Trusts can be drafted to be quite flexible. This article examines how Trust Protectors can add flexibility to your trust. This added flexibility can increase the usefulness of your trust.
Trust Protectors Add Flexibility
As estate planning attorneys, we sometimes hear from a client that wants us to provide damage control. The individual does not know where to turn, because their last surviving parent passed away without any estate planning documents in place. There are things that we can do in many cases to mitigate the damage, but this is a tough situation that could have been avoided.
They say that the only two certainties of life are death and taxes. With this in mind, everyone is prepared to file their tax returns on or before the 15th of April. For some unknown reason, many of the same people do not even consider the matter of estate planning. They are avoiding something that is absolutely inevitable, and their family members pay the price in the end.
Studies have been conducted periodically to gauge the estate planning preparedness of adults in the United States. LexisNexis probed into the situation, and they found that 55 percent of Americans do not have wills or any other estate planning documents in place. The figure is lower among older Americans, but still, many people in their 50s and 60s have been totally remiss.
If you pass away without an estate plan, the condition of intestacy will exist. The court will step in to name a personal representative to act as the estate administrator. Subsequently, the final debts will be paid out of the estate’s resources, and the remainder will be distributed in accordance with the intestate succession laws of the state of Nevada.
It is likely that you would not approve of the way your assets are distributed if you die intestate. For example, if you pass away with a surviving spouse and a parent still living, your spouse would not inherit everything. Your surviving spouse would inherit all community property, but just half of your separate property. Everything else would go to your parent.
As you can see, you must put a proper estate plan in place so that your true wishes will be carried out after you are gone. A last will is a possibility, but when you understand the facts, you will see that a revocable living trust is preferable in many ways.
If you use a last will as your vehicle of asset transfer, it would be admitted to probate. The court would be involved, and your loved ones that are named in the will would have to wait out a long, drawn out process. It typically takes about eight months to a year for a simple case to pass through probate, and no inheritances are distributed during this interim.
You probably do not want to see a lot of money go out the window that could have gone into the pockets of your loved one. If you feel this way, you may want to look for an alternative to a last will. Numerous expenses pile up during the probate process, including a court filing fee, the executor’s remuneration, attorney fees, appraisal charges, liquidation expenses including commissions, and incidentals.
These drawbacks are completely avoided if you utilize a revocable living trust as the centerpiece of your estate plan. You can act as the trustee and beneficiary while you are living, and you name successors to assume these roles after you pass away. In the trust declaration, you leave behind instructions to the trustee with regard to the way that you want the assets to be transferred after you are gone.
You have the ability to instruct the trustee to distribute assets incrementally; you are not required to allow for lump sum distributions. This is another advantage that a living trust provides over a last will. To prolong the viability of the trust, you could allow for a certain amount be distributed every month so the principle can continue to earn income and replenishes the trust.
When the time comes, the trustee would follow your instructions and handle all of the estate administration tasks. The process of probate would not be a factor.
If you do not have an estate plan in place, or if your existing estate plan has not been updated in a long time, you should definitely come into our office for a consultation. We will get to know you, gain an understanding of your situation, and make the appropriate recommendations. You can send us a message to request an appointment, and if you like to speak with us over the phone, our number is 775-823-9455.
Irrevocable trusts often can be modified. They can be modified under the Uniform Trust Code or a state law decanting. Read on to learn more about how a modification of a trust can help.
Modifying an Irrevocable Trust
There is a more complete form of estate planning called legacy planning that you may want to consider. Your legacy plan could contain some financial elements, but you can also include some things that money cannot buy that are very valuable as well. Let’s look at some of the components that could be included in your legacy plan.
We are going to primarily focus on possibilities that have nothing to do with money, but we should discuss the value of wealth preservation for high net worth individuals. There is a federal estate tax that can seriously impact your legacy, because it carries a 40 percent maximum rate.
The reason why this tax is only relevant for people that have accumulated a significant store of wealth is because there is an estate tax exclusion or credit that is relatively high. At the time of this writing late in 2019, the exclusion is $11.4 million. We are mentioning the date because there are typically adjustments at the beginning of every year to account for inflation.
There are a number of different ways to arrange for tax efficient asset transfers if your estate is going to be subject to taxation. The ideal course of action will depend upon the circumstances, but this being stated, there is a commonly utilized type of trust that can optimize your legacy.
This vehicle is the generation-skipping trust. As the name indicates, you would name your grandchildren as the beneficiaries rather than your children. Throughout the life of your children, they would be able to benefit from assets that are contained within the trust and receive distributions from the earnings.
After their passing, your grandchildren would inherit the assets. Yes, the direct transfers would be subject to the estate tax, but one round of taxation would be avoided.
The heirlooms that you have in your possession could simply be sold by your trustee or executor after your passing, and the proceeds could be distributed to the inheritors. This being stated, the objects that have been in your family for generations have value that exceeds mere dollars and cents.
You could inventory all of the heirlooms that you have acquired over the years and examine your inheritance list. Ultimately, you can get the right meaningful item or items into the hands of each respective family member. In fact, you can start doing this with some items while you are still alive.
When you are devising your legacy plan, you may want to consider the inclusion of your personal memoirs. It can be rewarding and cathartic to reminisce and share your memories in writing so that your loved ones can gain a better understanding of your formative experiences.
An explanation of the family history that you remember could be contained within your memoirs, or you could choose to have a document that is strictly devoted to your lineage. Many people start to get interested in their family tree at some point in time, and you can be of great assistance if you share what you know about your family’s roots.
There is another document that has nothing to do with money that can be a powerful addition to your legacy plan. Ethical wills stem from the Judaic tradition, and they go back to biblical times. With an ethical will, you record your moral and spiritual values so that your loved ones will be able to gain access to valuable guidance during challenging times.
We have shared a little bit of food for thought here, and there are some other legacy planning possibilities that we will look at in a future post. This blog has a lot of information, and we go the extra mile to provide help in another way.
Our firm offers free Webinars, and there are a number of sessions being held in the near future. To get all the details, visit our Webinar schedule page.
Estate planning attorneys always emphasize the fact that there is no one-size-fits-all estate plan. There are many different approaches that can be taken, and the optimal course of action will depend upon the circumstances. This being stated, there is a basic framework to follow when you are entering into the process, and we will take a look at basic estate planning steps here.
It sounds like an overstatement of the obvious, but the first step in estate planning is to figure out what is in your estate. In other words, you should inventory the assets that you expect to be able to pass along to your loved ones. When you are engaged in this exercise, the dynamic can be much more complex than the simple matter of addition and division of numbers.
While it is possible to simply instruct the estate administrator to liquidate all assets to reduce everything down to cash, certain property can have value that exceeds mere dollars and cents. Many of our clients own beautiful vacation homes in a fabulous location, like Lake Tahoe, that they would lament if the property had to be sold to settle a family dispute or pay taxes. Furthermore, requiring that property be sold can be problematic if you have property that is difficult to value or sell, such as timeshares, closely held business interests, or unique and rare collectibles. Some family members may cherish certain items in your estate, while others have no opinion whatsoever. You could spend some time deciding which person on your inheritance list is the right recipient for each respective piece of property that has value on multiple levels.
Another thing to keep in mind is potential tax exposure. The federal estate tax carries a $11.4 million exclusion during the current calendar year. This is the amount that can be transferred before the estate tax would kick in. Although estate taxes are not an issue for the vast majority of our clients, there may be income tax applicable to the receipt of a retirement account, such as a 401(k) or Traditional IRA.
Once you gain an understanding of what you have pass along, you must determine who will enjoy the fruits of your labor. This speaks for itself, but there is another facet that is often overlooked. It is important to consider the life situation of everyone that will be receiving bequests from you. There are different asset transfer methods, and the right choice for one person would not be appropriate for the next.
For example, if you have someone with special needs that is going to be receiving an inheritance, you have to consider government benefit eligibility. Most people with disabilities rely on Medicaid for health care insurance, and many people with special needs receive Supplemental Security Income. These are need-based programs, so a sudden windfall could result in a loss of eligibility. To account for this, you could establish a supplemental needs trust for the benefit of a loved one. The assets could be used to enhance the beneficiary’s quality of life, but benefit eligibility would remain intact.
There is also the matter of spendthrift heirs. If you have someone in the family that is not good with money, you can establish a trust that includes spendthrift protections. The beneficiary would not have direct access to the assets in the trust, and you could instruct the trustee to provide measured distributions over an extended period of time.
Many people are concerned that an inheritance left to a married child would be comingled and subject to division in a potential divorce. You may consider leaving assets in a beneficiary controlled trust to ensure the inheritance maintains its character as separate property.
These are couple of examples, but there are other scenarios that can be addressed through the implementation of recipient-specific transfer methods.
Once you've thought about to whom you will leave your assets, you should consider who will be responsible for administering your estate. When anyone dies, there are certain things that must be done to wrap-up your affairs. Final tax returns must be filed; certain affidavits may be needed to record the death of a property owner; notices should be sent to creditors and beneficiaries. In your estate plan, you have the opportunity to name a person, or people, whom you think are trustworthy enough to deal with all of these matters upon your death and distribute the estate according to your wishes.
But it's not enough to think about financial matters, it's extremely important you consider who will be responsible for your personal or health care needs. Ensuring your Health Care Directives adequately describe your end-of-life wishes, and more importantly appoint the right people to follow through on those matters, is also of paramount importance.
After you have completed these initial steps on your own, you have the necessary information that you need to move on to your next steps. Since there are so many different ways to proceed, you should certainly have a meaningful conversation with an estate planning attorney at this point.
Your attorney will gain an understanding of the circumstances and explain some nuances that you may not have had considered, like asset protection and incapacity planning. When you fully understand your options, you can go forward and execute the estate plan is optimal for you and your family.
If you are ready to do just that, our doors are wide open. You can request a consultation appointment if you send us a message through our contact page, and you can get in touch by phone at 775-823-9455.
States are all over the board on their income taxation. An individual in a state with a high state tax rate could use a nongrantor trust to hold some of their income-producing assets and thereby avoid state income taxation on the income from those assets.
Briefly, trusts may be taxed as grantor trusts or nongrantor trusts. A grantor trust is taxed directly to the grantor, so this type of trust doesn’t help if you’re trying to avoid your state of residence’s income tax. However, a nongrantor trust is a separate taxpayer. As such, a nongrantor trust could be a resident of a different state than its grantor.
Let’s look at a quick example: Mary sets up an irrevocable nongrantor trust in Nevada, a state without any state income tax. She avoids any triggers for the trust being a resident in any other state. The trust has no income that would be deemed sourced from another state. Thus, the income of the trust would face no state income taxation.
However, states have complicated rules on when they will try to tax a nongrantor trust as a resident. States tax based on where the trust is administered / trustee is resident, where the beneficiary is resident, where the grantor was resident when the trust became irrevocable, etc.
Each state has a different set of rules. Here’s a link to a helpful chart of those rules for nongrantor trusts.
Just because a trust is administered in a state without an income tax does not mean that other states might not try to claim the trust as a resident of their states. Let’s look again at the example of Mary’s trust set up in Nevada. If Mary were a resident of Maine when she set up the trust, Maine would consider the trust a resident of Maine. If the beneficiaries of the trust were residents of California, California would consider the trust a resident of California. When a state considers a nongrantor trust to be a resident, it will tax it on all its income, not just the income derived from sources within that state.
Kaestner v. North Carolina examines the constitutionality of a state taxing a trust as a resident when the trust is not administered in the state and the trustee doesn’t live in the state. The North Carolina Supreme Court held it was unconstitutional for the state to tax the trust under those circumstances because there weren’t sufficient contacts with the state. Here’s a link to that case. The U.S. Supreme Court decided to hear the appeal in the case, so we could see new developments in this area before too long.
If you set up an irrevocable nongrantor trust in a state without a state income tax and you scrupulously avoid triggers which would consider the trust to be a resident of any other state, you can avoid state income taxation on the assets you put in the trust. Kaestner could simplify this process.
Often, the smallest things have the most sentimental value. Your grandmother’s silverware or your grandfather’s railroad watch could connect you to them in a special way. Your mother’s ring or your father’s Boyscout bugle could hold a special place in your heart. Your sports memorabilia could connect you to one of your children in a unique way. You may want those items to go to particular beneficiaries who will cherish their sentimental value as you have. There’s an easy and flexible way to do that.
When your will or trust is drafted, it can include a disposition of “tangible personal property” through a list external to the document. Tangible personal property includes things you can touch, like the items listed in the paragraph above. It does not include real estate or intangible assets like bank accounts, cash, etc.
In most (if not all) states, if your will or trust references a tangible personal property list external to the will or trust, the list is valid to transfer the items detailed on that list to the beneficiary identified. The list would reference your will or trust and would provide for the disposition of the specific item of tangible personal property with a description of the item and to whom it should go. The list must be signed and dated every time you update it.
The unique thing about the tangible personal property list is that it does not need to be executed with the formalities of a will or trust. For example, the list does not need to be witnessed or notarized, even though the document referencing the list needed additional formalities. If you change your mind, you can simply update the list and sign it and date it again.
The list is an easy and flexible way to earmark items to your desired beneficiary. The flexibility can be important. Let’s say that you have an athletic daughter and you were leaving all your sports memorabilia to her. Then, your grandson earns an award in a swimming event. You may want to decide to give your diving trophy to your grandson since it’s a way for him to remember the special bond you share. You can simply update the list with the new disposition and sign it and date it.
A lot of people look at estate planning as an exercise in slicing a pie into pieces of different sizes. Of course, you have to determine exactly what you would like to leave to each person on your inheritance list. However, there is another dimension that many people do not think about.
You should also consider the life situation of the people that will be receiving inheritances from you when you are gone. In this blog post, we will look at two scenarios that can be addressed in certain effective ways.
Special Needs Planning
If you are going to be leaving an inheritance to someone with special needs, you must consider the impact it will have on government benefit eligibility. Most people with disabilities rely on Medicaid as a source of health insurance. This program is only available to people with limited financial resources.
Clearly, a significant percentage of individuals with special needs cannot work and earn income. There is a program called Supplemental Security Income that provides financial help for qualified people, and once again, this is a need-based program.
Once eligibility is gained, it is not necessarily permanent. A change in financial status can trigger a loss of benefits. For this reason, you have to take the right steps to provide for a loved one with a disability in the ideal manner.
Under these circumstances, you could establish a supplemental needs trust. To implement this strategy, you fund the trust, and you name a trustee to act as the trust administrator. The person with a disability would be the beneficiary.
Medicaid and SSI do not satisfy all the needs of recipients, so assets in a supplemental needs trust could be used to provide goods and services that are not covered by these programs. As long as the trustee acts within the guidelines, benefit eligibility would not be negatively impacted.
Spendthrift Inheritors
Not everyone is good at managing money, and if you are going to be leaving an inheritance to a beneficiary with spendthrift tendencies, you should take certain precautions. One way to address this would be to make this individual the beneficiary of a revocable living trust.
To go this route, you fund the trust, and you can act as the trustee and the beneficiary while you are living, so there is no loss of control. You name a successor trustee in the trust declaration along with your spendthrift heir as the successor beneficiary.
After you die, the trust becomes irrevocable, and the beneficiary would not be able to change the terms or directly access the funds that are in the trust. The trustee would distribute assets to the beneficiary in accordance with your wishes.
So, let’s say that you have income producing assets in the trust. To provide a very simple hypothetical example, the assets earn $60,000 a year. You could instruct the trustee to distribute $5000 to the beneficiary each month, and principal would remain intact to generate income over the long haul.
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We have looked at just two of many different scenarios that can be addressed through custom crafted estate planning strategies. If you would like to access more information on the subject, you are in luck.
Our Reno living trust lawyers go the extra mile to provide educational opportunities, and to this end, they are holding a number of Webinars over the coming weeks. They are being offered on a complimentary basis, but we do ask that you register in advance for the session that fits into your schedule.
You can get all the details and obtain registration information if you take a moment to visit our Webinar page.
Q. What is Legacy Wealth Planning?
A. Legacy Wealth Planning is the creation of a definitive plan for managing your total wealth while you’re alive, distributing your estate how you choose after your death, and a clear plan to pass on your legacy. Your estate includes all assets of any value that you own. This includes non-financial assets as well as financial assets, including real property, business interests, investments, insurance proceeds, retirement accounts and personal property. Your legacy incorporates important decisions ensuring your family core values, responsible behaviors and community involvement are passed on to future generations. Keep in mind, your legacy also includes personal effects, such as family heirlooms, stories, and accumulated wisdom and life lessons of your family.
Q. What is “traditional” estate planning?
A. Traditional estate planning (Wills and Trusts) focuses on the accumulation, the preservation, and the distribution of only your financial assets and worldly possessions. It protects material wealth from probate and minimizes taxes.
Q: Why do I need an estate plan?
A: Most of us spend a considerable amount of time and energy in our lives accumulating wealth. With this, there comes a time to preserve wealth both for enjoyment and future generations. A solid, effective estate plan ensures that your hard-earned wealth will remain intact as it passes to your beneficiaries, instead of being siphoned off to government processes and bureaucrats.
Q. What is the difference between “traditional” estate planning and Legacy Wealth Planning?
A. Traditional estate planning is focused on financial assets and is concerned with avoiding probate and estate taxes. On the other hand, Legacy Wealth Planning is concerned with financial and non-financial assets of a family and creating a family’s personal legacy plan. Legacy Wealth Planning addresses how to capture and transfer family traditions and values, as well as protecting financial wealth for current and future generations.
Q: If I don’t create an estate plan, won’t the government provide one for me?
A: YES. But your family may not like it. The government’s estate plan is called “Intestate Probate” and guarantees government interference in the disposition of your estate. Documents must be filed and approval must be received from a court to pay your bills, pay your spouse an allowance, and account for your property–and it all takes place in the public’s view. If you fail to plan your estate, you lose the opportunity to protect your family from an impersonal, complex governmental process that can become a nightmare. Then there is the matter of the federal government’s death taxes. There is much you can do in planning your estate that will reduce and even eliminate death taxes, but you don’t suppose the government’s estate plan is designed to save your estate from taxes, do you? While some estate planners favor Wills and others prefer a Family Wealth Trust as the Estate Plan of Choice, all estate planners agree that dying without an estate plan should be avoided at all costs.
Q. What is a Family Wealth Trust?
A. A Family Wealth Trust is the main component of a Legacy Wealth Plan and covers important issues other than avoiding probate.
Q: What’s the difference between having a Will and a Living Trust?
A: A Will is a legal document that describes how your assets should be distributed in the event of death. The actual distribution, however, is controlled by a legal process called probate, which is Latin for “prove the Will.” Upon your death, the Will becomes a public document available for inspection by all comers. And, once your Will enters the probate process, it’s no longer controlled by your family, but by the court and probate attorneys. Probate can be cumbersome, time-consuming, expensive, and emotionally traumatic during a family’s time of grief and vulnerability. Con artists and others with less-than-pure financial motives have been known to use their knowledge about the contents of a will to prey on survivors. A Living Trust avoids probate because your property is owned by the trust, so technically there’s nothing for the probate courts to administer. Whomever you name as your “successor trustee” gains control of your assets and distributes them exactly according to your instructions. There is one other crucial difference: A Will doesn’t take effect until your death, and is therefore no help to you during lifetime planning, an increasingly important consideration since Americans are now living longer. A Family Wealth Trust can help you preserve and increase your estate while you’re alive, and offers protection should you become mentally disabled.
Q. How does a Family Wealth Trust differ from a Revocable Living Trust?
A. Most Revocable Living Trusts are primarily concerned with avoiding probate and estate taxes. A Family Wealth Trust offers lifetime benefits, and protects wealth for current and future generations.
Q: The possibility of a disabling injury or illness scares me. What would happen if I were mentally disabled and had no estate plan or just a Will?
A: Unfortunately, you would be subject to “living probate,” also known as a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. These “court-appointed agents” must file a strict accounting of your finances with the court. The process is often expensive, time-consuming and humiliating.
Q. Why should I have a Family Wealth Trust?
A: Not only does a Family Wealth Trust provide for the disposition of your property (like a Will), but it also offers the following benefits:
Q: If I set up a Family Wealth Trust, can I be my own trustee?
A: YES. In fact, most people who create a Family Wealth Trust act as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your hand-picked successor trustee assumes control over your affairs, not the court’s appointee.
Q: Will a Family Wealth Trust avoid income taxes?
A: NO. The purpose of creating a Family Wealth Trust is to avoid living probate, death probate, and reduce or even eliminate federal estate taxes. It’s not a vehicle for reducing income taxes. In fact, if you’re the trustee of your Family Wealth Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created.
Q: Can I transfer real estate into a Family Wealth Trust?
A: YES. In fact, all real estate should be transferred into your Family Wealth Trust. Otherwise, upon your death, depending on how you hold the title, there will be a death probate in every state in which you hold real property. When your real property is owned by your Family Wealth Trust, there is no probate anywhere.
Q: Is the Family Wealth Trust some kind of loophole the government will eventually close down?
A: NO. The Family Wealth Trust has been authorized by the law for centuries. The government really has no interest in making you or your family suffer a probate that will only further clog up the legal system. A Family Wealth Trust avoids probate so that your estate is settled exactly according to your wishes.
Q: How do I know if I have a “bare bones” living trust?
A: Very few estate planning attorneys offer Legacy Wealth Planning. A “bare bones” living trust covers probate avoidance and usually ignores important issues to protect you, your spouse (if married) and your children. Bring your existing trust to your free one-hour consultation and we can review it for you.
Q: If I have a “bare bones” living trust should I go back to the attorney who drafted the trust?
A: You can certainly go back to the attorney you worked with before, however, few attorneys offer Legacy Wealth Planning. If you want Legacy Wealth Planning, contact a member of the American Academy of Estate Planning Attorneys.
Q: Is a Family Wealth Trust only for the rich?
A: No. A Family Wealth Trust can help anyone who wants to protect his or her family from unnecessary probate fees, attorney’s fees, court costs and federal estate taxes. In fact, the Family Wealth Trust offers substantial protection for your family, regardless of your total estate. In addition to savings at death, especially if your estate is over $100,000, the Family Wealth Trust also provides savings and peace of mind during life, because it avoids the expense and emotional nightmare of an incapacity or “living probate” proceeding. Also, a Family Wealth Trust protects spouses in the event of remarriage after one spouse dies and affords greater protection for children.
Q: Can any attorney create a Family Wealth Trust?
A: YES, but you would be better off choosing an attorney whose practice is focused on estate planning. Members of the American Academy of Estate Planning Attorneys receive continuing legal education on the latest changes in any law affecting estate planning, allowing them to provide you with the highest quality estate planning service anywhere.
Q: What steps can I take to preserve my legacy?
A: The best approach is to meet with an attorney who understands the Legacy Wealth Planning process. This will ensure you address the financial and non-financial assets of your family. The right attorney will help you, first, set up a Family Wealth Trust to preserve your financial legacy. Then, you will be educated about completing the My Legacy workbook, to share in your own words about your life story, family history, memories, and life lessons. And finally, writing a Legacy Planning Letter to distribute your cherished possessions with sentimental value.
We serve clients in the Reno-Tahoe area, and there are many very successful people here. It is a good feeling to reach your financial goals and go forward with the knowledge that you will be able to leave a legacy for your loved ones to draw from after you are gone. This being stated, there is a looming threat that can have a negative impact on your family.
There is a federal estate tax in the United States, and the maximum rate is a whopping 40 percent. Some states in the union impose state-level estate taxes, but fortunately, here in Nevada there is no state estate tax. However, if you own valuable property in a state that does have its own death tax, it could be a factor for you.
The majority of Americans do not have to worry about the federal estate tax, because there is an exclusion that is relatively high. This is the amount that you can transfer before the estate tax would be applied. In 2011, a $5 million exclusion was established, and this figure was retained with adjustments to account for inflation through 2017.
During that year, new tax legislation was enacted, and the estate tax was impacted significantly. The exclusion went up to $11.18 million for 2018, and this is the benchmark under this law. Now that the new year is upon us, we have a slightly higher figure, because an inflation adjustment has been added. The federal estate tax exclusion in 2019 is $11.4 million.
It is important to note the fact that this is a per person exclusion, so a married couple would have a total exclusion of $22.8 million using the figure that is in place this year. Plus, the estate tax exclusion is portable between spouses. This was not the case prior to 2011. In this context, the term “portability” refers to the ability of a surviving spouse to use the exclusion that was allotted to his or her deceased spouse.
2019 Gift Tax Exclusion
When you hear about the existence of the federal estate tax, you would logically consider lifetime gift giving as a way to get around it. This used to be possible shortly after the enactment of the tax in 2016, but the gift tax was put into place in 1924 to close the loophole. It was repealed in 1926, but it came back for good in 1932.
The gift tax the estate tax are unified under the tax code. This means that the $11.4 million exclusion that we have in 2019 is a unified exclusion that encompasses lifetime gifts along with the value of your estate. For this reason, large gift giving is not an effective estate tax efficiency strategy.
In addition to the unified gift and estate tax exclusion, there is a separate annual gift tax exclusion. This allows you to give a certain amount to any number of individuals every year free of the estate tax. It is sometimes adjusted to account for inflation as well, but there will be no changes in 2019. The annual gift tax exclusion is $15,000 per person, so a married couple would have a total annual exclusion of $30,000.
If you are exposed to the estate tax, the utilization of this annual exclusion could be useful to you. To provide an example, let’s say that you have five married children. You could give $30,000 to each husband and each wife every year. This would allow you to divest yourself of $300,000 annually tax-free.
If you are on this website, you must be looking for sound information about estate planning and elder law topics. You are definitely in the right place, because we have many resources here, and you are welcome to explore the site and take advantage of the written materials.
In addition to this, we go the extra mile to provide learning opportunities to members of our community. Our estate planning attorneys hold Webinars on an ongoing basis, and you can learn a lot if you attend one of these sessions. There is no charge at all, but we do ask that you register in advance so that we can save your seat. To get all the details, visit our estate planning Webinar page.
When we consult with clients, we often hear many of the same questions. With this in mind, we present a hypothetical question-and-answer session with a Reno estate planning lawyer in this post.
To die without an estate plan is called dying intestate. Under the rules of intestacy, the probate court would supervise the administration of the estate. Creditors would be given an opportunity to come forward seeking satisfaction, an estate is inventories and valued, disputes are resolved, and ultimately the assets would be distributed under intestate succession laws.
That’s the good news, but the bad news is that it is very possible that your assets would not be distributed in accordance with your wishes. For example, if you are happily married, you have no children, and your parents are still living, you would probably want your spouse to inherit everything. In Nevada, under intestate succession rules, your spouse would inherit half of your separate property, and your parents would inherit the rest. Intestacy law does not appropriately deal with most issues that arise with separate property. Further, intestacy law does not account for many modern day families, such as blended families with step-children, non-traditionally married couples, and a myriad others.
There is no reason to surrender control of your estate to the judicial process when it is so easy to engage the services of a licensed Reno estate planning lawyer.
It is true that there are some types of trusts that are used by high net worth individuals that are exposed to the federal estate tax. However, there are other types of trust that can be quite useful for people of relatively ordinary means.
Far and above the most common is the revocable living trust. If you use a last will, it would be admitted to probate after you die. The court would provide supervision, and the executor would handle the estate administration tasks. But this process will take eight or nine months to a year to run its course, and inheritors receive nothing during this interim. There are also innumerable expenses that pile up during probate, often at a cost between 4% up to 8% of the estate value.
If you use a living trust instead, the trustee that you name in the trust agreement would be empowered to distribute assets to the beneficiaries outside of probate. This is one advantage, but there are a number of others, including the option to protect an inheritance through a trust against lawsuits, creditors, divorcing spouses, or other predators.
A living trust is beneficial whenever a client has a goal to avoid probate and make the process easy for their loved ones. It's not only for wealthy people, but for people who want to better take care of their life planning.
Since the Internal Revenue Service requires you to report all sources of income, you may assume that inheritances that you leave to your loved ones would be taxed. In actuality, inheritances are not subject to taxation, with the exception of inheriting retirement accounts (such as traditional IRA or 401(k) accounts).
There is, however, a federal estate tax that might apply to your estate before everything is distributed to the beneficiaries as an inheritance. But, the vast majority of people do not have to be concerned about the estate tax because there is a VERY large exclusion. Only the portion of your estate that exceeds the amount of this exclusion would be taxed. At the time of this writing in 2019, the exclusion stands at $11.4 million.
These are a few short questions that we frequently hear from our clients, and you can ask your own if you attend one of our upcoming Webinars. The information sessions that we hold provide a treasure trove of useful information, so we strongly encourage you to attend the Webinar that fits into your schedule. To get all the details, visit our Webinar page and follow the simple instructions to register for the date that works for you. Starting in 2019, we are offering Webinars semi-monthly in the evening to accommodate those people that cannot attend during the middle of the day.
Most people will be best served by the creation of a revocable living trust as a primary estate planning vehicle. This being stated, there are advanced techniques that can be utilized to address more complicated scenarios. In this blog post, we will take a look at three of them, and we will examine others in future articles.
Many people with disabilities rely on Medicaid, which is a government health insurance program that is available to people with very limited financial resources. Clearly, people with special needs are going to accumulate significant health care expenses, so this coverage is a lifeline.
Another need-based benefit that a lot of individuals with special needs rely upon is Supplemental Security Income. The name is self-explanatory: this program provides a modest but steady stream of income to people that can qualify.
If someone that was enrolled in these programs was to receive an inheritance, benefit eligibility could be lost. However, this does not mean that you cannot include a loved one with special needs in your estate plan. There is a legal device called a supplemental needs trust that can be utilized to make your family member more comfortable.
You fund the trust, and you name a trustee to handle the administration tasks. It can be someone that you know personally, but many people use a fiduciary like a bank or a trust company. This can be a good idea for a number of different reasons, not the least of which is the fact that the fiduciary would fully understand the legal intricacies.
The government benefits do not necessarily meet all of the needs of the recipient. These are called supplemental needs, and the trustee can use assets in the trust to satisfy these needs. There are certain things that can and cannot be paid for, and this is why it is wise to empower a trustee that has a thorough understanding of the parameters.
Under ordinary circumstances, the Medicaid program is required to seek reimbursement from the estates of recipients after they pass away. When you establish a trust for the benefit of someone else with your own money, it is a third-party special needs trust. The Medicaid program would not be able to attach assets that are remaining in the trust after the passing of the beneficiary. In the trust declaration, you name a successor beneficiary, and this individual would assume ownership of the remainder.
To explain this second scenario, we will utilize a simple example. Let’s say that you run a business with a single partner named Bill. You both have equal shares in the business. If Bill becomes incapacitated, who will vote Bill’s interest in the business? If Bill dies before you do, what happens to his share in the business?
This question can be answered through the utilization of an estate planning device called a buy-sell agreement. For purposes of incapacity, you can restrict the class of persons who can vote Bill’s interest in the business. For death planning, you and Bill get together to determine the value of a share in the business. Next, each of you would take out insurance policies on one another equal with payouts that are equal to this amount. After one partner dies, the other party would receive the proceeds from the insurance policy. The money would be used to buy the share that was owned by the deceased partner from his or her family. This is commonly referred to as cross-purchase buy-sell arrangement.
It is possible to positively influence the behavior of someone on your inheritance list through the creation of an incentive trust. To provide another example, let’s say that you have a grandson that has struggled with a substance abuse problem for years. He has had success for extended periods of time, but there have been relapses on a number of different occasions.
You are concerned that he may utilize his inheritance to indulge in his excesses. Under these circumstances, you could convey assets into an incentive trust. The trustee would follow instructions with regard to the conditions that must be met before income or principal will be distributed to the beneficiary. Using this example, you could allow for distributions so long as the beneficiary remains clean.
These are a handful of the different situations that can be interested through the utilization of advanced estate planning techniques, but there are many others.
If you would like to build on your knowledge, you have some great opportunities coming up in the near future. Our estate planning attorneys are very passionate about education, and they go the extra mile to share information with community members through our free Webinars.
There are some dates on the schedule right now, and there will be more added on an ongoing basis. You can really learn a lot if you attend one of these sessions, so we urge you to attend the one that fits into your schedule. To see the dates and obtain registration information, visit our Webinar schedule page and click on the session that interests you.
Often, clients want to continue to control their beneficiaries after death, just as they’ve done during their lifetime. They want to etch in stone the exact circumstances under which distributions should be made to the beneficiaries. Sometimes they think the beneficiary will have to go to the tombstone like a confessional or ATM.
The problem is the client doesn’t know what may happen in the intervening years. Here are just a few of the several things that regularly change after a plan has been drafted:
Rather than trying to precisely anticipate every possible future scenario, which is a fool’s errand, it’s better to put that in the hands of the trustee. The trustee can be given discretion to withhold distributions based on pre-set factors such as:
That’s not to say you shouldn’t set forth your general wishes. But, most of the specifics should be left for the trustee to decide.
For example, a client in San Francisco in 1990 might have decided to provide for a beneficiary’s rent and set forth a specific dollar amount of $1,000 to cover it, expecting that would be ample. It would be much better to give the trustee discretion to pay for the beneficiary’s support, in the trustee’s discretion. Imagine how the average rents have changed over two decades in San Francisco, where the rent of even a studio apartment is now over $2400. If a specific dollar amount were used, even inflation-adjusted, it would not allow the flexibility to respond to the changing world. Giving the trustee discretion achieves the desired result: to pay for the beneficiary’s rent.
The trustee selected by the client is in a much better position to judge when a distribution should be made, for rent in the prior example. The first five letters say exactly what you should do with them: t-r-u-s-t them. Trust that the trustee will make the right decision. If you don’t trust that person, put someone in that role whom you do trust.
The client can only gaze into a crystal ball and wonder what might happen in the world and in the beneficiary’s life. Trustees have the benefit of 20/20 hindsight. They know what has happened since the client drafted their estate plan and died. They know the beneficiary’s circumstances and they know the current state of the world. They are in a far better position to make a decision.
If you would like to learn more about wills and trusts or other estate planning matters, attend one of our upcoming Webinars. They are free to attend, and you can get all the details if you visit our Webinar information page. Or you can call us to arrange a free consultation to discuss living trusts, or other estate planning matters, at (775) 823-9455.
When you are caught up in your day-to-day activities it can be difficult to take a step back and look at the bigger picture. This is certainly true for a small business owner because it takes so much time and energy to run your business successfully.
Retirement and estate planning involve some complexities for everyone, but when you are a small business owner you have added issues to consider.
When you work for a company you can simply put in your notice and accept your plaque as you walk out the door. On the other hand, when you are the owner of the business you must consider business succession strategies.
The sooner you determine how you want to exit, the better. Your exit strategy might affect the decisions you make every day. For example, if your intention is to pass the business along to a family member, you may be inclined to invest money into the infrastructure. If you are going to close the business entirely or sell it, you may focus on maximizing current revenue above all else.
Each situation is going to be unique. The best way to explore your options when it comes to small business succession planning would be to arrange for a consultation with an estate planning lawyer who has a background assisting business people.
Building a business may be your life’s work. It is important to make sure that you are comfortable with how you will be exiting.
With the above in mind, consider a partner in a small business. The value of the business may be the largest asset that this individual has to pass along to his or her family. However, there may well be multiple heirs, so this value must be divided somehow.
The family could sell the share in the business and split the proceeds, but this leaves a number of issues. Do the remaining partners have the cash to buy out the family? Or does the family sell the share of the business to a new investor? If the family tries to sell a fractional share of the business, they will not likely obtain the full value of the fractional share! Not to mention that the surviving partners would not necessarily embrace a new investor.
This type of situation can be addressed through a properly drafted operating agreement. Alternatively, this can be addressed through the execution of a buy-sell agreement called a cross-purchase plan.
In a cross-purchase plan, the value (or the methodology of the value) of the business interests is agreed-upon by the partners. The partners then purchase life insurance coverage on one another with the proceeds equaling the value of the business interests. Under the terms of the agreement, the remaining partners purchase the share that was owned by the deceased partner from his or her family with the combined insurance policy proceeds. In this manner, the family has liquidity while the surviving partners retain control.
A lot of people get their first exposure to retirement planning on the job. Most companies will give you the opportunity to participate in a group 401(k) retirement savings plan, and many of them will actually match your contributions up to a particular percentage. Those who contribute into a 401(k) account as employees fund their retirement with pre-tax earnings. The participant will eventually pay taxes on the withdrawals, but those taxes are deferred for a very long time.
When you work for yourself, you must make different arrangements. It is possible to open your own 401(k) account as a self-employed individual, and those who are serious about being able to retire in comfort should certainly consider doing so. As a self-employed individual with a 401(k) account, you have to make deposits on your own, but they are tax-deferred in the same manner. Most small business owners also look at other retirement planning options, such as SEP IRAs.
With nearly every retirement account, you must leave the account untouched until you are at least 59.5 years of age if you do not want to pay penalties. Once you turn 59.5, you can begin to take distributions in a penalty-free manner, but you don’t have to begin taking distributions until you are 70.5 years of age.
Retirement planning, business succession planning, and estate planning should all be addressed simultaneously to ensure your overall financial goals remain intact for you and your family.
Our Reno estate planning lawyers are holding some free Webinars in the near future, and you can click this link to register for the session that works for you.
The idea of estate planning might be one of the scariest things you have to confront as an adult. After all, nobody wants to think about their death. Or incapacity. But estate planning does not have to make chills run down your spine. On the contrary! Estate planning is empowering for both you and your family and allows you to live confidently knowing that things will be taken care of in the event of your passing or incapacity. Remember, estate planning is not just for the ultra-rich. If you own anything or have young children, you should have an estate plan. Read below to find out reasons why.
Proper estate planning accomplishes many things. It puts your financial affairs in order. Parents should designate a guardian for their minor or disabled children, so the children are cared for by someone who shares your values and parenting style. Homeowners can make sure their property is transferred to the proper beneficiary in the event of untimely death. Business owners can ensure the enterprise they’ve worked so hard to build stays within the family.
Yet, according to WealthCounsel’s 2016 Estate Planning Literacy Survey, only 40% of Americans have a will and just 17% have a trust in place. This means a majority of American families not being adequately protected against the eventual certainty of death or the potential for legal incapacity.
When it comes to estate planning, knowledge is vital. Less than 50 percent of those surveyed by WealthCounsel understood that an estate plan can be used to address several concerns - financial or non-financial matters - including health decisions and guardianship, avoiding court and preempting family conflicts, protecting an inheritance for your beneficiaries, as well as taking advantage of business and tax benefits.
Legal disputes over estate plans and wills - or, usually, the lack of having these in place at all - are common. These conflicts can cause harm to family relationships and be financially burdensome. Disputes among the rich-and-famous often made headlines, but disputes among everyday folk stay buried in courts for years.
Some scary outcomes of inadequate or non-existent estate planning include:
These horror stories are not limited to wealthy celebrities. WealthCounsel’s survey found that more than one-third of respondents know someone who has experienced, or have themselves suffered, family disputes due to the failure of an existing estate plan or inadequate will. Additionally, more than half of those who have established an estate plan did so to reduce family conflict. Preserving family harmony is for everyone - not only for the wealthy or celebrities.
Estate planning can be confusing as each circumstance is unique and requires different tools to achieve the best possible outcome. Nearly 75 percent of those surveyed by WealthCounsel said estate planning was a confusing topic and valued professional guidance in learning more - so you’re not alone if you aren’t sure where to begin.
We’re here to help. An estate planning attorney is essential in determining the best way to structure your will, trust, and estate plan to fit your needs. If you or someone you know has questions about where to begin - contact us today. Anderson, Dorn & Rader, Ltd. has been protecting families and their legacies for decades. We offer free, no-obligation Webinars every month around Northern Nevada to teach and guide people about how to plan appropriately for these inevitable issues.
The estate planning lawyers at our firm place an emphasis on education, because far too many people have misconceptions about wills and trusts. One of the most common ones is the idea that a will is the only choice because trusts are "only for very wealthy people." Trusts are often misunderstood as being only useful for the rich.
Yes, very high net worth individuals can benefit from the utilization of certain types of trusts. These are going to be irrevocable trusts that are used for estate tax avoidance, income tax planning, and asset protection. However, irrevocable trusts are rarely used in an individual's estate plan. A revocable living trust is a tool that is often the best choice for a wide range of different people that do not consider themselves to be among the financial elite. Let’s look at a handful of the benefits that living trusts provide.
A lot of people are under the assumption that you surrender all personal control of assets that you convey into a trust. This is not the case when it comes to a living trust. A "trustee" is the person that administers, or manages, assets in a trust, and you can be the trustee for your own trust. When you establish the trust agreement, you name a successor trustee to handle these chores after you are gone. You can name someone that you know, or you can use a professional fiduciary such as an attorney, certified public accountant, trust company or the trust department of a bank.
Other people assume that they are "giving away" their estate by transferring property into a trust. A "beneficiary" in the trust is the person that enjoys the use of the assets in the trust. You will be the beneficiary and utilize assets in the trust as you see fit for the remainder of your lifetime. You also name a successor beneficiary to receive distributions from the trust after your death. If you choose to do so, you can name multiple beneficiaries.
In other words, since you manage and enjoy your own estate in the trust during your lifetime, you retain full control and use of your property without limitation. Your control is absolute, because you are not forever beholden to the original terms that you set forth when you established the trust declaration. You can change the beneficiaries, and you can name a different trustee. Plus, you can convey additional property into the trust at any time. The trust is a tool that ensures your estate will be managed by the proper person for your designated beneficiaries upon your death.
In fact, you can dissolve the trust entirely if you ever want to because after all, it is a revocable living trust.
As we touched upon above, you can use a professional to act as the trustee after you pass away. Many people will go this route for a number of different reasons. For one, there would be no succession concerns, because the professional trustee (such as a law firm or a bank) will almost always be there upon your death. Secondly, there is going to be professional oversight with regard to the way the trust is administered.
Another benefit is the fact that a professional will know how to invest the trust assets wisely. Lastly, you can rely on the fiduciary to show no favoritism and follow your instructions to the letter without emotion.
You do not have to instruct the trustee to distribute everything in the trust right after your passing. For example, you could allow for set monthly distributions to the beneficiaries, or you could direct the trustee to distribute only the earnings without dipping into the principal at all. Some people will allow for larger, lump sum distributions when the beneficiaries reach certain age thresholds.
Of course, you could give the trustee latitude with regard to emergency distributions. The exact details are up to you, and this is another great benefit that you gain if you utilize a revocable living trust as your primary asset transfer vehicle.
Alzheimer’s disease strikes approximately four out of every 10 people that are 85 years of age or older. Of course, some people become unable to make sound decisions for other reasons, and incapacity can strike at a younger age. To account for this, you could empower the successor trustee, or a different individual or entity, to act as the trustee in the event of your incapacity.
If you would like to learn more about Reno wills and trusts and other estate planning matters, attend one of our upcoming Webinars. They are free to attend, and you can get all the details if you visit our Webinar information page. Or you can call us to arrange a free consultation to discuss living trusts, or other estate planning matters, at (775) 823-9455.
If you have not thought a lot about estate planning until now, you may assume that you will eventually go to an attorney to execute a Will. Many people know that trusts exist, but they assume that they are only useful for people that are extremely wealthy. In fact, this is a myth. There is a certain type of trust called a Revocable Living Trust that is very useful for most people. Let’s look at some of the benefits that are realized through the utilization of a Revocable Living Trust.
After you pass away, someone has to handle the estate administration tasks and get the assets into the hands of the beneficiaries. When a Will is used, this person or entity is called the executor or personal representative. If you have a considerable variety of assets that are all scattered about, the estate administration process can be very time-consuming and complicated. The administrator will have to search for all of the property that comprises the estate, and this can be a daunting task. If you have real property interests in more than one state, the personal representative may have to go through multiple different administrative processes in multiple states.
Things are entirely different when a Living Trust is used as the centerpiece of your estate plan. All of your assets can be transferred into the trust while you are still living. This consolidation would make things quite simple for the Trustee (that you name in the trust) to administer your estate.
Some people assume that an executor can distribute assets to the beneficiaries under a Will independently, without any supervision. In fact, this is not the case at all. According to the laws of the state of Nevada, the executor would be forced to admit the will to probate, and the probate court would supervise the administration of the estate.
There are a number of drawbacks that go along with the probate process if you are someone that is in line for an inheritance. First, there is a waiting game involved. It takes about nine months to a year for a simple case to pass through probate, and no inheritances can be distributed until the estate has been probated and closed by the court. More complicated estates, or estates that end up being challenged in court, could be tied up in probate for years.
Second, probate expenses are another pitfall. There are filing fees and the executor’s payment for his or her time trouble. The executor will usually hire a probate lawyer, so legal fees enter the picture. And there are accounting, liquidation, and appraisal expenses. After you add in miscellaneous costs, you are looking at a significant figure, and these expenditures reduce the value of the estate before it is transferred to the heirs.
Finally, one of the biggest problems with probate is the loss of privacy. In some cases, after a very high profile person dies, the press reveals all types of information about how the assets were distributed. You may wonder how this is possible, but the answer lies in the fact that probate is a public proceeding. Anyone that is interested can access probate records to find out what took place.
These drawbacks are avoided when a Revocable Living Trust is used, because the trust administration process is not subject to probate and is administered privately.
A significant percentage of seniors become unable to make sound financial decisions at some point in time. There are many different underlying causes of incapacity, but Alzheimer’s disease is one of the leading culprits. It strikes around 40 percent of seniors that are 85 years of age and older. To account for this, if you establish a Revocable Living Trust, you could empower a disability trustee to administer the trust in the event of your incapacity.
A Will, by itself, only applies at death. There are no provisions in a Will that allows someone to manage an estate during a period of incapacity.
If you use a Will, you most likely allow for a lump sum distribution of the estate. This can be disconcerting if you have a beneficiary that is not good at handling money, is in the middle of a lawsuit, or is likely to get divorced in the future. You can account for all of these issues if you use a Revocable Living Trust. It would be possible to instruct the Trustee to distribute limited assets on an incremental basis to prolong the viability of the trust.
You can learn a lot more about Living Trusts and other estate planning strategies if you attend one of our upcoming Webinars. They are being offered free of charge, and you can click the following link to see the schedule: Reno, Nevada Estate Webinars. Or feel free to call our office at (775) 823-9455 to schedule a consultation.
Did you ever wonder what happens to your digital footprint when you pass away? Well you should, particularly if you are part of the 77 percent of Americans who go online every day. As the internet has become more of an integral part of our lives, our information -- pictures, videos, financial, emails, social media accounts, and other personal information -- is constantly being stored online. All of this information is known as your “digital assets.” While the internet has made our lives easier by allowing us to access our information with the simple push of a button, it may be difficult for our loved ones to do the same once we are gone.
Digital assets encompass any of your information that you store or use online -- this includes social media accounts such as Facebook. While you may not consider these digital assets as having much monetary value, they store critical information or have sentimental value. Consequently, when you plan for your estate you should include your digital assets because they are an asset owned by you. Indeed, when it comes to your digital assets you will have to make special advanced arrangements so your executor -- the person in charge of your estate when you pass away -- can access them upon your passing. Many online providers, such as Facebook, Google, and Yahoo!, have specific procedures for handling your account upon your passing. In order to ensure that your wishes are carried out, you must follow their rules. Strictly speaking, providing usernames and passwords to another person, even your executor or successor trustee, may be a violation of the terms of service for many online accounts, and could cause trouble for your executor or successor trustee. You should also consider access to your computer and back-up hard drives, tablets, and smartphones. Being proactive is key when it comes to your digital assets so that they may be accessed when needed. And, as with any estate plan, regularly revisiting your plan for your digital assets is key.
Depending on where you live your digital estate plan may need to be formalized into a legal document. You can then name an executor specifically for your digital assets or, alternatively, name someone with whom your traditional executor can work with in order to settle your digital estate. Make sure to instruct your executor as to the location of your digital asset inventory for easy access. Keep in mind that because your will becomes a public document upon your death due to probate, you should never put any of your username or password information in your will. Instead, have your will refer to an outside document that contains all the needed information regarding your digital assets.
Under Nevada law, in accordance with recent laws passed in 2017, you should specifically grant authority to your Trustee under a Living Trust, your Agent under a Power of Attorney, and an executor under a Last Will and Testament in order to ensure all digital information can be accessed in the event of an incapacity or death.
Attend a FREE Webinar to learn more about estate planning, dealing with digital assets, and all the important aspects of protecting your loved ones! If you have questions regarding digital assets, or any other estate planning issues, please contact Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.
