When you start to look into the subject of estate planning you see a lot written about employing strategies that are intended to help you avoid probate. Unless you are in the field you may not know exactly what probate is and why you might want to avoid it, an explanation may be in order.
Probate is the legal process that the typical estate has to pass through, and it is supervised by the probate court. The court must determine the validity of the will, and it is the venue within which any claims against the estate are heard. So if you wanted to contest a will or attempt to collect a debt owed to you by the deceased, you would do so in probate court.
There are two primary reasons why some people would prefer to avoid the process of probate. One of them is that it is expensive and it can reduce the value of your estate by anywhere from 2-7% depending on the specifics of your situation. There is a fee that must be paid to the court itself, and the personal representative of the estate is going to have to retain a probate lawyer, who will of course charge a fee. In fact, the personal representative is entitled to a fee as well, and he or she may have to bring in an accountant to assist with tax matters and an appraiser of assets as well as an estate liquidation company. All of this adds up.
Aside from the expense involved in the probate process, it is also time consuming. Depending on the size and scope of your estate and whether or not any aspect of the will is contested, it can take anywhere from six months to multiple years for the process of probate to run its course.
As you can see, there are some significant pitfalls that go along with the probate process, and this is why so many people are interested in doing whatever may be possible to avoid it.
Due to provisions contained the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for 2010. However, the estate tax is scheduled to return to its pre-2001 existence on January 1, 2011. For this reason it really has not had much impact on long term estate planning unless you were somehow certain that you were going to pass away in 2010.
The thing about the return of the estate tax in 2011 that is quite relevant is the fact that the exclusion amount will return to $1 million. It was $3.5 million when we last had to contend with the levy in 2009, so many estates that were previously protected are now going to be vulnerable to the estate tax. If you are in this position, or if the value of your estate has always exceeded the exclusion amount, a useful strategy that can be implemented to gain tax efficiency is that of gift giving.
The idea is that if you give gifts to your heirs while you are still alive you reduce the value of your estate to the point where it comes in under the $1 million exclusion amount. Of course, there is a gift tax to discourage this, but there are significant exemptions. The lifetime gift tax exclusion is $1 million, so you can give gifts at any time and in any increments throughout your life free of the gift tax as long as the value of these gifts does not exceed $1 million.
However, in addition to this lifetime exclusion, each taxpayer is entitled to give as much as $13,000 annually to an unlimited number of recipients, and these gifts don't count against your lifetime gift tax exclusion. You may also make unlimited educational and medical gifts, paying the tuition or medical expenses of as many people as you would like to equaling any sum of money free of the gift tax.
Contact our office today to schedule a complimentary consultation on how tax free gifts may reduce your estate's exposure to future estate taxes.
The estate tax is repealed for 2010, but when it was last in effect back in 2009, the exclusion was $3.5 million. The exclusion stood at $2 million from 2006 through 2008. In 2011 the estate tax exclusion is going to be just $1 million, so a lot of estates that had been under the exclusion for years are now going to be exposed to the estate tax.
Home ownership has long been the foundational wealth building vehicle in the United Estates, and many of the people who are now going to be exposed to the estate tax would say that the worth of their homes is what is causing the overall value of their estates to exceed the $1 million estate tax exclusion. For these individuals, an instrument known as a qualified personal residence trust, or QPRT, may provide the solution.
To implement this estate planning strategy you place your home into a special trust trust and you name your children, or whoever it is that you want to leave the property to, as the beneficiaries. When you are drawing up the trust agreement you state a term during which you will continue to live in the house rent free. Upon transfer to the trust, the value of the home is removed from your estate and your children will assume ownership of the property after the term expires, at which time you would begin paying rent to live in the home.
The funding of the trust with the house is subject to the gift tax, but the IRS does not use the fair market value of the home at that time to calculate its taxable value. They reduce the value of the home by the interest that you are retaining while you are still living in it rent free after you placed it in the trust. Assuming the value of your home appreciates at a reasonable rate moving forward (say, 3%), this techniques can provide a fair amount of gift and estate tax planning leverage.
Feel free to contact our office if you would like a consultation on how a QPRT may benefit you.
In this modern era it is not uncommon for women to accumulate significant assets of their own during their lifetime, and when they pass away they’ll want to leave those assets to their loved ones. In addition to the fact that women are accumulating more of their own assets, on average a woman’s life expectancy will be longer than a man’s. When you combine this with the fact that women usually marry men that are older, there is a good chance they will inherit assets, too.
Some additional considerations when it comes to women include that they often need to plan carefully for retirement, as well as disability. Many women will have less money with which to retire than men. For this reason a carefully structured estate plan is a necessity so that the assets that are available will stretch as far as possible. A woman’s spouse may want to think about leaving the estate to his wife through a trust so that if the woman should become disabled later in life, a guardianship of the estate can be avoided.
Though the estate plan has always been something with which women should be concerned, today it is even more important with more and more women dying and leaving behind significant assets.
A trust or will can ensure that your assets pass to those you want to have them, but proper distribution of assets is far from the only reason to have an estate plan. You should also include a Living Will, Medical Power of Attorney and a HIPAA release in your estate plan. If you should ever be in a position where you cannot make your own medical decisions, these documents are vital.
Another important document is a Durable Property or Financial Power of Attorney. With this document you will name someone to handle your estate matters if you are ill or in a position to where you cannot take care of these matters on your own. An example of why such a Durable Power of Attorney could be important would include if you were hospitalized and unable to pay your bills or access your funds, the agent you have appointed in your Power of Attorney could take care of these things for you.
Men and women both need an estate plan, and due to the fact that laws can be so complex it is important that you consult an experienced estate planning attorney to help you setup a solid plan that will protect you, as well as your loved ones.
Have you ever wondered about the lives of your ancestors? Many of us have and it is not uncommon for people to spend considerable time and money trying to trace back their roots with varying degrees of success. When you are planning your estate you prepare to pass down things of monetary value to your loved ones, and there is no doubt that remembering your family in this way is very meaningful to them. But you and you alone have another valuable gift that you can choose to give to your loved ones and even the generations yet to come.
This gift is the story of your life, and passing it along can have immeasurable worth to your family in may different ways. Your early memories will paint a vivid picture of where the family came from culturally, ethically, and economically. When you recount stories about your grandmother and they are eventually read by your great-granddaughter, think about how fortifying that is to the fabric of your lineage. In addition, when you write about your personal experiences over the years they will invariably inform your family about the times within which you lived and your perspective on them as an objective participant. Historical accounts such as these are telling, authentic, and hard to come by.
These are great reasons to include your memoirs in your estate, but there is another that probably trumps those. You represent something different to each of your family members depending on your relationship to them. They may never have had a chance to see you as are you truly are in your own mind and your own heart. Your loved ones may find it impossible to imagine you as a child, or as a teenager. When you pass along your life story they get to see you in a more complete light, and opening in this way is as cathartic for you as it is meaningful to your loved ones. Now you have a way of passing on the values as well as the valuables.
The details of our lives are constantly evolving. So in a very real sense estate planning is an ongoing process rather than a single event. A plan that makes sense for you today may not be appropriate five, ten, or twenty years from now. There are many strategies that can be utilized in a well drafted estate plan depending on the specifics of your situation. When you prepare an estate plan you should do so recognizing that you should revisit it over time.
Life insurance is one such tool in an estate planners tool box that may have very usefull apllications depending on your circumstances. When you are still in your working years it is likely that your family depends on your income to maintain their standard of living. If you consider where they would be if that income was suddenly absent, you can immediately see the value of life insurance as an income replacement vehicle. Life insurance coverage should be reviewed periodically as your income increases and the needs of your family change.
Life insurance has some other very useful applications in addition to its value as an income replacement vehicle. It can be used to balance an estate in cases when certain real property or a business interest is left to one beneficiary. It is also commonly used as part of a business succession strategy where the business will take out insurance policies on owners in amounts equal to their respective ownership in the business. Upon the death of an owner insurance benefits are then used to buy out that partner's share and the funds are distributed to a designated beneficiary of the deceased owner. Life insurance may also be important to create liquidity at death to pay expenses so that the sale of assets is nor forced in order to pay expenses such as federal estate tax.
When you are busy living your life you may not think too much about your estate and how you would like your assets distributed. If it does cross your mind, you may recognize the fact that you do need to engage in estate planning at some point in time, but feel as though it is too soon to concern yourself with it. That is a mistake. As soon as you are a self supporting adult you should have a basic estate plan in place, and if you have children it is all the more important.
One misconception that many people have is that they don't need to engage in estate planning because they either don't have significant assets, or because they intend to simply leave everything to their spouse. In either instance you still need an estate plan because there is more to estate planning than the transference of assets. If you have dependent children, there is the matter of guardianship. If you and your spouse where to pass away together in an accident, who would take care of the children? You need to state your wishes in that regard in your will.
Incapacity planning through the execution of an advance health care directive is another matter that needs to be addressed that has nothing to do with the distribution of your assets. If you were to become unable to do so, who would you choose to make medical decisions on your behalf? What medical procedures would you like to allow, and which would you prefer to deny in the event of your incapacity? These are questions you can answer by executing a durable medical power of attorney and a living will.
The message here is that everyone, regardless of age or financial situation, needs to have an estate plan in place because even though you will be gone, your loved ones who remain need to know your wishes.
If you have retirement accounts, you understand the importance of having enough funds to cover your retirement expenses. So, what if you pass away with funds still in these accounts? When you die, your family or other loved ones may inherit your retirement accounts.
First, make a list of all of your retirement funds. Include your 401k, pension plan and IRAs. If you were self-employed, don’t forget to list your self-employed 401K, Keogh plan or other account. Next, include details for each account: statement locations, account numbers, financial institutions, account managers, and a description of benefits you are currently receiving.
You should also include information about what you have paid into social security. Some of your beneficiaries, such as children under eighteen or a spouse, may be able to collect on your social security record.
Retirement accounts allow you to name a beneficiary to receive those funds after you pass away. If you have a 401K or work pension plan, or you live a community property state, you may be required to designate your spouse unless he or she signs off on a different beneficiary.
By choosing a beneficiary, your account can pass to your heir outside of probate. Make sure to update account beneficiaries when they change.
It is not a good idea to name your Revocable Living Trust as the beneficiary of a retirement account, as it will limit the access your heirs have to those funds. Since your account can already avoid probate if you have designated a beneficiary, you don’t need a Living Trust for this.
If you prefer a trust to provide protection against a beneficiary's divorce or other creditors, or you have beneficiaries who are young or exhibit spendthrift behavior, you may wish to consider a Retirement Plan Trust. This is a trust specifically designed to meet the requirements of the tax laws to allow you to protect the death benefits of these accounts and to "stretch out" their tax benefits over the life expectancies of your beneficiaries. This allows for maximum protection of your retirement accounts after your death and provides for the greatest overall income tax deferral on these accounts.
If you or a loved one passes away without a valid Last Will and Testament, intestacy laws (sometimes called succession laws) will be used to settle your estate. These laws are unique to each state and determine who inherits property when no Will is available to make the decision.
If you do not create a Last Will and Testament or your Will is deemed inadmissible by a court of law, all property in your state of residence and any real property located in other states will be subject to a court supervised probate proceeding in each state. The court will apply the laws of intestacy relative to its state of jurisdiction.
Intestacy laws not only establish who inherits, they also decide how much each person receives. When laws from multiple states affect an estate, different heirs may inherit the property in each location. In some cases, heirs you would have liked to include may receive nothing or heirs you would not have liked to include will receive an inheritance.
Whether you decease with a Will or intestate probate proceedings will be required. The court will appoint a personal representative or executor or executrix to administer your estate. The personal representative will work with an attorney to determine what assets are subject to probate and who the beneficiaries or heirs will be in each state where a probate may be required. This can be a lengthy process. During this time, family members may not agree on decisions made by the personal representative, which can slow the process down further.
Probate is a costly procedure. Costs include court costs, attorney fees, personal representative fees, publication fees, appraisal fees, tax preparation fees and real estate agent fees to name a few.
If you live in Nevada, get in touch with Anderson, Dorn & Rader, Ltd. to learn about Nevada intestate succession. To avoid the concerns that are created by intestacy laws, it is recommended that you work with qualified estate planning attorneys to create a Last Will and Testament. To avoid the costs and inconveniences of probate altogether, ask a your attorney about the benefits of a trust.
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When you pass away, your estate must be settled. If you have an estate plan, such as a trust or will, then your assets will be distributed in accordance with your estate planning documents. It is called “intestate succession” when you don’t have a trust or will when you pass away. Your estate will be distributed according to the laws of the state of your residence and any other state where you might own real estate.
Now, before you start thinking this might not be so bad, consider this:
When you die intestate, you have no say over how your assets are distributed or who will oversee the process. With a will, you may designate an executor, someone you trust to ensure your estate is properly administered and that your assets are divided up the way you want. This process is overseen by a court and is known as a probate. A trust works in a similar way allowing you to designate a trustee to oversee the process except that a court is generally not involved maintaining the privacy of your beneficiaries.
But in the absence of a will or trust, the court will appoint a personal representative to oversee your estate. This person will be responsible for not only distributing your assets but also settling any outstanding debts and selling off assets if there’s not enough funds in the estate.
That means that some of your most treasured heirlooms – the baseball card collection, the antique grandfather clock or your great-grandmother’s sterling silver tea set may very well end up being sold in an auction rather than in the hands of your loved ones. And of course, you won’t be around to stop it.
To learn more about the dangers of Nevada intestate succession and to create your own estate plan to prevent this from happening, contact the estate planning attorneys at Anderson, Dorn & Rader, Ltd.
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When you pass away, your estate will either be solvent or insolvent. What does this mean? And more importantly, why do you care?
A solvent estate means that there are enough assets to cover your outstanding debts and still provide some form of an inheritance to your heirs.
If your estate is insolvent, you don’t have enough assets to cover your debts and your heirs end up with nothing. How can this be, you wonder?
Before your heirs can inherit any portion of your estate, your outstanding debts must be settled. There is a legal procedure for this of course, and any creditors wanting to file a claim against your estate must do so within a certain amount of time.
However, if a creditor does file a claim and the debt is valid, your executor or personal representative must use funds from the estate to pay the debt. If there aren’t enough liquid funds, the executor will sell off assets to create the cash needed to cover the debts.
The more debt you have when you die, the more assets that may need to be sold to pay off your debts. If your outstanding debts are greater than the value of the estate, there won’t be any assets left for your loved ones to inherit. To prevent this scenario, you need to start planning now.
Good estate planning attorneys can help you draft a plan that addresses your debts and earmarks funds and/or assets to cover them. This will ensure that your loved ones receive the heirlooms and inheritance you want them to have.
To learn more about debt planning, get in touch with the Reno estate planning lawyers at Anderson, Dorn & Rader, Ltd.
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Understanding how the gift tax works is an essential part of good estate planning. A gift tax attorney can help guide you through the gifting process but put simply, the gift tax is a federal tax owed when assets are “gifted” to another person. Gift taxes can be levied on personal property, real estate, and monetary gifts.
The person giving the gift is responsible for paying the tax, but the tax is waived completely if the gift is to a spouse or if it is for medical or education purposes. In addition, any gifts to a qualifying charity or a political organization are not taxed either.
Currently, you can gift up to $13,000 per year to a single individual without paying the gift tax and you can continue to do this until you reach the $1 million dollar lifetime maximum. That means you can gift up to $13,000 of your property to whomever you choose each year. Beyond that minimum, you must file a gift tax return up to the point that the $1 million dollar threshold is reached. After that, you will be liable for a very high tax.
These limits are "per person." So if you own property jointly with your spouse, you could theoretically give up to $26,000 per year to a single individual between the two of you.
This is a popular option for seniors looking to help their heirs avoid estate taxes and, if used properly, can become a great tool in your estate planning arsenal.
To learn more about the gift tax and to find out how to best plan your estate, you should consult with a qualified gift tax attorney. Anderson, Dorn & Rader in Reno, NV has experienced attorneys that you can trust.
Life is full of changes, including your own opinions and views. To ensure your estate plan reflects those changes, it needs to be reviewed and updated on a regular basis.
Some changes in life that might affect a change in your estate plan include:
In addition to life events, there are also changes in state laws, federal statutes and regulations and tax laws. These changes can require revisions to your documents. Fortunately, a good estate planning attorney will always know when this type of change is required.
So, how often should you update your plan?
If there’s an event in your life, a review with your estate planning attorney is probably a good idea. In addition to revisions resulting from life's changes, the clients at Anderson, Dorn & Rader, Ltd. know they can attend the annual client appreciation events. At the next event, we will be introducing a formal maintenance program. The estate planning lawyers think you'll find this to be well worth your time and expense. A regular review of your estate plan ensures that your always up-to-date.
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"Fiduciary" is a term that describes a relationship of trust between two parties. This position of trust gives the fiduciary the ability to act on behalf of the other party. Your attorney for example, would act in a fiduciary capacity while representing you in court. Likewise, the person or persons who manage your retirement plan and its many investments are also acting in a fiduciary capacity.
In the world of estate planning, there are a number of areas where you will need a fiduciary. Here's a few of the more common fiduciaries:
This person will look after your estate in accordance with the wishes you've expressed in your will. You can appoint an institution, bank, trust company or one or more individuals for this purpose.
If you set up a Living Trust or some other type of trust then you would appoint individuals and/or an institution as Trustees to handle the assets of the Trust in the event of your death or disability.
This type of fiduciary will take medical decisions on your behalf and in accordance to your wishes listed in your Advance Medical Directive. A Healthcare Agent has to be a person and not an institution.
This agent will manage assets that are titled specifically and individually in your name. You can appoint a bank, trust company, or individuals as this type of fiduciary.
This fiduciary will look after your minor children if you die or become incapacitated.
When you meet with your estate planning attorney, be prepared to discuss who would meet the appropriate criteria for each of these fiduciary positions. Your attorney can assist you in making those choices, but the final decision must always be you. If you don't already have an estate planning attorney, contact Anderson, Dorn & Rader, Ltd. in Reno, NV.
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Most people have heard of a will and many assume that it's the basic estate planning document. Others assume it's the only document necessary to settle an estate. The will is a necessary document. While passing on assets typically requires a probate will, your family will at least have a legal document establishing the manner in which assets will pass to named beneficiaries.
While a will can take care of many things, there are some assets not covered by this legal document. As a general rule, wills only cover assets that you own, such as your belongings and assets that are titled in your name. Wills do not govern other legally binding documents that have the ability to “stand on their own” without the need for a Will.
One example of this type of asset is life insurance. A life insurance policy is a legally binding document that names the beneficiary and the amount to be paid. Upon your death, the terms of this document will be executed without reference to a will, so it is considered separate and will not be subject to the probate process. The same is true of retirement plans.
There are also other assets that may have TOD (‘transfer on death’) and POD (‘paid on death’) attached to them, such as bank accounts and savings bonds. This means that upon death, these assets will be transferred or paid to your nominated beneficiaries, regardless of what your will might say.
Any assets jointly owned will also pass automatically to the other person upon your death. The will does not direct this. Now, even though the above assets are not covered by a will, it’s still advisable to have one.
A will can cover a variety of property, ensuring that your belongings and assets are distributed the way you want. It can also establish a trust for minor or disabled dependents, leave money to charity, and handle a number of other issues upon your death.
Knowing what is and what is not covered by your will is the first step in planning your estate. Because each person is different, it’s best to have a good estate planning attorney guiding you through the process. The estate planning lawyers at Anderson, Dorn & Rader, Ltd. can help!
While no one likes to think about a time when they're no longer around, we all secretly wonder the same things: Will my spouse have enough to live on when I'm not there? Will I be able to leave a legacy for my children? Will the family home stay in the family, or will it have to be sold to pay off creditors and taxes? This is why estate planning is important and necessary.
Estate planning is simply a way to protect your assets and your loved ones by creating legally valid documents that address a variety of concerns. Do you have a child that has special needs? Then a special needs trust might be the solution for you. This type of trust allows you to provide for a disabled or incapacitated dependent without affecting their eligibility for government-assistance programs. This trust can also be a component of a larger family trust, often called a Living Trust, that shields your assets from probate, minimizes taxes and even provides a way to give your heirs incentives for going to college, getting a job and similar personal growth accomplishments.
A good estate plan will also include a Powers of Attorney which are documents designed to designate someone to step in and speak on your behalf in financial and medical matters. In addition, you should have Advance Directives (a living will and health care power of attorney) that tells your healthcare providers how to handle life support and resuscitation matters.
In a nutshell, your estate plan is something you really can't do without and it's important that you have all of the key essentials. Hire an estate planning attorney! Anderson, Dorn & Rader, Ltd. has experienced estate planning lawyers that you can trust.
You've completed your estate plan and you feel like a major weight is off your shoulders. Keep in mind, however, that this is not a one-time process. Remember, changes in your life might affect your estate plan.
For example, any of the following instances in your life would require you to make changes in your estate plan: marriage or divorce, birth of children, adoption, receiving an inheritance, selling or buying a business or property, winning the lottery, retirement, or moving to a new state.
Any of these changes in your life will require you to reevaluate your estate planning choices. When possible, it is always a good idea to plan a meeting with your estate planning attorney before the changes actually take place. You may want to update your plan because you wish to change beneficiaries or change the share being given to a particular beneficiary. You might change your opinion about people or loved ones. Your family structure might undergo a change. All these instances would require a change in your estate plan.
Apart from changes in your own life, tax and estate planning laws also keep changing. There may be new strategies of which you wish to take advantage. In all probability, a change would affect your estate plan, requiring an update.
If you are a client of Anderson, Dorn & Rader, you know the best way to avoid missing a required update or revision in your estate plan is to attend our annual client appreciation event. At our next event you will be invited to participate in an annual maintenance program that will allow you to be aware of law changes and to amend your trust for no additional fee, in many cases. In any case you should schedule a regular estate plan update every three to five years. Like a fine automobile, your estate plan will function more smoothly when the time comes to use it if it has regular checkups and service. If it has been a few years, give us a call and let's review it together.
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Are you thinking about creating joint accounts to avoid the process of probate? These co-owned accounts are a common way to assure that your funds pass quickly to your loved ones without the need for probate. You should be aware, however, there are some pitfalls involved in joint accounts that you will need to consider.
A joint account can transfer to the surviving account holder(s) upon the death of another joint owner. For this to happen, the survivor(s) will need to provide a death certificate to the institution where the account is held.
Perhaps you wish for more than one person to inherit the money in a joint account. Unless their name is on the account, they will not, even if you have so stated in your will or trust. The only way for another person to have a share of this money, if they are not on the account, is for the surviving account holder(s) to gift it to them. Because the funds in the account are now owned by the survivor, making such a gift may cause your loved ones to pay a gift tax if the gift is over the annual exclusion amount.
Another issue arises when one of the account holders has not contributed money into the account. When this is the case, if the account owner dies and the money passes to non-contributors, these funds may be considered a gift and the gift tax may be applicable.
Joint accounts are especially troublesome when there are creditors of one of the account holders. If one of the account holders loses a lawsuit, the account may be frozen or garnished to cover the liability. For this reason many people should avoid holding joint accounts.
What if you wish to leave your account holdings to a child who is still a minor? If you put the child on your account, upon your death your account will be controlled by a court appointed guardian until the child reaches eighteen. Then at age eighteen the entire account is available to that young person.
It is usually a better option to have the accounts held in a revocable living trust. In the event of disability, the trustee will still have access to your account, but their creditors will not. If the beneficiary is still too young, it can remain in trust and made available for their education and other needs, but not turned over to them until an age when they are more likely to have matured.
Joint accounts can be one among many useful estate planning tools. They are simple to set up and administer, but they may have serious disadvantages. Be sure to visit a qualified estate planning attorney to become fully informed.
