Your oldest son has just informed you that he and his wife want to buy their first home, but they can't afford the down payment. Even with favorable interest rates available for some, bank loans are still hard to come by, especially for younger borrowers. As a result, many young families turn to their parents or other relatives for intra-family loans. Once you understand the tax consequences of intra-family loans, an intra-family loan can not only benefit the recipient, but also serve as a good estate planning tool.
Treatment of the loan as a gift
There is a chance that the IRS will treat the loan as a gift, regardless of the fact that a promissory note was actually given in return for the transfer of funds. The loan may not be considered bona fide debt by the IRS if it seems that the intention was that the loan would not be repaid, despite the note.
How to overcome the gift presumption
The presumption by the IRS that an intra-family loan is a gift can be overcome by making an affirmative showing of a bona fide loan with a “real expectation of repayment and an intention to enforce the debt.” There are several factors that are considered by courts in making this determination:
(1) existence of a note comporting with the substance of the transaction,
(2) payment of reasonable interest,
(3) fixed schedule of repayment,
(4) adequate security,
(5) repayment,
(6) reasonable expectation of repayment in light of the economic realities, and
(7) conduct of the parties indicating a debtor-creditor relationship.
As one court determined “[t]he mere promise to pay a sum of money in the future accompanied by an implied understanding that such promise will not be enforced is not afforded significance." Merely documenting the loan transaction is not sufficient to overcome the gift presumption, for Federal tax purposes.
When is a gift better than a loan?
There may be situations where making a loan to your children may not be the best option. In some cases, making it a gift would be more appropriate. Some situations where a gift may be the preferable choice include the following:
Can I forgive the loan later?
Although the intention to forgive an intra-family loan can result in the IRS treating the loan as a gift at inception, it really depends on when that intention to forgive arises. The main factor in making this determination is whether there was a prearranged plan to forgive the debt, or if that intention did not arise until a later time. If that is the case, the IRS will not consider the loan a gift until the time it is actually forgiven.
If you have questions regarding intra-family loans, or any other financial or estate planning needs, please contact me at Anderson, Dorn & Rader, Ltd., either online or by calling me at (775) 823-9455.
Sometimes issues arise in estate planning that put an inheritance in question. In Mississippi a few years ago, a young man who suffered from severe mental illness, killed his mother. The question arose: can he inherit from her estate when he caused her death. This legal issue brought into play the "slayer statute." Each state has its own version of this law, which has a significant effect on probate and estate issues.
The intended purpose of a slayer statute is to prevent someone from receiving an inheritance from someone whose death he or she was responsible for causing. As with most things, each state has enacted its own slayer statute. Some only apply when the death is proven to have been intentionally or willfully caused, while others preclude inheritance when the death was merely negligent. In most states, the slayer statute applies to life insurance beneficiaries, as well.
In the Mississippi case mentioned earlier, a question of first impression arose for the court. The siblings of the schizophrenic killer, asked the court to prevent him from receiving his share of their mother's inheritance. However, the court had to decide whether a murderer who is mentally unfit to stand trial, should be precluded from receiving his inheritance. The appellate court decided that, since he was incompetent to stand trial, he could not have willfully committed the murder. That decision did not resolve the legal matter entirely, however. Civil and criminal codes are based on different standards for intent and willfulness.
The Nevada version of the slayer statute imposes the principle that "a killer cannot profit or benefit from his or her wrong." Nevada's statutes also state that insanity or diminished capacity shall not be considered in determining whether a person has committed a felonious or intentional killing. The murderer must be convicted of the crime or found by a preponderance of the evidence to have caused the felonious or intentional death before the slayer statute applies.
The unfortunate reality is that most cases where the slayer statute becomes an issue is between spouses. What follows is the fact that spouses are typically beneficiaries of each other's life insurance policies. As long as the death is determined an accident, inheritance is fine. However, if the death is suspicious in any way, the insurance proceeds will not be paid until an investigation by law enforcement clears the spouse of any charges.
If you have questions regarding the slayer statute or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
The death of a spouse is always traumatic. In that time of loss, the surviving family members are often at a loss as to what needs to be done. Whether you and your spouse had a living trust, a will, or some other estate planning tool, there are some initial things that will need your attention. This article will help you become familiar with some common estate issues that arise following the death of a spouse.
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Clients with minor children find that one of the hardest decisions in the estate planning process is how to choose a person or family to care for those children in the unfortunate event of the parents' incapacity or death. Here are some steps that might help in this decision making process.
The easiest place to start is to make a list of anyone and everyone who could be a good guardian for your minor children. Ask yourself, "Would this person/family provide a better home for our children than the State?" This is a good point of reference, since the alternative to naming your own guardian is to have the children placed under State supervision (such as foster care) until a guardian can be named (which may not be someone that you'd prefer). This list could contain dozen of names, but ideally should have at least 4 or 5 people, couples, or families that you trust with the care of your children. Make sure to think beyond immediate family, such as brothers and sisters. Many clients choose cousins, aunts and uncles, grandparents, and friends as guardians. Try not to let money matters affect your list, unless the potential guardian lacks basic money management skills, since things such as life insurance can ensure your children's material well being.
Make a second list of those things that are important to you. Do you want your child to be raised with a certain religious belief? Is it important that your guardian be of a certain age, or that they have a certain threshold for patience and maturity? What is important to you in looking to your guardian's child-rearing philosophy? Is marital or family status of a guardian important? Your guardian will be a role model for your children, so it's important that you understand what that person to be. You may be able to exert some influence on your guardian's behavior in raising your children (they might be willing to go to church with your child, if they don't already, they might change some social and moral habits to accommodate your parenting wishes, etc.). However, there are some characteristics that will not change; a person's integrity and financial management skills are unlikely to change by becoming a guardian.
Congratulations! Once you have completed these first two steps, you have a list of potential people that you support raising your children, and you have a list of factors that are important to you in how you want your children to be raised and what you look for in a guardian. Looking at these two lists, you should be able to narrow down the list of candidates to make the decision much easier. While this is an easy step for many families, this may be difficult if there is a disagreement between the parents. Mom may want her sister to be the guardian, while Dad may want his cousin's family to care for the children. Consensus is important! Use this as an opportunity to have a much deeper conversation about the people and values, and try to understand each other's position in order to find a solution that you both feel good about. Remember - it is important to have more than one potential guardian on your list, as successor guardians should be named in your estate planning documents.
While it's not a legal obligation to clear this decision with the guardian of your choice, it's a good idea to have a conversation with them about it. This can be an opportunity to really develop deeper relationships. Many times, we see that those family members or friends asked to be guardians will want to take a more active role in the life of the child, as a god-parent would in some religions. Ask the guardian if they are willing to support the care of your children, and start discussing what that family structure would look like. This is a good place to discuss the list of values that are important to you (the list that you wrote in Step 2, above). Focus on what you want for the growth and development or your children as you communicate this with your guardian.
The worst mistake you can make is to go through this process and to avoid the final step of drafting the proper language in your estate plan. Make sure to meet with your attorney to ensure that the guardian is nominated in your trust or will. Try to avoid off-the-shelf guardianship forms, as they likely don't address state-specific benefits. For example, in Nevada a person can appoint a temporary guardian to take care of the kids while the permanent guardianship is settled - which means that your minor children may avoid being placed in the custody of the state for even a minute.
There are other times when certain legal forms should be considered for minor children. For example, if your minor child is travelling within the U.S. under the care of someone else, or if your minor child is travelling outside the U.S. with only one parent, you can have your attorney draft the proper Certification of Consent for Minor's Travel forms to make this process easier.
At Anderson, Dorn, & Rader, Ltd., we regularly help clients handle these issues where there are minor children involved. If you reside in Nevada or California, please feel free to reach out to us to discuss these issues by calling our office at (775) 823-9455.
What can you do if your mother or father has become incapacitated and no longer able to handle his or her own affairs. You may have already obtained a power of attorney in order to be able to handle your parent’s affairs. Unfortunately, if your mother or father receives Social Security benefits, Social Security will not recognize a power of attorney for the purpose of negotiating its benefit payments. This means, a person with power of attorney for an incapable or incompetent beneficiary will be required to apply to SSA to become “representative payee.”
What is a Representative Payee?
A representative payee is either an individual or organization appointed to receive and manage Social Security or SSI benefits on behalf of someone else. A representative payee, of course, is required to use the funds they receive for the use and benefit of the beneficiary only. They must be used for that person’s best interest. Individual representative payees are typically relatives, guardians, or friends. An Organizational payee can include a social service agency, institution, State or local government agency, or financial institution.
What is the role of the representative payee
As a representative payee, you will decide how to spend the benefits, in order to maintain a stable living environment for the beneficiary, while ensuring that your loved one’s basic needs of food, shelter, clothing, and medical care are met. Once current needs have been met, you should save any remaining funds for the beneficiary’s future needs. Once a year, you will be required to report on how you used or saved the benefits you received. So, you must keep records of deposits and expenses.
How to become a representative payee
The first step to becoming a representative payee is to contact your local Social Security office and file an application. Typically this is done during a face-to-face interview. During the interview, you will discuss your relationship with the beneficiary, and your ability to carry out the responsibilities of a payee. The duties you are expected to carry out will be explained to you, as well as the potential liability for failing to report to the Social Security Administration as required.
Fiduciary Duties of a Representative Payee
As a representative payee, you are required to return any overpayment promptly. It is also important that you keep all records and accounts for your beneficiary separate from any others. Those records must be maintained for at least two years, and should include all payments received from SSA, all bank statements, and receipts or cancelled checks for rent, utilities, and any major purchases made for the beneficiary. Be careful when converting any assets to cash, as that income may impact the beneficiary’s social security payments or eligibility for SSI.
If you have questions regarding Social Security there are multiple online resources, including the official website. For information regarding powers of attorney, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
A trust can be a significant financial tool, helping you to control your money and provide for the future of your loved ones. If you are wondering whether you should create a trust, as part of your overall estate planning, also consider how useful they are in helping to avoid estate taxes. So, how do trusts save taxes?
The purpose of a trust
The basic purpose of a trust, in estate planning, is to reduce estate taxes as much as possible and avoid probate. A trust is essentially a fiduciary agreement, that is - one based on confidence and trust, between the trustee and the grantor or maker of the trust. The agreement authorizes the trustee to hold and manage the trust assets on behalf of the beneficiaries, while providing specific instructions on how to manage and distribute those assets. There are many different types of trusts, each with their own specific purposes or goals.
The general benefits of a trust
If one of your goals in estate planning is to ensure that more of your property and money is left to your beneficiaries, as opposed to being reduced by estate taxes, then a trust may be a great option. But, creating a trust does not magically reduce your estate tax rate. One way to reduce estate taxes is to reduce the value of your estate. This is done by transferring your assets to a trust, in order to lower your estate’s value. Because the assets you transfer to a trust technically belongs to the trust, you may reduce the amount that will be taxed, with the appropriate documentation. However, there are other tax issues that also arise after your death. Therefore, consulting with an estate planning attorney is essential.
What about a Grantor trust?
If you create a grantor trust, then you can retain your power over most aspects of the trust. As the grantor, or the person who establishes the trust, you personally continue to pay the income taxes on the assets. For tax purposes, you are considered a “disregarded entity,” so the taxable income or deductions that are earned by the trust will be included on your tax return.
What are the tax advantages?
There are several advantages in creating a grantor trust. Your trustee, at your death, can sell the trust assets without recognizing the capital gain from the sale. You can also lend money to your trust at the minimum interest rate allowed. However, the interest income will not be taxable to you, as the grantor. In other words, the trust assets can grow for the benefit of your beneficiaries, while eliminating the economic burden of paying income taxes. That way, the gifts you make to your beneficiaries that are below the annual exemption amount, will be free of the gift tax.
If you have questions regarding tax savings, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
The last will and testament is still very popular, certainly not the only estate planning instrument available. There are many other options, some of which may be better suited for your particular needs. One of those estate planning tools that has become very popular in the last couple of decades is the revocable living trust. Living trusts have many benefits, including probate avoidance. They also provide other benefits, both before and after death – something a will simply cannot do.
How does a revocable living trust work?
Like any other trust, a revocable living trust is a written agreement between you and a trustee, who will ultimately be responsible for managing the assets you place in the trust and distributing them to your beneficiaries. The difference is, a living trust is established while you are still living, naming you as the primary trustee and beneficiary in most cases. If it is a “revocable” living trust, then you maintain the power to modify or revoke the trust at any time, as long as you are still mentally competent. A revocable living trust will become irrevocable, upon your incapacity or death.
The parties to a living trust
A living trust will have three parties to the trust agreement: the creator of the trust, the trustee, and the named beneficiaries. The trustee is the person whom you have chosen to manage your assets, in conformity with the terms of the trust agreement. Of course, the beneficiaries are those individuals you have chosen to receive the benefit of your assets. By naming yourself as the primary trustee and beneficiary, you can maintain full control of your assets during your lifetime. Upon your disability, you will have named a successor trustee to take your place, but the trust assets are still to be used for your benefit. At death, the successor trustee will administer the estate by taking care of the taxes and bills and then distribute the assets to the ultimate beneficiaries you have named in your trust agreement.
The differences between a living trust and a will
Your last will and testament, like a living trust, will set out your instructions regarding inheritance of your estate. However, a living trust allows you to avoid probate, a lengthy and costly process. Furthermore, a trust is more private than a will, which becomes public record. Probate proceedings, which include an inventory of the assets and the contact information of your beneficiaries, are also open to the public.
Additional benefits of a living trust
Unlike your last will and testament, a living trust can also include terms that allow someone to take over management of your assets in the event you become incapacitated for any reason. Thus, you will most likely avoid the need for a court appointed guardian or conservator. Another benefit is that you can specify that your assets be distributed to your beneficiaries as trusts, as opposed to immediate distribution after your death. Doing so increases protection of the inheritance from the beneficiaries' creditors or divorcing spouses.
What if I don’t have a will or a trust?
If you do not leave any instructions behind, in either a will or a trust, your property will be distributed pursuant to your state’s laws of intestate succession. Generally, that will mean that your assets will go to your spouse or your closest surviving family member, if you have no spouse. In some cases, it will mean that the surviving spouse will get only a fraction of your assets, with the remainder going to your children. Children receive the estate at age of majority - 18 in most states. There is also the chance that someone will be selected by the court to manage your estate and the distribution of your property, whom you do not trust to handle your affairs. Having a plan in place allows you to make all of these decisions for yourself, ahead of time.
If you have questions regarding living trusts, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
If you are familiar with the concept of capital gains, you may have heard of the term “step up in basis.” Generally speaking, capital gains is the difference between the purchase price and the sales price of a particular asset. The IRS imposes a tax on all capital gains, as it is essentially income. When it comes to inherited property, though, the rule on capital gains is different. A “step up in basis” can provide a valuable tax break.
How the “step up in basis” works
A step up in basis basically adjusts the value of your inheritance in order to save on taxes. For instance, you may inherit a house from your uncle, which cost $70,000 when he purchased it. Now the home is worth $200,000, so your basis will be stepped up from $70,000 to $200,000, in terms of calculating your capital gains. So, if you later sell the house for $250,000, your capital gains would only be the difference between $200,000 and $250,000. Without the step up in basis, your capital gains would be $180,000, as opposed to $50,000.
Mistakes that effect the step up in basis
The step up in basis is a straightforward rule, but you can jeopardize these savings if you are not careful. Two of the most common mistakes are jointly owning your home or other appreciating asset with your child, and holding the title of your appreciating assets in joint tenancy with your spouse.
Joint ownership with your child
If it is your desire that your child inherit your home after your death, the best way to make that happen is to transfer the home to a living trust, which will pass the home on to your child upon your death. On the other hand, joint ownership with your child will prevent his or her use of the “step up in basis” rule. Instead, your child will be taxed on the capital gains for at least 50%, but could be as much as the full appreciation of the property, at the time that asset is sold.
Joint-tenancy ownership with your spouse
A similar problem exists when you hold the title of your home in joint tenancy with your spouse. Your surviving spouse will receive a setup in basis of 50%. The remainder will be taxed at the original cost of the home, as opposed to the step up in basis that would be available, if the house had been held in community property. Converting the nature of the asset to community property and holding it in the living trust will provide the best of both worlds by avoiding probate and getting the step up in basis.
Preserving the step up in basis
The step up in basis rule may be one of the most valuable tax breaks provided by the IRS, especially when it comes to assets that have appreciated substantially. It would be a terrible waste to lose or diminish this valuable benefit, by making mistakes that can easily be avoided. The best thing you can do to preserve this benefit, is to discuss your options with your estate planning attorney.
If you have questions regarding step up in basis, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
The first piece of federal legislation addressing this issue was passed in 1956 and was known as the Uniform Gifts to Minors Act. The initial statute was based on an earlier law sponsored by the New York Stock Exchange and the Association of Stock Exchange Firms. Eventually, all of the states adopted this legislation or one of its amended forms. Some states also added other amendments that defeated the uniformity of the law. In response, the statute we now know as the Uniform Transfers to Minors Act was passed in 1983.
Topics covered in this report include:
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Appropriate estate planning requires time and money. Unfortunately, people often try to save costs and cut corners by using “do-it-yourself,” boilerplate forms. The bad news is, one size does not fit all in estate planning. Many of these pre-made forms cause more problems than they solve. When legal estate planning documents are not properly drafted, the result may be an invalid will or trust, or something that does not actually achieve the results you expected. Even if the document is valid, it's probably a “bare bones living trust.”
Filling in the blanks is not enough
When you hear someone refer to a “bare bones” living trust, they usually mean a lean boilerplate document that most often lacks the necessary details and technical requirements that make the living trust most effective. For instance, many clients are looking to create a trust for the purpose of probate avoidance. Unless you accomplish the second step to establishing a trust, you cannot accomplish your goal of avoiding probate.
Your living trust must be fully funded
One of the pitfalls of using a bare bones living trust is that the owner does not address the necessary step of funding the trust. If a living trust is not fully funded, then it cannot provide probate avoidance. Funding a trust requires actually transferring the titled assets to the trust's name. There are basically three ways this is accomplished. Funding requires either changing the title of property to the trust, assigning ownership rights to the trust, or naming the trust as a beneficiary on certain accounts or other assets.
Bare bones trusts lack meaningful instructions
Pre-made legal forms are only designed to accomplish limited objectives. As such, they generally lack many of the important details that a properly drafted trust agreement would include. With a bare bones living trust, protections for your beneficiaries that could be included are most often lacking. Because a pre-made form is meant to be used by anyone, it is written as a one-size-fits-all document. However, no two clients have the exact same estate or the same family dynamic. The terms of the trust are supremely important.
Don’t miss out on the real benefits of a proper trust
There are a great many benefits to be gained from establishing a living trust. Some of these benefits include the ability to protect property for your beneficiaries, reduce or eliminate estate taxes, plan for your incapacity, and avoid probate. If, however, your trust only has the “bare bones,” you are definitely missing out.
If you have questions regarding living trusts, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
The proper estate plan can answer the most important questions, not only for your other relatives, but also for the court, if you are no longer there to take care of your young children. Learn more about Nevada estate planning for families with minor children in this presentation.
A trust is more than just a way to avoid probating an estate. There are many benefits, such as the ability to protect your property for your heirs, and reduce the amount of estate taxes that will be incurred. A trust also helps you to prepare for the possibility of incapacity, and to avoid a potential will contest. For clients who agree that a trust is a good option, the next question is usually about the annual fees for a trust in Nevada. There are several factors that determine what the costs may be.
Trustees are entitled to a fee for their services. How much they may be entitled to, can differ from state to state. Whether they will even charge a fee also depends on their relationship to you, in most cases. If the trust is a revocable living trust, you are likely your own trustee, so you obviously would not charge yourself a fee. Family and friends who have agreed to serve as your trustee in the event of your death, often turn down the fee, if they are beneficiaries in the trust, as well. On the other hand, if your trustee is a financial institution, such as a bank or trust company, it will likely have an established fee scheduled, depending on the type of services they provide to you.
On average, annual trust fees can run between one and two percent of the total value of the assets being administered. When a trust is not being supervised by the probate court, there are generally no limitations on what the trustee can be paid for his or her services. But, if you want to avoid disputes in the future, it is best to set the trustee’s compensation in the terms of the trust. That way, there can be no dispute between the trustee and the beneficiaries about the amount of the fees.
Typically, trusts are not created to be managed by a court. In the case of a testamentary trust (one created by a will that takes effect at death), or a trust that has been challenged in court, the probate court will order the trustee to be paid a “reasonable” fee. Nevada provides, by statute, for “reasonable compensation” (Nev.Stat. §153.070) and extra compensation is allowed for any “extraordinary services” (Nev.Stat. §150.030).
Courts have established that the following criteria can be used for determining reasonable compensation:
Nevada’s statute, § 153.070 (2013), provides as follows:
On the settlement of each account of a trustee, the court shall allow the trustee his or her proper expenses and such compensation for services as the court may deem just and reasonable. Where there are several trustees, it shall apportion the compensation among them according to the respective services rendered. It may fix a yearly compensation for each trustee, in a set amount or pursuant to a standard schedule of fees, to continue as long as the court may deem proper.
If you have questions regarding trust fees, or any other estate planning needs, please contact living trust attorneys at Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Creating a comprehensive estate plan is one of the most important things you can do to protect the future of your loved ones. An appropriate plan allows you to remain in control of your finances, including how they are distributed, while sparing your loved ones from the frustration and expense of managing your affairs after your death.
An estate plan can include any number of tools for managing and protecting your assets, including life insurance policies. In fact, the importance of life insurance in estate planning should never be overlooked.
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When couples go through a divorce, emotional and financial strain is often significant. Estate planning is probably the last thing on either person’s mind. Nevertheless, it is very important to revisit your estate plan after a divorce, as updating its provisions can save you a lot of unnecessary stress and complication in the future. Estate planning after a divorce is important if you want to ensure that your current wishes and plans are still reflected by its terms.
Important changes to be made following a divorce
There may be many specific terms that you will want to change following a divorce, but you may not know where to start. The first step, is to revoke your will or trust and create a new one. The changes you need to make to your will or trust involve your beneficiaries, your executor/trustee and a guardian for your minor children. These are the most important aspects of your estate plan that should be addressed after a divorce.
If you have a will already, it should be revoked and a new one drafted. If you do not have a will, it is time to make one. The same is true if you and your former spouse made a living trust together, which acts as a will, but does not need to go through the probate court.
Changing your beneficiaries
If you made your will or trust while you were married, most likely you left everything to your spouse. That is no longer the case, now. So, the first step is to identify new beneficiaries, as well as alternate beneficiaries, to inherit your estate. You may also want to reconsider any gifts to relatives of your former spouse (i.e., your in-laws).
Luckily, in most states, gifts to your former spouse are automatically revoked after a divorce. This may not be what you want, however, if you and your spouse parted amicably. Either way, you need to revisit your named beneficiaries to ensure that your current wishes are reflected.
Naming a new executor
Most people name their spouse as the executor of their estate. However, after a divorce, that should be changed. Just as you may no longer want your former spouse to inherit your property, you likely do not want your former spouse to be in charge of your estate. Similar to the revocation of gifts to former spouses, many states revoke the appointment of a former spouse as executor of a will, or trustee of a trust. If you named an alternate executor, that person will serve if possible. But, in case he or she is no longer available, it is important to change your executor now, and name a new alternate.
Choosing a guardian for your minor children
For couples with minor children, a crucial part of their estate plan is nominating a guardian for those children, in the event both parents pass away. Certainly, this is a difficult decision to make. The issue becomes much more difficult if the parents become divorced.
Most clients assume that, if they pass away while their children are still minors, the other parent will take care of them. While that is true in most cases, what if both parents pass away at the same time, or within a short time of one another. We cannot predict what may happen. In the event that your former spouse predeceases you, it is important to have a guardian nominated, in case something happens to you. If you and your former spouse can agree on who should be nominated, that is even better.
If you have questions regarding estate planning after a divorce, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Often, members of the gay community are concerned about privacy when it comes to how they choose to leave their estate to, after death. Indeed, privacy is a common concern for most clients. Since there are so many options in estate planning, you have the ability to customize your plan in a way that keeps your assets, as well as your plan for distributing them, as private as you wish. A major benefit of creating an estate plan, as opposed to relying simply on a will, is that the distribution of an estate can be kept from nosey neighbors and prying eyes.
Probate proceedings are always public
A major drawback of relying only on a will to handle the distribution of your estate is the fact that wills must be probated. This means that a will has to be filed with the local probate court. The only way the terms of a will can be enforced, or put into action, is through the court system. As a result, the specific details of your will become public record, including the identity of your beneficiaries, the amount of assets you have, and who you decide to give them to. Basically, once your will is filed in court, anyone can go to the probate court and ask to see it, and even obtain copies of your probate documents.
An estate plan using revocable living trusts provides privacy
There are many benefits to using revocable living trusts as part of your estate plan. One important benefit is the amount of privacy that this estate planning tool can provide. For instance, a revocable living trust is essentially a private contract between you and your chosen trustee. Because it is a living trust, you retain authority over the trust during your lifetime, including the power to make all decisions regarding the investment of your assets and the use of income earned by the trust. If you become mentally incapacitated, the trustee can then take over management of the trust. Of course, upon your death, your trustee will become the decision maker, based on the terms of your trust. Your trustee is always required to follow your instructions and distribute your assets as you indicate in the trust agreement.
Why does a revocable trust stay private?
The main difference between a will and a living trust is the fact that a trust is not required to be filed in court. Your instructions are followed immediately upon your death or incapacity, without your estate going through the probate process. It is the probate process that makes your estate open to the public. Therefore, only your trustee has access to its terms.
If you have questions regarding privacy in estate planning, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
