Wills and Estate Planning in Kentucky

What Are Your Objectives During Estate Planning

At death:
  • Determines:
    • Who Will Get What
    • How They Get It
    • When They Get It
  • Minimize Estate Taxes
  • Reduce or Eliminate Probate Costs
  • Avoid Publicity - (Living Trust)
    • Provide Instructions In Advance for Disability (Living Will and Power of Attorney)
    • Provide Peace of Mind to Spouse and Loved Ones

What Assets and Property Does Your Estate Consist of?

  • AU Tangible Assets
    • Home and Property
    • Real Estate and Land
    • Household Goods and Furnishings
    • Auto
    • Jewelry
    • Personal Possessions
  • AU Intangible Assets
    • Bank Accounts
    • Annuities
    • Stocks
    • Bonds
    • Mutual Funds
    • Business Interests
    • Retirement Plan Proceeds (401k, IRA)
    • Life Insurance: which you own and have right to change beneficiary
    • Money Owed to You: Promissory Notes

After Your Death, How Do Your Assets Pass to the Individual(s) You Wish to Receive Them?

3 Ways:
  • Probate
    • Testate (dying with a Will)
    • Intestate (dying without a Will)
  • Operation of Law
    • Joint Assets
    • Joint Tenancy with Right of Survivorship
    • By Contract

What is Probate?

Court proceeding where your will is brought before Probate Judge, proven to be your valid last will and Executor or Administrator is appointed. Thereafter, probate assets are identified, inventoried, debts and taxes are paid, and balance of estate assets are distributed pursuant to provisions in Will.

What Assets are Subject to Probate?

Those assets you own in your own name.

Advantages of Probate:

  • Provides for the distribution of your assets exactly as you wish (assuming you leave a valid Will)
  • Usually limits the amount of time someone can challenge the Will
  • Generally limits the amount of time for which creditors can make claims against the estate. (Kentucky: 6 months)
  • Executor’s and/or Personal Administrator’s duties and activities are supervised by the Probate Court Judge

Disadvantages of Probate

  • Survivors don’t have access to most of your property or assets during the probate period, which could last 9 to 12 months or even longer
  • The cost of court fees, executor fees, accounting fees, and appraisals average from 3 to 6 percent of the value of the estate, in many cases
  • Probate files are open to the public in Kentucky

Assets Passing by Operation of Law and Outside of Probate

The law allows certain types of assets and property to pass directly to your survivors outside of the probate process. This is property and assets held in joint tenancy or where named beneficiaries exist, they bypass the Will and go directly to the designated survivor or beneficiary.

  • Property held by you and your spouse in joint tenancy with the right of survivorship
    • Real Estate and CD
    • Joint and Survivorship Bank Accounts (2 types):
  • During life
  • At death (POD)
    • These accounts are set up to assist in management of person’s finances.
      (1) Disinherit other children
      (2) Joint account holder may use funds for own benefit.
  • Assets where a named beneficiary has been designated:
    • Life Insurance - death benefits go to beneficiary
    • Annuities - payments go to survivor beneficiary
    • Retirement Plans, including IRA’s, 401(k)’s- designate a beneficiary
    • P.O.D. Accounts (payable on death) to named beneficiary


Trust Terminology

  • Testamentary Trust
  • Living Trusts
  • Revocable Trusts
  • Marital Trust vs. Family Trust
  • A/B Trusts
  • Credit Shelter Trust
  • Grantor- creates trust/maker of trust
  • Trustee - oversees trust assets
  • Beneficiary - lifetime or remainder
  • Pour-Over Will- assets pass through the Will and pour over into Trust

Living Trust

What is Living Trust? Trust set up during one’s lifetime where you transfer assets into trust, for your lifetime benefit, trust manages the assets and upon your death the assets pass to designated beneficiary (spouse, children)

Advantages of a Living Trust:

  • Avoids the costs and time delays of probate
  • Eliminates the publicity associated with probate
  • Provides for the distribution of your assets exactly as you wish. Assets may be given to your survivors immediately upon death, or they can remain in the trust and be distributed over a period of time
  • Can provide for the management of your estate while living, if you can no longer take care of it yourself (avoids guardianship and conservatorship)
  • Can provide for credit shelter trust provision at death of grantor, thus maximizing unified credit benefits

Disadvantages of a Living Trust:

  • The time and expense ($1000-2000) to set up. Must transfer and retitle assets out of your name and into trust
  • Docs not reduce estate tax liability (if it exists) and assets are included in taxable estate
  • The psychological impact of giving up personal ownership and right to direct assets

Who Should Consider Living Trusts?

  • Married couples with a high net worth
  • Elderly who wish assets managed upon their disability or incapacitation
  • Individuals who wish to avoid probate and publicity
  • Parent who desire an out-of-state guardian for minor children
Note: Often a good General Durable Power of Attorney with appropriate appointment will do the job.

How and When Are Estate Taxes Paid?

  • Estate taxes are due and payable, in cash, within nine (9) months after death
  • Federal Form 706
  • Remember each person as has a Federal Estate Tax Credit in 2013 of $5,000,000.00 which allows you to shield
  • from estate tax a total of $5,000,000.00 of taxable transfers.

Unified Tax Credit: “Use It or Lose It!” ·

  • In 2013, Unified Tax Credit of $5,000,000.00 is applied directly to the tax owed. The net effect of the
  • credit is that no estate or gift taxes are due on cumulative transfers of $5,000,000.00 or less.
  • Taxable lifetime gifts reduce the amount of Unified Tax Credit available to your estate at death. For
  • example, if you made lifetime taxable gifts of $500,000, you would only be able to pass $4,500,000.00 of your remaining assets free of estate tax.

Additional Estate Planning Documents You Should Consider:

  • Durable Power of Attorney - appoints agent to manage financial affairs while living
  • Meaning and Rights
  • Consequences of Not Having (Guardianship)
  • Immediate Power to attorney-in-fact
  • Springing Power to attorney-in-fact
  • Health Care Power of Attorney/Health Care Surrogate
  • Living Will - a directive to physicians expressing desire not to be kept alive by extraordinary means while
  • in a terminal condition; only goes into effect when one has terminal condition and cannot give directions about one’s medical care
  • Kentucky: Living Will and Health Care Surrogate
  • Designation of Guardian for Minor Children - before need arises
  • Beneficiary Designations - on non-probate assets:
  • life insurance
  • joint tenancy accounts
  • IRAs and retirement plans
  • Securities
  • Memorandum Disposing Personal Assets - describes certain personal assets to be left to specific individuals

Wills and estate planning are extremely complex areas of law best left to the professionals.  Call Sutton Law today to speak with a professional, experienced lawyer that will guide you through and answer all your questions about estate planning.

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