Trusts are popular estate planning tools for many reasons, including the fact that they help avoid probate and they provide some asset protection. Depending on the size and nature of your estate, creating a trust can be complicated. However, your estate planning attorney can help you with the details. One of the most important steps in creating a trust is funding that trust.
A trust is a fiduciary agreement between the trustee and the grantor. Fiduciary just means an agreement based on confidence and trust. The trust agreement authorizes the trustee to obtain and manage all of your trust assets on behalf of your named beneficiaries. The trust agreement also provides specific instructions regarding the management and distribution of your assets.
Once you have decided to include a trust in your overall estate plan, here are the basic steps that must be followed in creating a trust. The basic steps to create any trust are as follows:
The most important thing to remember is, once you execute the trust agreement, you must fund your trust. If you do not, your assets will become subject to probate upon your death and the advantage of using a trust to avoid probate is lost.
A trust must be funded so that the property you intend to be controlled by the trust will actually be included in the trust. Once you properly fund the trust, your trustee can manage all of the property when you become mentally incapacitated or upon your death. You have to do more than just sign the trust agreement. How you go about funding your trust will depend on the nature of your assets. Not every asset is funded into a trust the same way.
There are basically three ways to properly fund a trust, depending on the type of property that needs to be transferred to the trust. These methods include:
All of these methods are pretty simple to accomplish, but you still have to follow the required procedures to make sure it is done properly.
There are several types of trusts, each with its own purposes, advantages and disadvantages. However, all trusts fall into one of two categories: revocable or irrevocable. It is important to understand the differences between these two types of trusts. When a trust is "revocable" the grantor (person creating the trust) retains the power to modify the terms of the trust or revoke it altogether. This makes revocable trusts very flexible, which is a good thing since circumstances often change resulting in the need for modifications.
You may have guessed – irrevocable trusts are different because they cannot be modified once they have been executed. This can be a great benefit, though. Because your assets are no longer a part of your estate, they are no longer subject to probate or estate taxes. So, although you must relinquish control of your assets with an irrevocable trust, some will enjoy valuable tax benefits.
There are generally two ways to modify a revocable trust: amendment or restatement. Either way, the result is basically the same so the choice is yours. In some situations, an amendment to the trust will be sufficient. For example, getting married, having children, or having a substantial increase in your trust property are all reasons you may need to amend your trust. Also, whenever your beneficiaries change, and amendment would be property. This most often becomes an issue when a beneficiary dies or you change your mind about giving someone an inheritance. Your estate planning attorney can help you decide the best way to modify your trust.
The answer is simple. Any property that is not properly funded into your trust will need to go through probate. That means before you heirs can inherit those particular assets, the court will need to oversee the probate of your estate, which is costly and time-consuming. As such, if you overlook the need to fund all of your property, your trust will likely not be as effective as you intended.
If you have questions regarding trusts, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Nevada has allowed the use of self-settled spendthrift trusts since 1999. These trusts can provide great protection for trust property against the creditor's of beneficiaries. Basically, you are allowed to be the direct beneficiary of your own irrevocable trust, while still protecting your trust property from creditors. Under Nevada law, you must have an independent trustee who has the authority to distribute the trust income or principal to you. Then, as a co-trustee, you may have the power to distribute trust property to other beneficiaries, such as your descendants or other loved ones.
Even with an Asset Protection Trust, creditors may be able to pursue your trust property for two years after the property is transferred to the trust. That means that the protection does not begin immediately. Creditors also have six months from the time they discover the transfer, or should have reasonably discovered the transfer. A creditor that does not exist until after the trust is created, also has two years to file a claim. Once the two year period has ended, your trust property is protected against future claims.
According to Nevada law, a self-settled spendthrift trust will be recognized regardless of whether it was created in another state, as long as one of these factors is met:
Other assets, such as stocks, bonds, interests in real property, that are not located in Nevada can easily be moved to Nevada so they can be transferred into your trust.
Certainly anyone can create an Asset Protection Trust and benefit from the safeguards it provides for trust property. However, these specific types of trusts are particularly suitable for those who are exposed to substantial professional liability, such as doctors. Regardless, if you are concerned about liability of any type and need to protect your assets, an Asset Protection Trust can be a great way to accomplish this goal.
If you make a gift of property directly to your child, for example, there are certain inherent risks as to that property. If the gift is cash, the child may spend it immediately, or if it is real property, your child may take out a mortgage on it. Creditors could obtain liens on the property, or a spouse could come along and obtain a half interest in the property. If you want to mitigate any or all of these risks, you should consider a traditional third-party spendthrift trust. The child would be the third-party beneficiary. Based on the terms of the trust, you can provide certain limitations and protections.
Even in light of the many benefits, some people are still hesitant to relinquish complete ownership of property to an irrevocable trust. If you name yourself as a trustee of a spendthrift trust, you limit the protection against creditors. The solution to this dilemma is a self-settled, first-party spendthrift trust. As long as you comply with all of the statutory requirements, you can name yourself as the beneficiary, while enjoying the same creditor protection as third-party beneficiaries of the trust. If this is your goal, consider the Nevada Domestic Asset Protection Trust.
There are basically five requirements that must be met in creating a Domestic Asset Protection Trust in Nevada. First, at least one trustee must be either a natural person who resides or is domiciled in Nevada, or a bank or trust company that maintains an office in Nevada. The trust must also be in writing and irrevocable. The trust cannot include a provision that requires any part of the income or principal of the trust be distributed to the settlor, that is the person creating the trust. Finally, the trust must not be intended to hinder, delay or defraud known creditors.
The statute gives the settlor certain authority that does not affect creditor protection, which can be very useful. For example, the settlor has the power to veto trust distributions. Also, the settlor retains the ability to use real or personal trust property. The settlor may also retain the power to direct the investment of trust assets. Just as an individual with no known creditors is allowed to give away her property (and thereby protect it from future creditors), you can instead transfer that property to a Nevada Domestic Asset Protection Trust.
If you have questions regarding trust property, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
When it comes to estate planning most clients readily think about their cash, investments, houses, and cars. But what some clients tend to overlook are the valuable family heirlooms. Those items hold value: not only monetary, but most often emotional value. When it comes to deciding how to distribute your assets, you will certainly want to include your personal effects, such as your grandmother's engagement ring or your grandfather's pocket watch. Including heirlooms in your estate plan is important for you and your family.
Be specific and put it in writing
It is common for parents to sit down with their children and discuss which personal belongings or heirlooms each of them may want after the parents pass on. However, even though children may agree now their preferences may change over time. Memories often fade or personal feelings change. Though it may not be necessary to specifically leave each and every personal item to someone, the gifts that are meaningful to you or your family should be written down in specific detail. Designating which items you want to leave to which family members will be important to you and your beneficiaries in the future. A properly drafted estate plan will allow you to distribute those items upon your death through a separate writing that can be updated over time without constant attorney involvement.
Obtain an appraisal of your heirlooms
An heirloom is a specific item that is typically passed on from one generation to the next. Traditionally, these types of items include items that hold great monetary, historical, or sentimental value. Nonetheless, the first step you should take is to determine the potential monetary value by getting the items appraised. Some clients prefer to get an appraisal while still alive in order to make sure their children each receive approximately the same value of property, and this can help with our areas of planning (such as obtaining the right amount of insurance). But an appraisal while still alive is not necessary, as this step can also be done after your passing.
Finding someone to appraise your heirlooms
There are many different dealers out there with the expertise to appraise your heirlooms. Determining where to go depends on what type of items you have. For instance, antique dealers can appraise antique furniture and other older, rare items. Fine art dealers, rare book dealers, and many others are available to provide accurate appraisals of the value of your heirlooms. If you need a jump start on locating these individuals, contact certain professional organizations, such as Private Art Dealers Association, Art Dealers Association of America, International Fine Print Dealers Association, or the National Antique and Art Dealers Association of America. These associations are very helpful in finding the type of qualified dealer you need.
Include a “No-Contest Clause” in your estate plan
In Nevada, we recommend that you include what is referred to as a “No-Contest Clause” in your will or trust. This provision, when properly drafted, will often discourage family disputes over specific inheritances. With a No-Contest Clause, if an heir chooses to contest, or challenge, the will, they will no longer be entitled to receive any part of the inheritance.
If you have questions regarding family heirlooms, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
A living trust is an important component of every estate plan. But, before you make a decision to include one in your personal estate plan, you should dispel some of the most common myths regarding living trusts. These myths have been circulated through the general public, and are frequently repeated online. In an effort to debunk the most common of these misperceptions, this article will examine the 3 top living trust myths.
The procedures for creating a revocable living trust are pretty simple and straightforward. Living trust attorneys sit down with their clients to determine their goals and objectives, and then draft the trust document selecting all the terms terms under which the trust must operate. Living trust attorneys will discuss all options with their clients before recommending a particular trust design. Once the trust document has been drafted, the next step is to transfer the clients property into the name of the trust. This is referred to as “funding” the trust. After the trust is completely funded, the trust becomes the new owner of all the trust property.
Many clients are under the misconception that, because the trust owns the property, they will lose all control over the property that was transferred into the trust. However, this is not at all the case. A living trust is a revocable trust, meaning that you have the ability to manage the trust and the right to use and enjoy all of the property included in the trust as you see fit. Transferring property into a living trust results in no loss of control over the assets.
Most living trust attorneys will tell you that, although a living trust is an invaluable estate planning tool, it certainly is not the only tool you need. For instance, a living trust does not allow you to name a personal representative to administer any estate assets, or a guardian who will take care of your minor children in the event of your death. As such, you will need to also create a last will and testament in order to address both those needs. There are also many other estate planning documents you need to address other financial and medical planning considerations that a living trust simply does not cover. Examples of such documents include a durable power of attorney for property, a living will, a durable power of attorney for health care and a HIPAA disclosure authorization. The goal is to have a comprehensive estate plan.
While a living trust for a married couple may be designed to minimize estate taxes in certain cases, generally speaking a revocable living trust does not help to reduce or eliminate potential estate tax liability. Although there are different types of trusts that can serve this purpose, living trusts are typically not one of them. Furthermore, a living trust will not provide significant asset protection during your lifetime. If you wish to create an estate plan that provides effective asset protection or tax relief, it is best to discuss options with an experienced estate planning attorney. A popular and effective asset protection tool authorized under the Nevada Revised Statutes is a self-settled spendthrift trust, commonly referred to as a Nevada Asset Protection Trust. There are also numerous strategizes involving irrevocable trusts that can be utilized to dramatically reduce, or even eliminate, an estate's exposure to estate taxes.
Historically, the primary purpose most clients had for creating a living trust is to avoid the lengthy, public and costly probate process. While avoiding probate is still one of the advantages of creating a living trust, we have found that for our clients it is not generally perceived as the primary benefit. In Nevada, a living trust can be designed to protect a loved-one's inheritance from claims associated with a future divorce, including claims for alimony and child support. With divorce rates hovering at around 50% in many states, we have seen a significant amount of family wealth awarded to divorcing spouses over our 20 years of handling trust and estate administrations. A living trust may also be designed to protect a beneficiary's inheritance from other lawsuits, and even bankruptcy, should a beneficiary fall upon especially hard financial times. A living trust can be structured to preserve a beneficiary's right to government benefits for his or her long term-care expenses and not expose the inheritance to government reimbursement claims in the event a beneficiary is receiving government benefits at the time he or she receives the inheritance. A living trust may also be drafted to protect an inheritance against spendthrift behavior or irresponsible asset management for those beneficiary's who lack financial responsibility or investment management experience. Living trusts may also be structured to incentivize certain behavior or activity, such as developing a strong work-ethic, pursuing a higher education and maintaining full-time employment, while not allowing a loved-one to live off of his or her inheritance and not experience the intrinsic rewards associated with setting and achieving lifetime goals. These are just a few examples of the advantages that may be achieved from a customized living trust drafted by an experienced trust attorney.
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.
One of the reasons a living trust is popular is because it can help you to avoid probate while providing a reasonable degree of asset protection. Clients regularly have concerns about living trusts and commonly ask, "Do I have to forfeit control of my assets?" The answer is no – not at all. One of the most favorable aspects of a living trust is the ability to retain control of your assets while providing directions to your loved ones about transferring your estate upon your death.
One of the basic purposes of a trust is to avoid probate proceedings, a court process that is usually lengthy and expensive. Each state has its own laws, which typically require a deceased person's property to go through probate if there is no proper estate plan in place. Another basic purpose of trusts is to appoint those persons responsible for making your financial and medical decisions for you in the event you become incapacitated. Without having the proper documentation in place, your loved ones may be required to petition a court to appoint a guardian or conservator to handle your affairs. One of the greatest benefits a living trust can provide is the ability to protect your assets for your loved ones, once you have passed away. If you are considering whether you want to create a living trust, you should be aware of both the advantages and disadvantages of such a trust.
A “living trust” is basically a type of trust created to become effective while you are still alive, as opposed to upon your death. As with all other types of trusts, a trust is an agreement where the property transferred to the trust is held and managed by a trustee, with directions as to how your estate should be transferred to your beneficiaries upon your death.
First, the ability to avoid probate is one obvious advantage of a living trust. It can save your loved ones both time and money in the long run, as well as help you to avoid potential complications, when distributing assets after your death. There are also some very valuable tax advantages connected with a trust. A living trust can also help to reduce the amount of estate taxes imposed on your estate, while allowing for income tax planning opportunities. By distributing assets in trust for your beneficiaries, you can provide the greatest ease in administering your estate, and you can reduce the amount of estate taxes your beneficiaries would otherwise need to consider on their own. In Nevada, we can continue to pass your assets down generation after generation estate-tax-free for up to 365 years. Privacy is another benefit; the terms of your trust remain private, unlike the public nature of the probate process.
There are certain legal protections provided by trusts. A living trust is a written legal document, which means it will always be enforceable by the courts. If there are any challenges to the asset transfers made after your death, the terms of the trust document will provide the best evidence of your intentions with regard to your property.
You are allowed to identify anyone you choose to be your trustee, including yourself. That would mean you can retain complete control of your assets during your lifetime. Therefore, a significant benefit of a revocable trust is that you may continue to buy, sell, encumber, and refinance assets just as you did before the trust was established. You also have the ability to remove assets from the trust whenever you desire. In other words, you maintain complete control of your property. As long as you are competent to handle your own financial affairs, you can name yourself as trustee of your living trust. Indeed, this is most commonly what people choose to do. If you are married, you can also name your spouse as co-trustee, if you wish. Upon your incapacity or death, the living trust will appoint a successor trustee to continue to manage your assets without court involvement. Once assets are transferred to your beneficiaries, your living trust may allow them to control their own trust share as trustee. If you have concerns about your beneficiaries' ability to manage their own estate, you may consider appointing a third-party trustee to manage those assets on their behalf to ensure the maximum protection for your assets.
Although there are many advantages to creating a living trust, there are also disadvantages that you should be aware of before making a decision. One downside is that living trusts can be more limited in coverage than a Will would be. A living trust typically refers only to specifically identified property that has been transferred into the trust. For this reason, the terms of a living trust need to be as detailed as possible when describing those asset.
There is the possibility that you may need to create a durable power of attorney, along with the living trust. While you typically name yourself as the original trustee, in order to maintain control over the trust while you are alive your successor trustee may not have the authority to manage any additional property that was not included in the living trust. For this reason, you will likely need a power of attorney, as well.
For your estate plan to be well rounded, you should also consider having all of your health care documents prepared as a part of your estate plan. These would include your Durable Power of Attorney for Health Care Decisions (a.k.a. your Health Care Power of Attorney), Living Will, and HIPAA Authorization forms.
If you have questions regarding Reno living trusts or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
A trust is meant to work as a part of your estate plan as a means to avoid probate, minimize estate tax liability, and protect the inheritance for your beneficiaries. To put it in simple terms, a trust is basically a fiduciary agreement between the Trustor (the person or persons that create the trust) and a Trustee. The nature of a trust agreement is to authorize the Trustee to hold and manage the trust assets on behalf of the named beneficiaries. The trust's terms will provide the necessary instructions for managing and distributing the assets upon the incapacity or death of the Trustor. There are several different types of trusts, each with its own specific purpose. Nevertheless, there are three essential steps in creating any trust.
The trust agreement is the document that provides the Trustee with instructions as to how you want the property held in trust to be handled for your beneficiaries. It is the "who, what, and when" of the trust. The trust agreement is a contract, which is binding on the Trustee that you have chosen to manage the trust property. There is a reason this agreement is called a "trust" - it is an agreement based on confidence and reliance. Some of the basic provisions that should be included in any trust are:
Once the trust agreement has been created, the next step is to "fund" the trust. Funding is the process of transferring ownership of the assets that you intend to include in the trust. This involves changing the title on bank accounts to the name of the trust, re-titling vehicles in the name of the trust, recording a deed transferring real property to the trust, and/or naming the trust as the beneficiary of life insurance policies.
Under Nevada law, a trust only exists to the extent it owns assets - thus a trust agreement isn't worth the paper it's printed on unless the trust has been properly funded. This is the also the key aspect of avoiding probate upon your death; if a trust is not properly funded, a probate judge is required to transfer legal title of assets to your beneficiaries.
There are generally four ways in a trust is funded:
Assets such as bank accounts, non-retirement investment and brokerage accounts, stocks and bonds held in certificate form, vehicles, and real estate can be funded into a trust by simply changing the owner of the asset from the name of the Trustor to the name of the trust itself.
When the trust assets include personal property of the type that does not require a certificate of legal title (e.g., jewelry, artwork, antiques), the assets can be funded by simply assigning ownership to the trust. This would also include things like personal loans, royalties, copyrights and patents, partnership interests, and membership interests in limited liability companies.
For those assets that require a beneficiary, you can fund your trust by naming the trust as the beneficiary of those accounts or policies. Note, however, that it might be recommended to leave certain outside outside of the trust and to name your beneficiaries directly. This is most common the case with qualified retirement accounts in order to minimize the income tax of your beneficiaries and to allow for greater flexibility in managing those assets. You should consult with an attorney as to whether it is better to name the trust as the beneficiary.
If a Trustor does not transfer assets to a trust during their lifetime,a trust may be funded through probate. In this situation, a Testator transfers assets to a trust through their Last Will and Testament (also called a "Pour Over Will") by instructing a probate judge to transfer those assets into the trust. This is generally not recommended since it requires both a probate proceeding and trust administration.
After the trust is created and funded, then the final step is to settle the trust. This only occurs after the death of the Trustor. Once you pass away, your Trustee has an obligation to follow the terms of the trust that pertain to handling your property after your death. Since a properly drafted trust does not require any court involvement, the administration of a trust can be kept completely confidential.
Many companies and advisers are more than willing to "sell" you a trust as a means to promote some other goal. There can be many complex issues involved in creating a trust, which an estate planning attorney would be much better equipped at handling. Depending on the complexity of the terms of the trust agreement, the extent and nature of the assets, and the potential complexities of the family, an attorney can address these concerns and can assist with all three essential steps of creating a trust. Here are some special considerations that you should make when creating your trust:
All of these issues can be addressed as a part of your trust agreement. Your trust can be created for your benefit immediately and for your beneficiaries to receive after you pass away.
If you have questions regarding creating a trust, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Family heirlooms come in all shapes and sizes – from jewelry to art, fine china to family photos. Determining how to fairly divide these family heirlooms among your loved ones, after your death, can be very challenging. Unless you provide very specific instructions in your will or other estate planning documents, your executor will be left without any assistance. Avoiding family heirloom disputes can be accomplished with some planning.
Using Personal Property Memos
A personal property memo is a written statement, referred to in a last will and testament, used to leave tangible personal property not specifically disposed of in the will to the beneficiaries. Often this is used to keep certain items out of public knowledge in the probate process. A personal property memo can be revised or modified without having to execute your will again. However, the memo is not considered an amendment to the will.
How to Ensure Equitable Distribution of Heirlooms
Typically, when it comes to family heirlooms, there are a few items with greater value than others. This can make equitable distribution between family members more of a challenge. However, there are few strategies that can be useful. Of course, the most direct way is to make specific bequests to your heirs and discuss your decisions with them while you are still living. If your children are happy with your choices, then the likelihood of a dispute over these items after your death can be greatly decreased. But, what should be done if there are family heirlooms that are not specifically bequeathed, for whatever reason?
Alternative methods of distributing family heirlooms
Without any specific instructions, in many cases the appointed executor or trustee will determine who to divide the family heirlooms at his or her own discretion. Another method, which is useful in avoiding family disputes, is to allow the beneficiaries to divide the heirlooms amongst themselves by agreement. If there are any particular items that cannot be agreed upon, the executor or trustee can make the decision. Beneficiaries can also select the heirlooms by drawing lots in equal shares, with any inequities to be resolved by cash payments. Similarly, the executor can hold a silent auction.
Reaching the ultimate goal
Ultimately, when a loved one passes away, the surviving family should not spend time fighting over their personal property. Instead, it is a time to be supportive to one another and to celebrate the life well-spent. By planning ahead, with the assistance of an estate planning attorney, you can prevent many of the potential challenges inherent in distributing an estate, including family heirlooms, and avoid family squabbles of these important items.
If you have questions regarding family heirlooms, or any other legacy planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
If you have any children under the age of 18, it is important that you at least have a will, including provisions designating who you would want to be the guardian(s) of your children, should anything happen to you. Legal guardianship provisions for minor children are an important part of estate planning.
The basics of the last will and testament
A last will and testament is basically used to make dispositions of your property at the time of your death. Another purpose of a will is to appoint someone to manage your estate and to appoint someone as guardian of your minor children. Without a will, your property will be distributed to your family following the laws of intestate succession in your state. Your closest relatives usually receive equal shares depending on the law's pre-determined priority system.
Establishing legal guardianship of minors with your will
When one spouse or parent dies, the surviving spouse or parent will automatically be the child's legal guardian unless that person's parental rights have already been terminated. Should both parents die at the same time, or nearly the same time, a guardian named in a will would become responsible for the child's care absent a court's determination that it is not in the child's best interest to have legal guardianship awarded to the person you designated. The presumption under the law is that the person you designate as your desired guardian of your minor children is the most appropriate choice.
Be sure to consider both present and future circumstances
When you are considering who should be named as legal guardian for your children, take into consideration the age, health and location of the potential individuals. You must also recognize that these factors will probably change in the future. For this reason, it is a good idea to select both primary and secondary guardians, should there be anything preventing your primary guardians from serving in that role. These designations should be reviewed at least every 2 years.
Make sure the legal guardians will have everything they need
In order to properly care for your children after you are gone your guardians will need to have access to financial assets, as well. Generally, it is most advantageous to accomplish this through the creation of a revocable living trust that is funded while you are alive. Using this technique your assets avoid the probate process upon your death and the person you designate as the successor trustee under the trust has access to the financial assets and the authority to make distributions to or for the benefit of your minor children without the probate court's involvement. The successor trustee may be the person you designate as your guardian, or it could be someone else if you feel someone other than the guardian is best suited to manage the financial decision-making. This can also be established through a testamentary trust created under a will, but then the assets would need to go through probate and the court will retain ongoing jurisdiction over the trust. The costs associated with administering a testamentary trust are generally much higher than those involved with the administration of a living trust after your death.
What happens if you do not nominate a guardian?
If you do not include guardianship provisions in your will, or establish a trust, the appointment of a legal guardian will be made by the probate court. Although it is the judge's responsibility to ensure the best interests of the child are met, the decision may not coincide with your own wishes. That is why being proactive and creating an estate plan is the best solution for you and your family.
If you have questions regarding legal guardianship, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
It is a very common reaction, upon losing a loved one, to be at a loss as to what actions may need to be taken. Finding the will, locating insurance policies, creating an inventory of assets, can all be very overwhelming. Particularly, when there is a living trust between spouses, there are certain initial responsibilities that require attention. Handling a trust when your spouse dies does not have to be stressful.
Locate the trust and review its terms
Once you locate the trust document, read the terms to familiarize yourself with them. Even if you participated in drafting the trust, it has probably been several years since it was prepared. Although most trusts between spouses leave all assets to the surviving spouse, some trusts provide for distributions to other heirs, too. Before you take any action to implement the terms of the trust, make sure you understand all of the provisions. Many provisions are quite technical, so it is always a good idea to consult your estate planning attorney before you take any further steps. It is best not to accept death benefits such as life insurance, retirement accounts or pensions before consulting with your estate planning attorney as you may be missing or jeopardizing your benefits.
Transfer title to the surviving spouse or other beneficiaries
More often than not, living trusts between spouses name each spouse as a co-trustee. In other words, once the first spouse dies, the assets need to be transferred to the surviving spouse as the sole trustee. Until the transfer occurs, banks and other institutions may continue to require two signatures for any transactions. In order to transfer title, you will need the certified death certificate of your deceased spouse and an updated certificate of trust. In terms of real estate, your estate planning attorney will draft an affidavit for you to record with the county recorder's office. Besides keeping the records straight, you may also be avoiding identity fraud.
Determine the type of living trust you have
The type of trust you have can have an effect on the steps you must take. You can always ask your estate planning attorney to help you determine the type of trust you, if you are not sure. One of the most common types of trusts between spouses is known as an A/B trust. This type of trust is one that requires special action, and if those requirements are not met, it could cost your family thousands of dollars in estate taxes, which could have been avoided. Incurring these costs would also defeat the purpose of this type of trust.
How does an A/B trust work?
An A/B trust divides the spouses' assets into two shares when the first spouse dies. However, this division will not occur automatically. Instead, the assets must be physically transferred into two separate trusts. An inventory and appraisal of the assets is created and then the assets are allocated between the two trusts. Specific procedures must be established to keep track of the assets in each separate trust. An income tax return needs to be filed for the decedent’s trust each year after his or her death. If not, the IRS may not recognize that the trust exists and the entire estate could be subject to taxation after the death of the second spouse.
If you have questions regarding living trusts between spouses, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
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.
