift or estatetax, or a combination of the two.

Filing requirementsIf you make a gift you must

generally file a gift tax return on IRSForm 709. However, you, the donor,need not file a return for transferswhich are not included because ofthe annual gift tax exclusion of$10,000 or the exclusion for thepayment of certain education andmedical expenses. Further, you neednot file a gift tax return with respectto transfers for which a maritaldeduction is allowed. The gift taxreturn must be filed on or beforethe 15th day of April following theclose of the calendar year in whichyou made the gift. The InternalRevenue Service may grant a reason-able extension of time for filing thereturn and paying the tax.

Helpful tax publications areavailable from the Internal RevenueService: IRS Pub. No. 448, A Guideto Federal Estate and Gift Taxation.For general tax assistance, contactthe Internal Revenue Service, 1-800-829-1040. For free IRS forms andpublications, contact the Internal

You can make

tax-free lifetime

gifts to reduce

your estate and

utilize the spouse’s

tax credit.

19

Revenue Service, 1-800-829-3678,http://www.ustreas.gov.

Generation-skipping transfertax

The gift and estate taxes apply totransfers of property during life orat death. There is another federaltransfer tax, known as the genera-tion-skipping transfer tax (the “GSTtax”), which also taxes gratuitoustransfers of property. This special taxtaxes transfers that skip a genera-tion. For example, if you give prop-erty to your grandchild or great-grandchild, you may be subject toboth the gift tax and the generation-skipping transfer tax. The amount ofthe GST tax depends upon severalfactors. Because its operation iscomplex, you should consult anestate planning specialist.

Federal income tax issuesIn addition to understanding the

federal gift, estate, and GST taxes,one must understand aspects of thefederal income tax pertinent toestate planning. For example, there isa special provision in the InternalRevenue Code that gives the surviv-ing spouse a stepped-up (fair marketvalue) tax basis in his or her ownone-half interest in communityproperty. Accordingly, the survivingspouse will have a fair market valuetax basis in not only the decedent’sone-half interest passing to thesurviving spouse, but also in her ownone-half interest. If the survivingspouse sells the property immedi-ately after the decedent’s death, shewill owe no income tax.

A taxpayer’s “basis” in property

is generally the cost of property orwhat one has invested in property.Tax basis is often adjusted for itemssuch as permanent improvementsmade to the property. When prop-erty is sold, one can recover tax freeher basis in property before havingany gain from its disposition. There-fore, when the surviving spousereceives a stepped-up basis in prop-erty equal to its fair market value,she will have no gain on the sale ofthat property for fair market value.Many people change the characterof property from separate propertyto community property to takeadvantage of this estate planningopportunity.


If you give

property to your

grandchild or

great-grandchild,

you may be

subject to both

the gift tax and

the generation-

skipping

transfer tax.

20


Life insurance and annuitiesLife insurance is a popular estate

planning tool, especially for peoplewith relatively small estates. Amongother things, life insurance can beused to:• provide security for survivors who

depend on the insured person’sincome;

• provide readily available funds topay debts, taxes, and other estatesettlement costs;

• meet living expenses for depen-dents while an estate is beingsettled;

• maintain liquidity needed to pre-serve a business; and

• create wealth and build an estate.

Life insurance proceeds generallygo directly to the beneficiary(ies)with minimal delay and administra-tive costs.

They generally are not subject toincome taxes. However, life insur-ance proceeds may be subject todeath taxes, depending upon anumber of factors.

Proceeds payable to thedecedent’s estate, proceeds payableto beneficiaries from policies wherethe decedent retained “incidents ofownership,” and gifts of life insurancewithin three years of death aregenerally included in the decedent’sgross estate for federal estate taxpurposes. However, where theproceeds are payable to a survivingspouse, the marital deduction can beused (thus there would be no fed-eral estate tax liability when the firstspouse dies). (See section on taxes,page 15.)

The insured person does notnecessarily have to be the owner ofthe policy. In some instances, it maybe beneficial to transfer ownershipof a life insurance policy to anotherperson to avoid the above situationwhere the proceeds are included inthe decedent’s gross estate. Such atransfer may be subject to the gifttax, however, at replacement cost. Inconsidering such a transfer, it isimportant to work with an insuranceagent and other professional estateplanning advisers to review theconsequences, and if the transfer isdesired, make sure the necessarychanges are correctly made to theinsurance policy. (Use Worksheet 5to list life insurance policies, owner-ship, and beneficiaries.)

Deciding if life insurancemeets your needs

Ask yourself these questions toassess whether you need life insur-ance for short-term estate planningneeds.• How long is it likely to be, after you

die, before your property is turnedover to your inheritors? If yourproperty will avoid probate,there is usually little need forinsurance for short-term ex-penses. By contrast, if the bulk ofyour property is transferred bywill, and therefore will be tied upin probate for months, yourfamily and other inheritors mayneed the ready cash that insur-ance can provide.

• What assets would be available totake care of immediate financialneeds? Aside from insurance,there are other ways of provid-

Life insurance

proceeds generally

go directly to the

beneficiary(ies)

with minimal

delay and

administrative

costs.

21

ing ready cash, such as leavingsome money in joint or pay-on-death bank accounts, or placingmarketable stocks and othersecurities in joint tenancy.

• If you own a business, how much cashwould it need on your death? Toanswer this, you have to estimatehow your death is likely to affectthe business.

Deciding how muchlife insurance is needed

Remember, life insurance is forthe people you’ll leave behind. Youpay for it; they use it. If after review-ing the previous discussion on lifeinsurance you determine you needcoverage, the next question is howmuch? Insurance professionals canhelp you with the calculations todetermine what it would cost yourfamily to live after your death oryour business to transition to thenew management. You will need tolist all the available income andsavings your surviving dependentswould have if you died today (notincluding the value of your house),like wages of your employed spouseand Social Security family benefitsuntil the youngest child reaches ageeighteen. Your family’s immediateneeds can probably be covered byinexpensive term insurance.

If, at middle age when yourchildren are no longer dependent onyour income, you decide that youstill want to carry life insurance,start converting some of your terminsurance into a cash-value policy.Review your life insurance coverageevery three to five years, or whensomething changes in your life—a

new baby, disability of a wage earner,an inheritance, or divorce.

Choosing life insurancebeneficiaries

When you buy life insurance, youname the policy’s beneficiaries—those who receive the proceedswhen you die. As long as you arethe owner of a life insurance policy,you can change beneficiaries. Youcan’t, however, change a beneficiaryof an insurance policy simply bynaming a new beneficiary in a will orliving trust.

Idaho is a community propertystate, which means if you buy apolicy with community propertyfunds, one-half of the proceeds areowned by the surviving spouse, nomatter what the policy says aboutthe beneficiary. This result can bevaried by a written agreementbetween the spouses, in which onespouse transfers all interest in aparticular insurance policy to theother spouse.

If you want minor children to bethe beneficiaries of your policy, youmust arrange some legal means forthe proceeds to be managed andsupervised by a competent adult,usually by setting up a trust. If youdon’t, the insurance company wouldlikely require that a court appoint aproperty guardian for the childrenbefore releasing the proceeds.

AnnuitiesAn annuity is a contract provid-

ing for regular payments, beginningon a fixed date, and continuing for aterm of years or for the lifetime ofone or more individuals. The total ofthese payments may or may not

L I F E I N S U R A N C E A N D A N N U I T I E S

Review your life

insurance coverage

every three to five

years, or when

something changes

in your life—a new

baby, disability of

a wage earner,

an inheritance, or

divorce.

22


equal the money or property con-tributed by the person establishingthe annuity (the annuitant). Twocommon types of annuities arecommercial and private annuities.

Commercial annuitiesare issued by insurance compa-

nies and others in the financialservices industry. Under the agree-ment the annuitant contributes asum of money to the companywhich, in return, promises to makeperiodic payments to the annuitant.Fixed income annuities provide for aguaranteed amount of incomebeginning at a specified age andcontinuing for a set number of yearsor for life. Variable income annuitiesprovide varying amounts of income,depending on such factors as currenteconomic conditions and the stockmarket. While variable incomeannuities may involve more risk, theyalso provide some protection againstinflation.

A question to consider in acommercial annuity is what happenswhen an annuitant dies. In a “straightlife annuity,” the annuitant typicallygets payments for life or for a speci-fied number of years, but no addi-tional payments are made to theannuitant’s estate upon death. Onthe other hand, “refund annuities”typically guarantee payments to theannuitant and also guarantee theannuitant’s beneficiaries an amountat least equal to the difference (ifany) between what the annuitantinvested in the contract and what isreceived from the contract. In returnfor this additional responsibility,however, payments from refundannuities typically are smaller than

similar straight life annuities.Another type of commercial

annuity is the joint life and survivor-ship annuity. Payments are made toboth the annuitant and a co-annu-itant for as long as either lives. Theseannuities are commonly used bymarried couples.

Tax rules allow annuitants torecover the amount invested in theannuity income tax free over theterm of the payments. The otherportion of the payments representsthe income from the investment andis taxed as income. If the annuitantlives past his or her life expectancy,payments after this date are consid-ered totally income. If the annuitantdies sooner than his or her lifeexpectancy, the investment that wasnot yet recovered tax-free can bededucted on the decedent’s finalincome tax return.

Private annuitiesdiffer from commercial annuities

in two major ways. Property otherthan cash (generally real estate) maybe used to purchase the annuity andthe promise to make the payments isusually made by an individual (oftena relative) rather than by an insur-ance company or others in thefinancial services industry. Thoseinterested in exploring this type ofannuity should consult with anattorney or other estate planningprofessional. Great care must betaken when establishing a privateannuity.

An annuity is a

contract providing

for regular

payments,

beginning on a

fixed date, and

continuing for a

term of years

or for the lifetime

of one or more

individuals.

23

The probate processProbate is the process by which

a deceased person’s assets aregathered together, her affairs wounddown, and her property distributed.Probate has several purposes. First,probate provides an orderly processfor identifying and notifying per-sons—such as relatives and credi-tors—who have interests in a de-ceased individual’s estate. Moreimportantly, however, probate is themechanism by which ownership ofproperty is settled. Finally, somesmall, but often significant, protec-tion of the family assets from theclaims of the deceased person’screditors can be obtained throughprobate.

What property must be pro-bated?

Not all property of a deceasedperson is subject to probate. If thedeed, contract, or trust containslanguage that disposes of the prop-erty at the death of one of theowners, often that property is notsubject to probate. For example,property held as joint tenants with aright of survivorship is not subjectto probate. Other property notsubject to probate includes propertyheld in trust, where the trust con-tains terms disposing of the prop-erty, and property held in accountswith payable-on-death or beneficiaryprovisions, such as life insurance,individual retirement accounts, somebank accounts, U.S. Savings Bonds,and some pension benefits. (Refer toWorksheet 6: Employee BenefitPlans and IRAs, page 33, andWorksheet 2: Information aboutFinancial Assets, page 29.)

It should be noted that eventhough some property may not besubject to probate under Idaho law,the property nevertheless may besubject to federal estate taxes.Federal law taxes not only propertyactually owned by a deceased personat death, but also taxes some itemspassing outside of probate, such asjointly-owned property and lifeinsurance proceeds payable tobeneficiaries. See the section ofthis guide dealing with the FederalEstate Tax, page 15.

Settling ownershipOne of the main purposes of

probate is to settle ownership of thedecedent’s property. This includesmore than deciding who gets theproperty. It also includes the processof providing evidence of ownershipsuch as a deed to the person(s) whogets the property. This evidence ofownership is important because itallows the recipient of the propertyto sell or mortgage the property. Forexample, assume that a marriedcouple owns their home as commu-nity property and the deed grantstitle to “John and Jane Smith, hus-band and wife.” If John Smith diesand leaves all his property to Jane,Jane will need to change the deed toreflect that she is now the soleowner of the property. This changein title is accomplished throughprobate of John’s estate.

This “title-clearing” process isespecially important with regard toreal estate. However, it can also beimportant for cars and other ve-hicles, many stocks and bonds, somefinancial accounts such as bankaccounts (where no survivor ordeath beneficiary is designated).

T H E P R O B A T E P R O C E S S

Even though

some property

may not

be subject to

probate under

Idaho law, the

property

nevertheless may

be subject to

federal estate

taxes.

24


Protecting the family from thedeceased person’s creditors

The probate process can alsooffer some protection to familymembers of the deceased person’sproperty against the creditor’s of thedeceased person. Family membersmay be able to designate a home-stead in certain property of theestate, set aside certain items ofpersonal property, and obtain aperiodic distribution of the estate’sassets for purposes of support.

In addition, if an estate is pro-bated, shorter time periods apply todetermine when claimants againstthe estate must file their claims thanif no probate is filed. When the courtenters the final order distributingthe estate, claimants who did not filein the probate are forever barredfrom advancing their claims.

The personal representativeThe person who carries out the

settlement of an estate is called the“personal representative.” Thisperson can be designated by thedecedent in his or her will. If the willdoes not designate a personalrepresentative, or if the decedentdies without a will, the court willappoint a personal representative. Ifthe decedent’s will appoints a per-sonal representative, that appoint-ment will be given priority by thecourt unless the person is notcompetent to serve as personalrepresentative or unless the persondeclines to accept the appointment.When the court appoints a personalrepresentative, preference is given tothe surviving spouse or next of kinof the decedent.

The personal representative’sresponsibilities include making aninventory of the decedent’s assets,overseeing the valuation and man-agement of those assets, protectingthe interests of the beneficiaries ofthe estate, hiring an attorney for theestate, serving as the representativeof the estate in all court proceed-ings, and filing tax returns.

The personal representative maybe liable to the beneficiaries of theestate if she or he fails to performany of these responsibilities in acareful manner. As a result, the jobof a personal representative shouldnot be viewed as a reward for afaithful spouse, friend, or relative.Instead, thought should be given tothe competence and willingness ofthe person to perform this importantjob.

Probate costs and feesIn addition to taxes, a probate

estate is liable for costs to the courtand fees to the personal representa-tive and any attorney retained by thepersonal representative. Idaho lawprovides that the personal represen-tative and attorney for the estatemay be paid reasonable compensa-tion. If the estate is in order and thetestator has well drafted documents,probate should not be particularlyexpensive in Idaho. However, inother states fees may be charged asa percentage of the estate, so be-ware outside Idaho. You should askattorneys what their fee is and youshould feel free to shop around foran attorney.

You can save time and money byhaving a “Letter of Last Instruction”that keeps your personal representa-

Thought should

be given to the

competence and

willingness of the

person to perform

the duties of your

representative.

25

tive informed of your personalwishes and the location of yourassets and important documents.The publication CIS #958 A letter oflast instruction: Everybody needs one isavailable through the local office ofthe University of Idaho CooperativeExtension System.

SummaryPeriodically review your will and

all other documents of your estateplan to ensure that is meets changingconditions and continues to serveyour best interests.

Your estate plan should bereviewed periodically, especiallywhen there are changes in yourfamily or financial situations. Suchcircumstances might include:• Birth of a child

• Marriage or divorce

• Death of a beneficiary

• Substantial changes in the value ofany property

• Moving to another state

• The executor can no longer serve

• The guardian can no longer serve,or a guardian is no longerneeded

• Changes in the tax laws

• Acquiring additional property ofsignificant value

• A desire to change the status ofbeneficiaries

S U M M A RY

Review your

estate plan

periodically.

26


Estate planning questionnaireWorksheet 1: Family information

1. Personal information.

You Spouse

Name

Soc. Sec. No.

Birth date

Place of birth

Home address

Home phone

Occupation

Business address

Business phone

Date and placeof marriage

Prior marriages anddivorces

Number of yearsin Idaho

Prior residencesduring marriage

27

2. Your children and grandchildren.

Child’s name ___________________________(Is current spouse the parent of this child? ___Yes ___ No)

Soc. Sec. No. ___________________________

Birth date ___________________________

Address ___________________________

_____________________________________

Occupation ___________________________

Name of your child’s spouse ______________

Names and ages of grandchildren___________

_____________________________________

Special needs___________________________


Soc. Sec. No. ___________________________

Birth date ___________________________

Address ___________________________

_____________________________________

Occupation ___________________________



_____________________________________

Special needs___________________________


Soc. Sec. No. ___________________________

Birth date ___________________________

Address ___________________________

_____________________________________

Occupation ___________________________



_____________________________________

Special needs___________________________


Soc. Sec. No. ___________________________

Birth date ___________________________

Address ___________________________

_____________________________________

Occupation ___________________________



_____________________________________

Special needs___________________________

W O R K S H E E T S

28


3. Your parents.

You Spouse

Names

Address

Birth date Mother Father Mother Father

Death date Mother Father Mother Father

Estimated dollar Mother $ Father $ Mother $ Father $value of his/her

estate

4. Your brothers and sisters.

You Spouse

Names and ages

5. Other living relations.

You Spouse

Names, ages andhow related

29

Estate planning questionnaireWorksheet 2: Information about financial assets

1. Accounts in financial institutions.

You Spouse Joint

Checking

Bank name

Amount

Savings

Bank name

Amount

Certificates ofdeposit

Bank name

Amount

2. Stocks and mutual funds.

Company or # of Date of Currentfund Ownership* shares purchase Basis market value

*Indicate restrictions on transfer if any.

3. Bonds and notes.

Issuer Date of purchase Maturity Current value

W O R K S H E E T S

30


Estate planning questionnaireWorksheet 3: Information about real estate

Property 1 Property 2

Location

Type of property(residential, commerce,

vacant land, etc.)

Form of ownership

If joint property,contribution

by each joint tenant

Date purchased

How acquired(gift, purchase, etc.)

Current market value

Encumbrances

Original mortgage amount

Current mortgage amount

Monthly payments

Interest rate

Remaining period of loan

Annual gross income

Annual real estate taxes

Annual costs

Annual tax depreciation

31

Estate planning questionnaireWorksheet 4: Inventory of tangible personal property

You Spouse Joint

Clothing

Jewelry

Householdfurnishings

Automobiles

Art objects

Antiques

Collections(coins, stamps)

Boats, aircraft

Club memberships

Other

W O R K S H E E T S

32


Estate planning questionnaireWorksheet 5: Life insurance

On your life On life of your spouse

Company

Policy number

Type of policy

Face value

Annual premium

Cash surrender value

Owner of policy anddesignated successor

Beneficiaries 1. 1.designated in policy 2. 2.

N OT E S:

33

Estate planning questionnaireWorksheet 6: Employee benefit plans and IRAs

List below any employee benefit plans (pension, profit-sharing, deferred compensation arrangement,IRA, etc.) in which you or your spouse has an interest. Indicate retirement benefit, amount vested, deathbenefit.

Retirement benefit Money vested Death benefit

You:

Spouse:

N OT E S:

W O R K S H E E T S

34


Estate planning questionnaireWorksheet 7: Information about closely held business interests.

Name of business

Business address

Type of entity(e.g., C Corporation,

S Corporation, Partnership,

Limited Liability Co.)

Percent owned

Is interest jointlyowned with spouse?

Estimate of fairmarket value of

interest

Tax basis of interest

Does buy-sellagreement exist?

If not, anticipateddisposition of stock

N OT E S:

35

Estate planning questionnaireWorksheet 8: Liabilities (not previously listed)

Debt is Interest Payment CurrentCreditor secured by rate schedule balance

N OT E S:

W O R K S H E E T S

36


Estate planning questionnaireWorksheet 9: Names of your business and financial advisors

List the names, addresses, and telephone numbers of your advisors

Attorney(s)

Accountant

Investment advisor

Stockbroker

Life insuranceadvisor

Other insuranceadvisor(s)

Physician

Religious counselor

N OT E S:

37

Estate planning questionnaireWorksheet 10: Self-proving affidavit

I, __________________________, the testator, sign my name to this instrument this _______ day of______________________, 19___, and being first duly sworn, do hereby declare to the undersignedauthority that I sign and execute this instrument as my last will and that I sign it willingly (or willinglydirect another to sign for me), that I execute it as my free and voluntary act for the purposes thereinexpressed, and that I am eighteen (18) years of age or older, of sound mind, and under no constraint orundue influence.

______________________________Testator

We, _____________________, ________________________, the witnesses, sign our names to thisinstrument, being first duly sworn, and do hereby declare to the undersigned authority that the testatorsigns and executes this instrument as his last will and that he signs it willingly (or willingly directs an-other to sign for him), and that each of us, in the presence and hearing of the testator, hereby signs thiswill as witness to the testator’s signing, and that to the best of his knowledge the testator is eighteen(18) years of age of older, of sound mind, and under no constraint or undue influence.

______________________________Witness

______________________________Witness

The State of IdahoCounty of ______________Subscribed, sworn to and acknowledged before me by ___________________, the testator,and subscribed, sworn to and acknowledged before me by ________________ and _______________witnesses, this _____ day of _______________, 19___.

(seal) (signed)

(Official capacity of the officer)

W O R K S H E E T S

38


Table 1: Estate and gift taxes

If the amount with respect to which the The tentative tax is:tentative tax to be computed is:

Not over $10,000...............................................................18 percent of such amount

Over $10,000 but not over $20,000.............................$1,800, plus 20 percent of the excess of suchamount over $10,000




Over $80,000 but not over $100,000...........................$18,200, plus 28 percent of the excess of suchamount over $80,000

Over $100,000 but not over $150,000........................ $23,800, plus 30 percent of the excess of suchamount over $100,000




Over $750,000 but not over $1,000,000.....................$248,300, plus 39 percent of the excess of suchamount over $750,000

Over $1,000,000 but not over $1,250,000..................$345,800, plus 41 percent of the excess of suchamount over $1,000,000




Over $2,500,000 but not over $3,000,000..................$1,025,800, plus 53 percent of the excess of suchamount over $2,500,000

Over $3,000,000................................................................$1,290,800, plus 55 percent of the excess over$3,000,000

39

Glossary

Annuitant A beneficiary of an annuity.

Annuity An amount payable yearly or at other regular intervals.

Assets Money, property, and money-related rights owned by aperson; property of all kinds—real and personal—tangibleand intangible.

Basis Basis is the tax system’s way of measuring what wasoriginally paid for an investment. When property is sold,one can recover tax-free her basis in property beforehaving any gain from its disposition.

Beneficiary The person designated to receive income or property.

Bequest The act of bequeathing—to give or leave by will—usedespecially for personal property.

Codicil A legal instrument modifying an existing will.

Community Property acquired by either spouse during the marriageproperty including rents and profits of separate property, with the

exception that any property acquired by one spouse bygift, will, or inheritance is that spouse’s separate property.

Decedent A deceased person.

Devise The act of giving or disposing of real property by will.

Devolution Idaho law permits spouses to provide for theon death disposition of their property to each other at death

through the execution of a community propertyagreement, also referred to as devolution on death.

Domicile A person’s fixed, permanent, and principal home for legalpurposes.

Donor One that gives, donates, or presents.

Estate plan Arrangement for the disposition of one’s property afterdeath.

Executor IRS uses executor, but Idaho code defines as personalrepresentative.

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Fair market The price at which property would change hands betweenvalue a willing buyer and a willing seller, neither being under any

compulsion to buy or sell and both having reasonableknowledge of relevant facts.

Fiduciary Bound by special obligation to manage a trust for anotherand can be held personally responsible for mismanagement.

Gift Property you transfer freely (not by sale or trade) to aperson or institution.

Guardian One who has the care of the person or property of another.

Heir One who receives the property of a deceased personespecially by operation of law or by virtue of a will.

Holographic A document (will) wholly in the handwriting of its author.will

Incidents The right of the insured or his or her estate to theof economic benefits of a life insurance policy (examplesownership include the right to change beneficiaries, the power to

cancel or surrender the policy, the power to assign thepolicy or revoke the assignment).

Intervivos When the trust is created while the settlor is still living, ittrust is referred to as a living trust or an inter vivos trust.

Intestacy Dictates how your property will be disposed upon yourstatute death if you die without a will.

Intestate A person who died without having made a valid will.

Intestate When a person dies without a will, he or she is said to diesuccession “intestate.” The laws of Idaho then provide for distributionrules of the deceased person’s property in this case.

Living trust When the trust is created while the settlor is still living, itis referred to as a living trust or an inter vivos trust.

Marital A deduction from the decedent’s gross estate equal to thededuction value of all property that passes from the decedent to the

surviving spouse.

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Personal The person who carries out the settlement of an estate isrepresentative called the personal representative.

Power of A power to decide who gets property and which isappointment held by one who does not own the property. A “general

power” is any power of appointment exercised in favor ofthe holder, or the holder’s estate, his or her creditors, orthe creditors of his or her estate.

Probate The process by which a person’s assets are gatheredtogether, affairs are wound down, and property isdistributed after death.

Real property Land and things attached to the land, such as building,fences, and plant material growing on the land.

Replacement The cost of replacing the property with similar property.value

Self proving In order to rely on a will to distribute property once aaffidavit person dies, the validity of the will must be established

through witnesses. The need to provide such testimony canbe eliminated if the testator and witnesses sign a “self-proving” affidavit and attach the affidavit to the will. (SeeWorksheet 10: Self-Proving Affidavit.)

Separate Property is separate property if it was acquired by assetsproperty you or your spouse owned before you were married. Also

property acquired by you or you spouse as a result of a giftto one of you, or through inheritance, is separate property.

Straight In a straight life annuity, the annuitant typically getslife annuities payments for life or for a specified number of years, but no

additional payments are made to the annuitant’s estateupon death.

Tenants by Joint tenants with rights of survivorship solely between athe entirety husband and a wife.

Term life A form of insurance that promises payment only within theinsurance specified term covered by the policy, though such policies

are commonly renewed each term. Term policies have nocash surrender value.

G L O S S A R Y

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Testamentary When a trust is created in the settlor’s will the trust istrust referred to as a testamentary trust.

Testate Testate means to die leaving a will or other valid property-transfer device, such as a living trust.

Testator A person who leaves a will or testament in force at his orher death.

Trustee A natural or legal person to whom property is legallycommitted to be administered for the benefit of abeneficiary.

Trusts A property interest held by one person for the benefit ofanother.

Unified credit A credit of $192,800 allowed to offset the gift tax as wellas the estate tax.

Valuation The act of determining the estimated monetary worth ofsomething.

Whole life Insurance for which premiums are collected asinsurance long as the insured person lives. Whole life policies build

cash value. (sometimes called “straight life insurance”)

Additional resources

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A comprehensive guide for completing a Living Will and Durable Power ofAttorney for Health Care can be obtained from the Idaho Medical Associationat 305 W Jefferson, PO Box 2668, Boise, Idaho, 83701.

The publication CIS 958 A Letter of Last Instruction: Everybody Needs One isavailable through the local office of the University of Idaho CooperativeExtension System.

Many free publications are available from the American Association ofRetired Persons, 601 E Street, NW, Washington, DC 20049.

In Idaho, contact the Area Office on Aging nearest you.

Sidney, Kess. CCH Financial and Estate Planning Guide (CCH 1994 ed.).

Tax publicationsIRS Tax Form 706, United States Estate (and Generation-Skipping Transfer) Tax

Return and Instructions for Form 706 (revised August 1993).

IRS Tax Form 709, United States Gift (and Generation-Skipping Transfer) TaxReturn and Instructions for Form 709 (revised November 1993).

IRS Pub. No. 448, A Guide to Federal Estate and Gift Taxation.

For general tax assistance, contact the Internal Revenue Service,1-800-829-1040. For free IRS forms and publications, contact the InternalRevenue Service, 1-800-829-3678, http://www.ustreas.gov.

About the authorsElizabeth Brandt is professor of law, University of Idaho College of Law,

Moscow. Linda Kirk Fox is extension professor and family economicsspecialist, School of Family & Consumer Sciences, University of Idaho Collegeof Agriculture, Cooperative Extension System, Moscow. Jeffrey A. Maineis visiting associate professor of law, University of Idaho College ofLaw, Moscow.

The authors extend appreciation to the following individuals who servedas reviewers for this publication:

Anne Dwelle, attorney at lawMoscow, Idaho

John Miller, DeanUniversity of Idaho College of LawMoscow, Idaho

Alice Mills Morrow, JD, CFPExtension family economics specialistOregon State UniversityCorvallis, Oregon

A D D I T I O N A L R E S O U R C E S

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Issued in furtherance of cooperative extension work in agriculture and home economics, Acts of May 8 and June 30, 1914, in cooperation with theU.S. Department of Agriculture, LeRoy D. Luft, Director of Cooperative Extension System, University of Idaho, Moscow, Idaho 83844. TheUniversity of Idaho provides equal opportunity in education and employment on the basis of race, color, religion, national origin, age, gender,

disability, or status as a Vietnam-era veteran, as required by state and federal laws.

1,000 4-97 Produced by Ag Communications Center CIS 1057 $3

EstateP l a n n i n g

A N

I D A H O

G U I D E

Elizabeth Brandt | Linda Kirk Fox | Jeffrey A. Maine

This publication is based on Idaho and federal law in effect as of January 1997.