As estate planning lawyers, all too often we speak with people that are looking for “damage control.” They find themselves in difficult circumstances because they did not plan ahead in advance appropriately. Of course, we do everything that we can to provide assistance after the fact, but most often there is only so much that can be accomplished.
They say that the only certainties of life are death and taxes, and everybody prepares for April 15th each year. Strangely enough, the majority of adults have made no preparations at all when it comes to this other certainty. Granted, we know that tax day will come along every year, and most people go forward with the belief that the Grim Reaper is not going to pay them a visit anytime soon.
Yet, you never know what the future holds, and people of all ages pass away each and every day. Estate planning is one of the basic, core responsibilities of adulthood, and everyone should have a plan in place. And when you have a partner or spouse and/or children depending on you, the importance of planning is amplified exponentially.
Since so many people go through life without any estate planning for an extended period of time, when they finally take action, they breathe a sigh relief once and for all. The documents are placed in a drawer or a lockbox somewhere, and these individuals go forward with the idea that the matter is closed.
In fact, estate planning should be viewed as an ongoing process. There are many different things that can take place in your own life that can trigger the need for estate plan updates. One of them would be additions to your family, and of course, subtractions could also render your existing estate plan obsolete. If you get divorced, you are certainly going to want to change your beneficiary designations and adjust other elements of your existing estate plan.
Speaking of marital status changes, if you decide to get remarried after getting divorced, your estate plan will need another round of revisions. One situation that can occur is the desire to protect the interests of your new spouse as you simultaneously preserve inheritances that you want to leave to your children from a previous marriage. This type of situation can be addressed through the utilization of a qualified terminable interest property trust (QTIP).
When you establish this type of trust, your spouse would be the life beneficiary, and your children would be the final beneficiaries. If you die before your spouse, he or she would be able to receive income from the earnings of the trust and live in a home has been conveyed into it. However, your surviving spouse would not be able to change the terms of the trust when it comes to the final beneficiaries. Your children would inherit the assets that remain in the trust after the death of your surviving spouse.
Improvements in your financial status over the years and/or changes to relevant tax legislation can also create circumstances that lead to the need for estate plan revisions. In fact, we just experienced a change that is very relevant to the estate planning community. As of 2018, the federal estate tax exemption is $11.2 million. This is the amount that can be transferred before the estate tax and its 40 percent rate is applied to your estate. Prior to the enactment of the tax legislation, the federal estate tax exemption was $5.49 million. Clearly, this is a very significant difference, and changes like these should definitely be discussed with your estate planning attorney if you are a high net worth individual.
As you can see, there are many things to take into consideration as the years pass, and you should certainly go forward in a fully informed manner. With this in mind, we have scheduled a number of informative Webinars over the coming weeks. You can obtain some very useful knowledge if you attend the session that fits into your schedule, and these Webinars are being offered free of charge. To register, visit our Webinar schedule page, find the date that works for you, and follow the simple instructions.
Compliments of Anderson, Dorn & Rader,
Written By: The American Academy of Estate Planning Attorneys
If you have a pet, you know firsthand the bond that can develop between humans
and animals. Many of us consider our pets part of the family. But have you
considered what would happen to your furry or feathered companion if something
were to happen to you? Over 500k pets are abandoned each year due to the death or
disability of their owner. These pets could have been protected with just a
little planning.
It is prudent to include your pet in your estate plan for a number of reasons.
First, you want to make certain there is someone designated to take care of your
pet in case of your death. Second, you want to provide clear instructions for
your pet’s care. Third, you want to leave sufficient funds to ensure that your
pet receives the best possible care.
Including your pet in your estate plan is a little different than including
one of your children. For one thing, pets are not people, so they cannot own
property. This means you cannot leave money or property directly to your pet.
Another issue that arises when incorporating your pet into your estate plan is
that communication becomes an especially high priority. You want to make sure the
person you designate to care for your pet after your death wants the job and
understands all of the responsibilities that come with the job.
There are two primary methods for ensuring your pet will be well cared for
after you are gone:
Outright Gift
One option is to leave your pet, along with a gift of money or property for the
care of your pet, directly to a family member or a friend. This is done using
your Will or Trust, and the caregiver receives the assets on the condition that
they be used for the care of your pet.
This option is simple and straightforward. It works best when you are confident
that your chosen caregiver is trustworthy and responsible, and when you have
clearly communicated your expectations and the details of your pet’s needs.
The problem with an outright gift for pet planning is that it provides no means
for monitoring your pet’s caregiver. It will be difficult to ensure that the
assets you leave behind are, in fact, being used to care for your pet. It will
also be difficult to ensure that your pet receives the level of care you
contemplate.
Pet Trust
Another option is to establish a pet trust. These trusts have a reputation for
being reserved for the rich and famous, but they’re actually gaining popularity
among average pet owners. Part of the reason for this increasing popularity is
that pet trusts allow you to have more control over your pet’s fate after your
death.
A pet trust is a written document with which you appoint a caregiver as well as a
trustee (the person who will manage the money for your pet’s care and keep an eye
on your caregiver’s actions). You use the trust document to specify the standards
the caregiver must adhere to, as well as the circumstances under which the
trustee will distribute funds to the caregiver.
With a pet trust, as with other trusts, you’ll also name a remainder beneficiary
– someone who will inherit the remaining trust funds after the death of your pet.
What if You Can’t Find a Caregiver?
If you don’t have a friend or family member who is willing to take care of your
pet in the event of your death, you still have options.
One alternative is to check with your veterinarian. You may be able to use the
outright gift option, explained above, to place your pet in their trusted hands.
If your veterinarian cannot provide long-term care for your pet, they may be able
to place your pet with a local family or work with an adoption agency to find
them a loving home.
Another alternative is to look for a pet retirement home in your area. These are
relatively new facilities, often operated by veterinary schools, and they can be
costly and difficult to locate. However, such facilities are one way to rest
assured your pet will be well cared for. The level of care provided by pet
retirement homes tends to range from high quality to luxurious.
As with other important estate planning decisions, it is wise to explore your pet
planning options with an experienced estate planning attorney. He or she can help
you pick the planning method that best meets your needs and make sure that all
the formalities are met, so that you can be confident your pet will continue to
enjoy a happy, healthy life after your death.
Trusts are incredibly useful tools. But, not ever trust will fit every circumstance. Trusts must be used appropriately. Here are two common mistakes with trusts and how they can be easily avoided.
The first mistake with the use of trusts is not using the right type of trust. There are many different types of trusts. By far the most common type of trust is a Revocable Living Trust, often just called a "Living Trust" or “RLT.” A Living Trust is a great solution for most estate planning situations. It can provide for management of your estate during incapacity, avoid probate at death, and protect your beneficiaries' inheritances from divorce, creditors, and taxes. But, it may not be the right solution for every situation.
Additional estate planning must be done if one wishes to do more than address incapacity and death. Some clients are at higher risk for lawsuits (e.g. doctors, lawyers, etc.) and want to do additional planning to protect their estate from potential lawsuits. Even more often, clients own rental properties where a slip-and-fall accident could take everything away from them and they want to protect their investment. For the few clients that may be subject to the estate tax, planning needs to be done to minimize the estate tax burden, or potentially to eliminate taxes altogether!
Such additional planning is often done through the use of an irrevocable trust and/or limited liability companies (LLCs). An Asset Protection Trust can limit a creditor's rights to certain assets when done properly. In order to protect part of the estate from such creditors, the irrevocable trust must be set up years before the potential creditor has a claim against the estate; an Asset Protection Trust cannot hide assets from current creditors. For landlords, an LLC can be an extremely effective way to protect an accident on a rental property from taking away personal assets (e.g. your home, bank accounts, etc.). For estate tax planning, attorneys will often use myriad trusts to minimize or eliminate the tax impact of someone's death, whether through an Irrevocable Life Insurance Trust ("ILIT"), a Charitable Trust, or Gifting Trusts, to name a few.
Whether you are the attorney or the client, consider what type of trust is appropriate. Each type of trust has its strengths and challenges. The key is choosing the right type of trust for the situation.
The second mistake with the use of trusts is not funding the trust properly. A Living Trust is a great tool, but only if it is has legal ownership of the assets it is designed to manage (a.k.a. "funding," or the process of transferring legal title of the estate into the Trust). If a Living Trust is not properly funded, your successors will have twice the amount of work to deal with upon your death. If there is a Pour-Over Will (and there should be!), the assets that were not funded into the Trust would be subject to probate and only then would be distributed to the Living Trust. Once funded by the Probate Court, the assets must then be distributed according to the terms of the Living Trust. This is doing similar work TWICE! Worse yet, if there is no Will the unfunded assets would pass pursuant to "intestacy” laws, under which the remaining assets will pass to your next closest living heirs according to state law, irrespective of anything you've done in your estate plan. A Living Trust should be funded appropriately to maximize its usefulness during incapacity (to avoid needing a conservatorship) and death (to avoid a probate).
If you have questions regarding Living Trusts, asset protection, tax planning, or any other estate planning matters, please contact the experienced attorneys at Anderson, Dorn & Rader, Ltd. for a consultation. You can contact us either online or by calling us at (775) 823-9455. We are here to help!
When considering the need for estate planning, many people think, "It's been on my list of things to do for years... I'll get around to it sooner or later." A recent report showed that more than 70 percent of people die without an up-to-date will! The only guarantees in life are death and taxes, and there are many reasons you need to have an estate plan in place. We never know when the most unfortunate situations can happen, and proper estate planning will ensure your loved ones will be taken care of.
An estate plan is the most common and useful way to prepare yourself and your family for what happens in the worse two circumstances: death and disability. An appropriate estate plan will give you an opportunity to plan for unexpected incapacity, whether the result of physical or mental disability, as well as to plan for taking care of your loved ones upon death. Regardless of how few assets you may have, planning for your family's future is a necessity for everyone.
The primary purpose of a will is to distribute your property to the people you have chosen to receive that property after your death. The terms of the will should include a statement of what goes to who, as well as a guardianship provision if you have children who may be minors at the time of your death. But a will, by itself, will likely end up in probate for at least 9 months (and more often a full year or more), and could result in significantly higher administrative costs. A will should be a critical component of an estate plan, but there is more to consider when planning.
Most people establish a trust in an effort to reduce estate taxes and avoid probate. A trust is essentially a fiduciary agreement between the trustee and the creator of the trust. The trust document authorizes the trustee to hold and manage the trust assets for the benefit of the named beneficiaries. Through a trust, any inheritance can be protected from divorce, creditors, taxes, and other unpleasant and unintended beneficiaries.
A very common misunderstanding is that estate planning is only for the wealthy, but that is false. We all have something we want to leave behind to someone who is important to us. Even the smallest estate needs a plan in order to protect not only the assets but also the beneficiaries who will ultimately receive them.
The basic reason most people create an estate plan is to be sure their assets don't end up with someone they didn't intend to have them. However, if you don't make these important decisions ahead of time, the court will ultimately do it for you. On the other hand, if the court is left to make those decisions, it could take years to finish and may result in family disputes.
Parents never want to consider the possibility of dying while their children are still too young to take care of themselves, but it can happen. That's why you need to make arrangements ahead of time. As alluded to above, the will is a very important part of every estate plan, and it can help you prepare for your children's future care. Every parent would prefer to have the chance to make all decisions about the future and safety of their children. In order to be able to do that, however, you need estate planning. You Reno estate planning attorney can help you include provisions for your child's care, choose a guardian for them in the event both parents die, and any other provisions you feel you need. The alternative is that the court will make these decisions for you amidst families fighting over what they think your wishes would have been.
If you want to guarantee that your heirs will be free from unnecessary estate taxes, then you must have an estate plan. An important part of estate planning needs to provide a way to transfer your assets to your heirs with as little tax burden as possible. Luckily, it doesn't take major planning to reduce or even eliminate estate taxes.
Deciding how to distribute your estate fairly among your loved ones can be a challenge. Unless you provide very specific provisions in your estate plan, your executor will be left to decide how everything should be divided. Avoiding family disputes regarding property and keepsakes can be accomplished through estate planning. Ultimately, you don't want your family fighting over your personal possession, after your death. An estate plan can help you avoid most of the challenges that come with distributing an estate.
If you have questions regarding wills, trusts, and any other estate planning matters, please contact the experienced attorneys at Anderson, Dorn & Rader, Ltd. for a consultation. You can contact us either online or by calling us at (775) 823-9455. We are here to help!
Trusts are an important type of agreement, characterized by trust and confidence. The agreement is made between a trustee and the person who created the trust, known as the grantor. The trust agreement provides the trustee all of the authority needed to administer the trust assets and distribute the trust's income and principal to the beneficiaries named in the document. All distributions need to be made according to the provisions of the trust. A spendthrift trust is a specific type of trust with very useful benefits.
A trust, much like a last will and testament, can give you an opportunity to indicate now how you want your property to be distributed after your death. Conversely, unlike a last will and testament, a trust can provide additional protection for your assets in situations where one of your beneficiaries may need extra help in managing those assets. It is in a situation like that where a spendthrift trust can be very beneficial.
A spendthrift trust is a special kind of trust because it affords control over the trust property through limitations on the beneficiary’s ability to access those assets. These restrictions are usually required when there are beneficiaries who could potentially squander those assets. Spendthrift trusts also protect trust assets from creditors that have claims against a beneficiary.
When an estate planning lawyer drafts a spendthrift trust it will include restrictions on the beneficiary’s access to the trust principal. That essentially means that the beneficiary is not given access to the trust principal. The beneficiary of a spendthrift trust cannot assign his or her beneficial interest in the trust to a third party either. In addition, the beneficiary cannot pledge his or her interest as collateral for a loan. Because of these restrictions on the beneficiary's ability to use and access his or her interest in the trust, the beneficiary's creditor's are unable to attach the beneficiary's interest in the trust.
As any estate planning lawyer can tell you, only the appointed trustee will have direct access to the trust assets, which means the benefits of the trust can only be received through the trustee. This can be achieved through regular payments from the trust or through goods or services purchased by the trustee on behalf of the beneficiary.
A spendthrift trust is most often considered when the grantor wants to leave cash or other property to a beneficiary who is not particularly good with money or is inclined to to becoming indebted to multiple creditors. Beneficiaries who are known substance abusers are generally also more susceptible to squandering an inheritance in order to satisfy their addictions. Another example would be a beneficiary who is easily defrauded or deceived.
An experienced estate planning lawyer can be very helpful in creating specific types of trusts, such as spendthrift trusts, because he or she knows precisely which terms must be included to make those trusts work the way they should. Your estate planning lawyer will first question you to determine what you need to accomplish, then your lawyer can help you determine whether a spendthrift trust is what you actually need.
Deciding to create a spendthrift trust is not the only decision you need to make. You must also determine how, and under what circumstances, the trust should end. For instance, what do you want to happen if your beneficiary’s circumstances change and he or she becomes entirely capable of managing the property on their own? If the beneficiary passes away, there should be provisions about how that affects the terms of the trust, as well.
After you create the trust agreement, the next step that must be taken is to actually fund the trust. Funding a trust is simply a matter of transferring ownership of the trust property into the name of the trust. What that means is, you can move cash in a bank account to a new account in the name of the trust or you can name the trust as a beneficiary of life insurance policies and annuities.
Attend a FREE Webinar today! If you have questions regarding spendthrift trusts, 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.
Taxes on inheritance are imposed on property received from someone else’s estate after their death. The federal government does not impose an inheritance tax. Instead, inheritance taxes are imposed at the state level only. But, not all states impose an inheritance tax. In fact, only a few states have continued to impose the tax. With the disappearance of taxes on inheritance, the term has become synonymous with estate tax. If you live in a state that imposes an inheritance tax, or own property in a state that imposes the tax, inheritance tax planning is something you still need to consider. Here is what you should know.
The amount of taxes on inheritance owed depends on the property and the on the class of beneficiary. For example, surviving spouses and lineal heirs (children and grandchildren) are usually taxed at a lower tax rate. In some cases, those heirs may be completely exempt from taxes. More distant relatives and heirs who are not relatives, often referred to as collateral heirs, are typically taxed at a higher rate.
The first distinction between taxes on inheritance and estate taxes is the fact that the inheritance tax is only imposed on the state level. That said, some states also impose an estate tax, as well. Another difference is the estate tax is owed by the estate of the person leaving the property, not the beneficiary who receives it. In other words, the key difference between an estate tax and an inheritance is who is actually responsible for paying the tax.
The estate tax is a tax imposed on your right to transfer property to others at your death. The estate tax is calculated by first making an inventory of every property interest you own at the time of your death. The total value of all of these assets is considered your "Gross Estate." Property that is usually included in your gross estate includes cash and securities, real estate, insurance proceeds, trusts, annuities, and business interests, just to name a few. After required deductions are added to the equation that value is known as your "Taxable Estate." The estate tax is then assessed on the net amount.
Before you can successfully plan, you need to know, at least in general terms, what type of inheritance you will be receiving. For example, if you are inheriting from a parent, then you should obtain a list of assets and a copy of your parent's will, if there is one. That way you can get at least a rough estimate of the size of the estate and what your share will be. Depending on the size of the inheritance, you will need to consider how to modify your own financial planning strategies.
Exactly how you should integrate inherited assets into your own finances depends on several factors, including the nature of the assets you inherit, the financial and estate planning strategies your parent may have used, and your own financial situation. Again, if you receive government benefits of any kind, your eligibility for which are dependent on your financial resources, you will need specific inheritance planning to protect that inheritance as well as your benefits.
Depending on the nature of the assets you expect to inherit, there are certain actions you may need to take sooner, rather than later. For instance, if you wait too long to sell an asset you inherited, you could increase the chances of suffering unfavorable tax consequences. If you are inheriting a retirement account, you need to have a plan as to how you will withdraw those retirement funds. Being aware of all of your options is important when creating an inheritance plan, especially if your goal is to reduce your tax penalties as much as possible.
Once again, if you receive income-based government benefits, receiving a significant amount of income from an inheritance could put your eligibility for those benefits in jeopardy. If inheritance planning will not provide the protections you need, or the risk is not worth the value of the inheritance, you may want to consider rejecting it. Many people do not realize you can reject an inheritance and there are situations where that may be the best course of action.
It is important to note that rejecting or disclaiming an inheritance requires more than simply telling the executor you do not want the money or property. There are specific laws that dictate how you can reject an inheritance. If order to be sure that you never become the legal owner of the property, there are very specific steps that need to be followed.
Attend a FREE Webinar today! If you have questions regarding taxes on inheritance, or any other inheritance planning issues, please contact the attorneys at Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.
You may have heard the term "intestate" or "intestacy" before, but wondered what it means. As your estate planning attorney can explain, the term "intestate" simply means dying without a will. So, intestate succession refers to how property will be distributed after your death, if you die without a will or any other estate planning instruments.
If you have no plan then the probate court in your county of residence will be left to determine how to distribute your property based on the laws of intestate succession in your state. Based on those laws, to whom your property will be distributed depends on which of your relatives has survived you. Dying intestate means you have no control who will receive an inheritance and what they will receive.
When it is time to probate your estate, typically the only assets that are involved are those that you own solely in your name. If you own joint property it will not be included but will instead pass automatically to your co-owner. There are also other types of property that are not affected by the laws of intestate succession in Reno:
In Nevada, your property goes to your spouse, children, grandchildren, parents, siblings, and descendants of siblings, in that order. In other words, if only one of these relatives survives you, that relative inherits everything. If, for example, you have two children or two siblings they will divide your property equally. If you have no living spouse, children, parents, siblings, or descendants of siblings, your property will go to a more remote beneficiary, such as an aunt or uncle, first cousin, second cousin, or even a fourth cousin-thrice removed.
Nevada is one of a few Community Property states. If you are married at the time of your death, your spouse inherits all of your community property. “Community property” is property acquired while you were married. The exception is that gifts and inheritances given to only one spouse, even if acquired during marriage, are not considered community property. Everything that had been acquired during marriage that is community property will be transferred to your surviving spouse.
Your separate property, however, will be divided 1/2 to your spouse and 1/2 to your children, if living, or your grandchildren. If you do not have any living descendants, 1/2 of your separate property will go to your parents, siblings, or nieces and nephews, again depending upon what relatives have survived you.
Children who have been legally adopted, will receive a share along with any biological children. However, foster children or stepchildren who were not legally adopted do not automatically receive a share. Children that have been placed for adoption and who were legally adopted by another family are no longer entitled to a share of your estate.
Children conceived but not born before your death (posthumous children) can still receive a share of your estate. Children born outside of marriage can only receive a share of your estate if it can be proven that you acknowledge them as your children and contributed to their support.
This is EXTREMELY important because intestacy laws were drafted based upon an antiquated model of a "traditional" family. These laws do not account for second marriages, blended families, or non-traditional relationships that are extremely common in today's day and age.
Siblings with only one parent in common, so-called “half” siblings, inherit as any other sibling would. Relatives entitled to an intestate share of your property will inherit whether or not they are citizens or legally reside in the United States. Finally, Nevada has a “killer” rule which says that anyone who feloniously and intentionally kills you, will not receive a share of your estate.
In order to avoid your estate being distributed according to the laws of intestate succession you must create an estate plan. A comprehensive estate plan will see that your debts are paid and designated how and to whom the remainder of your estate will be distributed. The most basic estate planning instrument is a last will and testament. A will is your written instructions as to how you want your estate to be handled when you die. One drawback of using a will is that the property must go through probate before your assets can be distributed. There are other ways to avoid probate, and a properly drafted estate plan prepared by an attorney can also help avoid probate and many other issues that commonly become problems when someone dies.
Attend a FREE Webinar today! If you have questions regarding intestate succession in Reno, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
If you are one of the millions of Americans who considers a beloved pet to be part of the family, then you undoubtedly worry about what will happen to your pet when you are no longer here to take care of him or her. The good news is that with proper estate planning, you can provide for your pet’s care after your death by creating a pet trust.
A pet trust operates in the same basic fashion as any other trust. As the grantor of the trust, you are able to appoint a trustee and a beneficiary (your pet), as well as designate assets to fund the trust and establish rules regarding how the trust assets are to be used for the care of your pet.
The trustee of your pet trust may be the same person who is to have the day to day care of your pet, but does not have to be the same person. You may also choose to appoint a neutral party as the trustee, such as an attorney. As the grantor of the trust, you have the ability to decide things such as what the trust funds can be used for and how often distributions are to be made. You can be as specific or as general as you wish to be with the terms. For example, you may choose to dictate what type of food your pet is fed and what veterinarian is to be used ,or you may simply establish a disbursement schedule and depend on the caregiver to make all other decision.
By creating a pet trust, you are able to rest easier knowing that your pet will be well cared for even after you are gone.
Many of our clients would agree that paying estate taxes is one of their major concerns in estate planning. There is no Nevada estate tax, but that is not the case in every state. So, it is important to check with your state revenue department to be sure if you are not a Nevada resident. However, there is a federal estate tax which is currently 40 percent of every gross estate that exceeds $5.45 million, as of 2016. Since there is an estate tax exclusion for estates the value of which is less than $5.45 million, most estates are not required to pay estate taxes. On the other hand, if your estate is not exempt, you will want to explore ways to avoid estate tax.
Federal estate taxes have been imposed since 1916. In response to the imposition of estate taxes, many citizens began transferring their assets to their children, grandchildren and others, in an effort to reduce their taxable estate. As a result, the government created the gift tax in order to stop estate tax avoidance. In 1976, the estate tax and gift tax were combined.
In 1997, the estate tax exemption was only $600,000. In 2008, the estate tax exemption increased to $2,000,000. Currently, in 2016, the estate tax exemption is $5.45 million. This exemption, coupled with the gift tax exclusion, makes it much simpler for most estates to avoid estate tax entirely.
With these two exemptions combined, you can either leave or give away up to $5.45 million in estate property, without any estate or gift tax being imposed on those transfers. As long as your estate is worth less than the exemption amount, you can avoid federal estate taxes completely. The annual gift tax exclusion is $14,000 per recipient for each individual or a total of $28,000 per recipient, if married couples combine their individual exclusions. If you exceed the $5.45 million lifetime exclusion amount (or unified credit), then your estate will be assessed taxes in the amount of 40 percent, but only on the excess amount.
This lifetime exclusion or credit is also “portable" for spouses, which means that if the full exclusion amount is not used with the first spouse's estate, then the surviving spouse can benefit from the remainder of that exemption. For instance, if your estate is worth $2 million when you die, your surviving spouse will be able to use the remaining $3.45 million towards his or her estate.
For those who are married, there is yet another way to avoid paying estate taxes. You can take advantage of the unlimited marital deduction, which allows you to leave all of your state to your spouse, tax free. No estate taxes will be imposed on those assets upon your death. Instead, the taxes would be due only upon the surviving spouse's death. This marital deduction is unlimited, so you can essentially leave all of your property to your spouse tax-free.
It is important to remember that not every trust can help you to avoid estate taxes. In particular, a living trust will not eliminate taxes for the simple fact that you maintain the ability to amend or revoke the living trust at any time. Estate taxes can only be avoided if the assets are essentially removed from your estate. Since you can take back your assets at any time with a living trust, you are still considered to own those assets. For that reason, federal tax laws include living trust assets in your estate for the purpose of estate taxes.
A “generation-skipping trust” is basically a second-generation “bypass trust.” The gift of the income created by the trust property is separate from the gift of the property itself. Therefore, you can include provisions in the trust that a specific amount of property will be transferred to your grandchildren, while the income from that property will be distributed to one or both of their parents. This type of trust can be set up for a specified length of time, or until the parents' death. After the death of the parents, the grandchildren would then collect the income from those assets and also gain control over the assets themselves.
If you have questions regarding estate tax, 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.
Trusts are simply agreements that are characterized by trust and confidence between the trustee and the grantor (or the person creating the trust). The trust agreement gives authority to the trustee to administer the trust assets and distribute them to the named beneficiaries according to the provisions of the trust. A spendthrift trust is just a particular type of trust that you can consider including in your overall estate plan.
Similar to your last will and testament, a trust provides a way for you to decide now how and when your property should be distributed after your death. On the other hand, unlike your last will and testament, a trust can also provide a way to protect those assets in cases where a particular beneficiary may need special assistance in managing that property. That is where a spendthrift trust can be very useful.
A spendthrift trust is one that provides control over the trust assets by limiting the beneficiary’s access to those assets. These restrictions are primarily included for the benefit of heirs who have the potential of squandering that property. A spendthrift trust can also protect the assets from the beneficiary’s creditors, if that is a concern.
Essentially spendthrift trusts place restrictions on the access given to a beneficiary with respect to the trust principal. In most cases, the beneficiary is not allowed to access the principal, nor can they promise the assets to a third party. Put another way, if a beneficiary is unable to access the funds in the trust those funds cannot become subject to their creditors' claims either.
Since the beneficiary of a spendthrift trust is not allowed to have direct access to the trust assets, their benefits can only be received through the appointed trustee. This can be accomplished through a regular payment from the trust, or through goods or services bought by the trustee for the beneficiary.
Spendthrift trusts are generally considered when the grantor needs to leave cash or other property to a beneficiary about whom they are concerned may not be efficient at managing that money or property. Some reasons certain people need to ensure more control might include situations where the beneficiary is not particularly good with money or is prone to becoming indebted to multiple creditors. The beneficiary could also be an addict, making them more susceptible to squandering the money or property in order to satisfy that addiction. Beneficiaries who are easily defrauded or deceived are often more in need of the protection a spendthrift trust can provide.
The first thing you should think about when considering whether to create a spendthrift trust is whether you need to consult an attorney. Estate planning attorneys are very useful in helping to create specific types of trusts because they understand the terms that must be included to make those trusts work the way you need them to. After interviewing you to determine what you are looking to accomplish, your attorney can help you determine whether a spendthrift trust is what you actually need.
It is also a good idea to consider when and how you want the trust to terminate. You should also decide what should happen to the trust principal in case the beneficiary’s circumstances change. For example, if the beneficiary dies or becomes capable of managing the trust funds, then there may no longer be a need for the trust. Another consideration is whether you want to include provisions that allow for special payouts in the event the beneficiaries incur substantial expenses.
After you create the trust agreement, the next step that must be taken is to actually fund the trust. The concept of funding a trust is basically a matter of transferring ownership of the trust property into the name of the trust. What that means is, you can move cash in a bank account to a new account in the name of the trust. It also means naming the trust as a beneficiary of life insurance policies and annuities. If you have real estate, you can create a deed transferring that real property to the trust.
If you have questions regarding spendthrift trusts, 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.
If one of your goals in estate planning is to avoid probate through a revocable living trust, you should also have a "pour over" will. Pour over wills allow certain property that passes through your will at your death to be poured into (or transferred) to a trust. At that point, the property is distributed to your trust beneficiaries.
A revocable living trust only governs the assets that have been transferred under the Trust Agreement. Any assets that are not funded into the trust during someone's life will have to go to probate and administered by the person's will. Most estate planning attorneys believe that handling all of your assets with one document, a trust agreement, is easier than trying to handling the estate through two processes (through both a probate administration and a private trust administration). There are, in fact, several advantages to creating a pour over will. When all of your assets are controlled by one document, there is less room for confusion. Also, a pour over will takes care of those assets that you may have neglected to transfer to the trust, before your death.
Another advantage is the privacy that you can maintain with the trust that a simply will does not provide. Wills become public record with the probate court, which means they are available to everyone who is interested in looking at them. Using a pour over will to transfer your assets to a trust keeps the details of your assets and your beneficiaries private.
The biggest disadvantage to using a pour over will is that the property must still pass through probate. Therefore, the distribution of any property headed toward the trust could be delayed in probate before it can be distributed to the trust. This could take months. On the other hand, if the property is passed on through a living trust directly, without first going through a pour over will, the property are likely to receive their inheritances within a few weeks. A pour over will should be a "backup" method of funding a trust; it is much more efficient to have the trustor(s) transfer assets into the trust while they are still living in order to avoid probate entirely.
Generally, most of your assets will not pass through the pour over will. Instead, if you have a proper estate plan, your most valuable assets will already be transferred to a living trust. Only the property that remains, minor assets and anything unintentionally omitted from the trust, will pass under the terms of the will. As such, the probate procedure will likely be simpler and less time consuming, based on the size of the probate estate.
Just like any other type of will, a pour over will must nominate an executor to wrap up the estate after your death. The duties of the executor often include collecting the assets, satisfying debts and paying taxes, then ultimately distributing the assets to the beneficiaries. These tasks are much simpler for the executor of a pour over will. The only duty is to take all of the assets identified in the pour over will and transfer them to the trust. Generally, the executor of a pour over will is the same person or entity that is the trustee of the trust to which the assets are transferred - that makes it extremely easy for the same person to administer the entire estate.
A trustee is a vital part of every trust. The trustee is the person who must ensure that the terms of your trust are followed. A common choice for trustee is an adult relative or a trusted friend. Selecting someone you know personally has its benefits, of course. You are likely to receive personal attention from someone you know, and they may not be inclined to charge a fee. However, acting as a Trustee is not necessarily a privilege! There is a lot of work in the administration of a trust, and a personal relative or friend might not have the time, energy, or know-how to effectively administer the trust.
Another option is a financial institution. Certainly, financial institutions and trust companies are qualified and capable of serving as trustees. Indeed, these institutions have the knowledge and expertise in managing funds which would provide a sense of comfort. However, financial institutions and trust companies are typically more expensive and charge their fees based upon a percentage of the trust estate. A licensed professional is another option, and their fees are typically lower.
Once the assets have been transferred to the trust, they become the responsibility of the successor trustee (the person you named in your living trust to take over at your death or incapacity). The duties of a successor trustee are similar to that of an executor, except that the trustee has control over the trust assets only and may administer those assets privately outside of court. The successor trustee has no control over property that is part of your probate estate.
If you have questions regarding a pour over will, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
If you have any knowledge about estate planning, you have no doubt heard the terms "last will and testament" and "trust." However, do you know how these two estate planning tools different? While it is true both wills and trusts are helpful estate planning devices, they satisfy very different goals. Nonetheless, they can be used together to establish a comprehensive and effective estate plan. Here is what you should know.
Planning ahead should be a life goal for many different reasons. First, having a plan in place gives you the opportunity to determine now who you want to inherit your property when you die. Another reason to plan ahead is so that you can take advantage of the tax benefits and potential for probate avoidance that wills, trusts, and other estate planning tools can provide. Also, an estate plan gives you a way to prepare your family for the possibility that you may become incapacitated in some way. If that happens, usually unexpectedly, your family will need to be able to continue management of your financial and personal affairs for you.
A last will and testament is essentially a written legal document that designates exactly how you want your estate to be distributed after your death. Wills are useful estate planning tools because they can be revised or revoked at any time before your death or incapacity.
A trust is really a fiduciary agreement, which means it is based on confidence and trust between the trustee and the grantor (or person making the trust). The agreement is actually between three parties: the trustee, the grantor and the beneficiaries. A trust agreement authorizes the trustee to hold and manage the trust assets for the benefit of your chosen beneficiaries. The trust agreement also provides explicit instructions concerning how to manage and distribute the trust property. Two of the primary goals of a trust are to reduce estate taxes and avoid probate, if at all possible.
One of the key differences between a last will and testament and a trust is that a will becomes effective only after your death. A trust, however, takes effect as soon as you create it, unless otherwise specified in the trust agreement. On the one hand, a will directs who receives your property upon your death, while a trust can begin distributing property before death, at death or afterwards, depending on how you set it up.
A last will and testament is very flexible when it comes to beneficiaries. With a will, you can name as many beneficiaries as you want, or you can have just one. The choice is yours. On the other hand, there are generally two types of trust beneficiaries: those who receive the income from the trust during their lifetime and those that receive the remaining assets after the first beneficiary passes away.
A will can control any property that is in your name alone at the time of your death. It does not control property that is held in joint tenancy or in a trust. A trust, on the other hand, covers only the specific property that has been transferred to the trust. In order for particular assets to be included in a trust, it must be retitled in the name of the trust. So, if you neglect to include any property in your trust, such as property you acquire after the trust has been created, then it will not be controlled by the terms of the trust.
Another major difference between trusts and wills is that a will must go through probate while a trust actually avoids probate, at least for the property it controls. Through the probate process, the court confirms that the will is valid and then oversees the administration of the will. The court will also ensure that the property is distributed according to the terms of the will. Trust property, however is transferred entirely outside of probate, so the court is not required to be involved. For this reason, trusts can save time and money.
Attend a FREE Webinar! If you have questions regarding a last will and testament, 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.
If you have any children under the age of 18, it is important that you at least have a Last Will and Testament ("Will"), including provisions regarding guardianship of your children, should anything happen to you. Legal guardianship provisions for minor children are an extremely important part of estate planning for young families. There are certain provisions for guardianship Nevada parents need to be aware of when making their estate plan.
A Last Will and Testament is basically used to make dispositions of property, which do not take place until your death. Another purpose of a Will is to appoint someone to manage your estate and to appoint someone as guardian of your minor children. Without a Will, your property will be distributed to your family, following the laws of intestate succession in your state. Note that intestacy laws have basically remained unchanged for a very long time, and those laws may not take into consideration today's issues with the modern family (most importantly blended families). Your closest family members usually receive equal shares depending on the law's pre-determined priority system.
When one spouse or parent dies, the surviving spouse or parent will automatically be the child's legal guardian unless that person's parental rights have already been terminated. Should both parents die at the same time, or nearly the same time, any guardians named in a Will would become responsible for the child's care. A Will must be submitted to probate court, and the probate judge will oversee the entire process, including the approval (or disapproval) of the guardians named in the Will.
When you are considering who should be named as legal guardian for your children, take into consideration the age, health, location, and general personalities/parenting styles of the potential individuals. You must also recognize that these factors will probably change in the future. For this reason, it is a good idea to select both primary and secondary guardians, should there be anything preventing your primary guardians from serving in that role.
Permanent guardianship in a Will is approved by a court, which may take weeks or even months. Nevada allows parents to appoint short-term guardians to care for minor children for a maximum of six months. This ensures that the children do not have to spend any time in custody (child protective services, foster care, or other) while the permanent guardianship is being approved. In order to protect the children, there must be a separate legal document appointing short-term guardians.
One of the common reasons parents put off planning for guardianship of their children is that they are "looking for the right person." Of course, you want someone who will raise your children with the same values you hold, but finding the perfect fit may not be possible. In fact, it is not very likely. Instead, you need to find someone who has a similar belief system and who is also willing to instill in your children the values you hold. It takes some discussion and some compromise. But you cannot put off guardianship planning simply because you haven't found the perfect guardian yet. If you wait too late, a judge will make that decision for you. You can always re-execute a new Will, or change the Will, if you decide to change the appointment of guardians.
In order to properly care for your children, your guardians will need to have access to financial assets, as well. This can be established a number of ways, but is most effective through a Trust. A Trust may be created during your life (a Living Trust) or upon your death (a Testamentary Trust). Within the Trust, there are a few key things to consider. Who do you want to manage the money (i.e. is the guardian in charge of raising the children also responsible for the money, or do you separate those responsibilities)? Do you want the children to have equal shares regardless of circumstances, or would you like a Common Pot to be available for all of your children until they reach a certain age? Do you create a Living Trust and keep the Trust administration private, or do you create a Testamentary Trust and require judicial oversight of the Trust? Many of these questions are hard to answer on your own, and it is best to discuss these matters with an attorney in doing your estate planning.
Unfortunately, you cannot rely on something as informal as a letter or email to establish your choice for guardian of your minor children. No matter how clear your choice may be spelled out in a letter or email, it is not legally binding on the court. A judge could take that informal statement into consideration, but there could be so many issues of credibility for the judge to wade through, especially if someone challenges the appointment. Basically, if you take the time to choose someone and write it down, why not take the next step of making it official?
If you do not include guardianship provisions in your Will, the appointment of a legal guardian will be made by the probate court without any input or guidance from the parents. Although it is the judge's responsibility to ensure the best interests of the child are met, the decision may not coincide with your own wishes. That is why creating an estate plan is the best solution for you and your family.
Attend a FREE Webinar! If you have questions regarding guardianship, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
There are many types of estate planning tools, including various types of trusts. Irrevocable trusts are different from revocable ones. To be “irrevocable” means to be immune to change. So, by design, an irrevocable trust is one that cannot be amended, modified, changed or revoked. Once it has been properly created, you can consider the written terms of the trust agreement to be written in stone. With few exceptions, the terms cannot be changed in the future.
There are two types of irrevocable trusts: irrevocable living trusts and testamentary trusts. They both serve different purposes. An irrevocable living trust, also referred to as an “inter vivos irrevocable trust,” is created and funded by someone who is still living. A few examples of irrevocable living trusts include:
However, a testamentary trust is created and funded after someone’s death. This means that no one who is still living has any legal authority to change the terms of the trust. Therefore, virtually all testamentary trusts are irrevocable.
Since an irrevocable trust is specifically designed so that it cannot be changed or revoked, the basic rule is no changes can be made once created. However, there are a few options to consider if there is an issue with the terms.
Some irrevocable trusts include instructions to the trustees or beneficiaries specifically allowing for the terms to be modified under very specific and limited circumstances. On example is typically seen in Charitable Trusts, which usually contain provisions to allow modification of the trust agreement to comply with changes in federal law.
Judicial modification can also be an option when, for instance, circumstances have changed so that the administration of the trust has become too expensive. The trustee and/or trust beneficiaries can request that the terms of the trust be modified or that the trust be completely terminated through a court proceeding.
Recently, many states have adopted legislation to allow for "decanting." Wine lovers know that the term “decant” means to pour wine from one container into another in order to open up the aromas and flavors of the wine. In the world of irrevocable trusts “decant” means the legal process through which the trustee appoints or distributes trust property in further trust for the benefit of one or more of the beneficiaries. In other words, the trustee transfers some or all of the property held in an existing trust into a brand new trust with different and more favorable terms.
Protection from creditors can be accomplished only with an irrevocable trust. “Irrevocable” means the trust cannot be changed once it is created. Since you no longer control the property, and it cannot be revoked, the money is no longer considered to be yours. As such, that property is no longer subject to your creditors.
As with anything else you want to accomplish, the provisions in a trust are essential to ensure asset protection. First of all, the interest you leave to your beneficiary must either be contingent on some future event, or be subject to the sole discretion of the trustee.
The general purpose of a revocable living trust is to avoid the expense and delay of guardianship and the probate process. Typically, a revocable living trust is used along with a will in estate planning. Property in a trust can be distributed upon your death without court approval.
A revocable living trust cannot provide protection for your assets because the property in the trust is still considered to belong to you. You are named as the trustee so you will still have control over the trust assets during your lifetime. Since the property is essentially yours, it remains subject to the claims of your creditors.
Another reason that a revocable living trust does not protect your assets is because you have the power to revoke the trust at any time. If you do, the trust property immediately becomes yours once again. Also, all of the income your trust assets may generate belongs to you and must be reported on your personal income tax return. All of those characteristics of a revocable trust make it poor for protecting assets.
Download our FREE estate planning worksheet! If you have questions regarding an irrevocable trust, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
It is relatively easy to understand how important asset protection planning for Nevada residents can be. Most people want to make sure their assets are protected, including real estate, investments, business interests, and even personal property. Just consider the costs of malpractice, business (E&O), and other forms of liability insurance, which are rapidly increasing. It is certainly important to be preemptive in protecting your assets from potential creditors, whether that is through an insurance policy, homestead, or other asset protection plan. What may be even more important is understanding the most common mistakes in asset protection that Nevada residents should avoid.
One common mistake that many people make is assuming that there is something wrong with creating a plan to protect your assets. Many people feel like they are "hiding assets" or irresponsibly "sheltering" their estate from the reach of creditors. That simply is not true. We are all free to structure our assets in the most advantageous way available, as long as we do so properly and in accordance with the law. The only time that the issue of fraud is raised is when the purpose of an asset protection plan is solely to hinder, delay, or defraud creditors from collecting valid debts. The key is to create your asset protection plan before the creditors' claims arise.
Plan in advance! Another mistake that some individuals make is not taking action to protect their assets until after a problem has arisen. If you've already been sued (or if you know you're about to be sued), it's likely too late to effectively create a plan. The best and most effective asset protection planning is accomplished long before any creditor claims arise. The best time to start an asset protection plan is when you are solvent and not currently facing any threats from existing creditors. The purpose of asset protection planning is to protect from potential future creditors. The sooner you start planning, the more options will be available to you.
One aspect of asset protection planning that is difficult for most people is making a proper determination of who is likely to be a potential creditor. Those who are able to make this determination are better able to make an effective asset protection plan. It is easier to plan when you know exactly what you are planning for. In other words, if you can implement a strategy to protect against certain claims you can more easily limit your exposure to that liability. Some common ways to avoid liability, especially for business owners, include:
You cannot rely on an asset protection plan someone else used. Friends may be well-intentioned, but one size definitely does not fit all when it comes to asset protection planning. Not every protection strategy will work in every case. Any estate planning attorney will tell you – an asset protection plan needs to be developed on a case by case basis. Some people can effectively create an asset protection plan by taking advantage of legal protections under homestead, ERISA, business, and other federal and local laws; still others may need a more complex asset protection trust to deal with potential creditors. Individual needs must be carefully considered when choosing your planning options, so don't use a boilerplate plan and hope that you will be protected. Most likely, you will not.
Many clients have the same misconception, that any type of trust can provide asset protection. That is not the case. First, revocable living trusts do not provide protection for individuals who created the trust simply for that purpose. It is important to remember that, in most states, when the person who has funded the trust is a potential beneficiary, then the assets may not be protected from creditors. However, a properly drafted revocable living trust may be able to add asset protection for surviving spouses and/or other beneficiaries. An irrevocable trust can only protect property that is transferred to the trust as long as there is no evidence of a fraudulent conveyance, and a statutory period of time has passed before a creditor claim arises. Foreign offshore trust accounts have come under scrutiny in United States Courts, recently. Very special care must be given when implementing an asset protection plan that includes an offshore account.
A part of asset protection planning necessarily includes consideration of possible inheritances from relatives, a factor that is often overlooked. Those inheritances must be structured, as well, in order to provide maximum flexibility, as well as, protection against creditors and divorce. An estate plan is a way for you to prepare yourself and your family for what happens after you pass away. An appropriate estate plan can also give you an opportunity to plan for unexpected incapacity. Regardless of how few assets you may have, planning for your family's future is a necessity for everyone.
If you have questions regarding mistakes in asset protection, or any other asset protection planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Receiving an inheritance from a loved one can be thrilling, but for some it may also cause some concern. In fact, there are a host of questions you may have when you receive the news that an inheritance is coming your way - including, "Does this mean that I'm going to have to pay tax on this inheritance?" Inheritance tax is different from estate taxes, which is also different from (although related to) the gift tax. Whether or not you will be required to pay an inheritance tax depends on which state you, the beneficiary, live in. Here are the answers to five common inheritance tax questions as it applies to beneficiaries that are residents of Nevada.
In general, an inheritance tax is a tax levied on money or property received from the estate of someone else. In those states that still impose an inheritance tax, the rate will depend usually on the type of beneficiary you are. In other words, spouses and children of the deceased are generally taxed at a much lower rate than others. In some states, certain categories of heirs are exempt from the tax completely.
No, you don't need to worry about a Nevada inheritance tax! Nevada is among the majority of states that does not impose an inheritance tax. The federal government no longer levies an inheritance tax either. Beneficiaries of an estate will inherit the estate tax-free, and they receive a "step-up" in basis that can allow them to sell those assets immediately without paying capital gains tax.
Basically, the difference between inheritance taxes and estate taxes is who is responsible for paying. Inheritance taxes are paid by the person receiving the money or property from someone else. Whereas, estate taxes are due from the estate of the person who has died, when the property is transferred to heirs and beneficiaries. The estate tax laws vary from state to state, and Nevada is one that does not impose an estate tax for those individuals that die as residents of Nevada or owning property in Nevada. For federal tax purposes, the federal government will only tax the deceased person's estate if the value of the estate (including prior gifts made above the annual exclusion amount) exceeds $5.45 million in 2016.
Receiving a gift from someone who is still living is different from receiving an inheritance. You, as the beneficiary, will not be required to pay taxes on the receipt of a gift. Instead, the person making the gift is responsible for paying the applicable taxes. This is the "gift tax." There should not be any immediate tax consequences for the gift recipient because gifts are not included as part of your taxable income. But, there may be future tax consequences if you sell the gifted property later. The recipient of the gift receives a "carry-over" basis, which means that if they later sell the gifted property they may be responsible for paying the capital gains tax.
You can reject an inheritance if you choose to, and in some cases, it may be a good idea. Understand though, that rejecting an inheritance requires more than simply telling the executor you do not want the assets you are set to receive. There are laws that govern the proper way to disclaim an inheritance. Essentially, if you need to make sure you are not considered the legal owner of the inherited property, there are specific steps that must be taken. To make matters worse, there are very strict rules about the timing required to properly disclaim an inheritance.
In order to correctly disclaim an inheritance, you need to put your disclaimer in writing and deliver it to the person in control of the estate. In most cases, that person is the executor of the estate, or trustee of the trust, that holds the property. In most cases, the disclaimer should be submitted to the executor or trustee within 9 months of the person’s death. The most important thing to remember is that you must not accept any benefit from the property if you want to actually reject the inheritance.
If you believe it is in your best interest to reject an inheritance, it is very important that you discuss this decision with a Nevada inheritance planning attorney before you take any action. Your attorney can take whatever steps are necessary to ensure that your disclaimer is handled properly. Ultimately, receiving proper legal advice can decrease your chances of facing problems in the future. As with any estate plan, your inheritance plan should address both your present and future financial goals.
If you decide to ultimately accept the inheritance, then you need to consider the nature of the assets you will be inheriting. If you are married, there are important steps that should be taken if you want to keep the inherited assets separate from the marital assets. If you need to sell an inherited asset, but you wait too long to do so, you could increase the risk of unfavorable tax consequences. Also, it is important to determine how you will handle any retirement accounts you may inherit, including planning for how you will withdraw the retirement funds. Understanding your options, while creating a plan that will protect you from potential tax consequences, is an important part of inheritance planning.
If you have questions regarding Nevada inheritance tax, estate tax, gift tax, 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.
To learn more, please download our free Nevada capital gains tax here.
It is not that uncommon for heirs to be disinherited for one reason or another. Regardless of the reasoning, if you feel the need to disinherit someone from your estate, a disinheritance clause in a will is the most common and most effective way to do so. Even so, you may not be able to completely disinherit someone. Here is what you need to know.
In order to disinherit an heir you need to include clear disinheritance language in your will. However, depending on the law in your state, you may not be able to completely disinherit certain heirs. Some state laws, including Nevada, include specific inheritance rights for surviving spouses and children, regardless of any testamentary language you may include in your will. If your desire is to disinherit a spouse or child, you may need to consult an attorney for assistance. If you do not use the appropriate language, the result may be expensive and time-consuming will disputes which will ultimately reduce the inheritance intended for your remaining heirs or beneficiaries.
Before you start making amendments or revisions to your will in order to disinherit an heir there are a few things you should know. First of all, there is no need to disinherit someone who is not a relative because they would not inherit from you under the laws of intestate succession anyway. Nevada has rules of consanguinity in its intestacy laws that will find an ultimate relative (whether it is a fourth-cousin thrice-removed, or a great-great-uncle) to inherit your estate if you have nothing in place; unless a relative is the next-in-line to inherit, there is no need to disinherit them. Also, be careful disinheriting anyone who you need to handle certain matters upon your death, such as a guardian for your children or the executor of your estate, unless you have discussed the decision with them ahead of time and they understand your reasons.
If you have been through a divorce but did not revise your will or trust, then you need to consider the need to disinherit your ex-spouse. You can either execute a codicil or amendment that revises your estate plan, or create a new plan that includes a disinheritance clause. Whichever method you choose, be sure to make the disinheritance clear. The same may be done even during a legal separation or while a divorce is pending.
The law presumes that most people want their children to inherit from their estates. So, in order to overcome that legal presumption, your will must include a very clear disinheritance clause to show that you did not unintentionally overlook your child. A child that you intend to disinherit must be specifically mentioned by name. If you simply leave your child out of the will, your state may assume it was a mistake and award that child his or her intestate share of your estate, as if you died without leaving a will at all (the child will be considered a "pretermitted heir"). There is no requirement that you state a reason for the disinheritance in the will. If you are going to disinherit a child, you should also consider whether or not you intend to disinherit their descendants (your grandchildren).
There is a big difference between disinheriting a child and leaving your property to your children in unequal shares. It is not uncommon for parents to divide their estate in a variety of ways for a variety of reasons. Some parents decide to leave one child a large portion of the estate than others. Some parents feel the need to take steps to protect a particular child's inheritance from others, for various reasons. All of these wishes can be accomplished easily, through proper estate planning. Most properly drafted trusts will have language that provides a "No Contest Clause," clarifying that if a child receiving a smaller inheritance wishes to challenge the validity of the estate plan, they will forego the right to any inheritance. This type of language will help avoid potential litigation for your children needing the greater portion of the estate.
Many people have the mistaken belief that the way to properly disinherit someone is to state in your will that you are leaving them one dollar or some other nominal amount. The problem is, if you do that, you are not foreclosing the possibility that the person will contest the will. The best way to disinherit is to include language similar to the following: "I have intentionally failed to provide for my son, John." Be sure to mention everyone by name in order to avoid confusion.
It is important to remember, however, that regardless of the language you include in your will, you cannot prevent an heir from contesting the will by filing a lawsuit against your estate. Any person who has standing and states a claim can contest your will, but a good attorney can help avoid these contests with the proper language in your estate plan.
If you have questions regarding disinheritance clauses, or any other estate planning issues, please contact the experienced estate planning attorneys at Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.
The last will and testament is probably the most common estate planning tool. Creating a will is relatively easy, but there are a few requirements that must be met in order for your will to be valid. One of the most important requirements is that the person creating a will must be competent to do so. If a person lacks the legal capacity to create a will at the time it is executed, the will may be invalidated upon a challenge by an interested party.
The basic purpose of a will
Wills allow you to pass on your assets to whomever you choose after your death. A basic will should specify to whom you want to leave your property, identify a guardian to take care of any minor children in the event of your death, and name the person who will have the authority to carry out the terms of your will, which is known as a Personal Representative in most states.
How is legal competency defined
What many people do not realize is that not everyone is competent to make a will in Nevada. Generally speaking, the testator must be old enough to create the will and must be able to identify their family and understand the nature and extent of the property in their estate. In Nevada, a testator must be at least 18 years old and of sound mind.
Nevada's requirements for a valid will
Nevada law spells out who can draft a will under NRS 133.020:
Every person of sound mind, over the age of 18 years, may, by last will, dispose of all his or her estate, real and personal, the same being chargeable with the payment of the testator’s debts.
“Sound mind” means someone who has testamentary capacity. This capacity is often described as the ability to recognize the natural objects of one's bounty, the nature and extent of one's estate, and the fact that one is making a plan to dispose of one's estate after death. In Nevada, a will is not valid unless it is in writing and signed by the testator, or by someone expressly directed by the testator to attend. The will must also be attested (or witnessed) by at least two competent witnesses who sign the will in the presence of the testator.
Nevada recognizes self-proving wills
A self-proving will can speed up the probate process because the court will be able to accept the will without obtaining testimony from the witnesses who signed it. Under NRS 133.050, to make your will self-proving in Nevada a witness to a will must sign a declaration under penalty of perjury or an affidavit before a person authorized to administer oaths (i.e., a Notary Public), stating such facts as the witness would be required to testify to in court to prove the will. The declaration or affidavit must be written on the will or, if that is impracticable, on some paper attached to the will. The sworn statement of any witness so taken must be accepted by the court as if it had been taken before the court.
The effects of mental illness
A common misconception is that a person with a mental illness does not have the mental capacity to create a will. That is not the case. Having a mental illness or disease does not mean you automatically lack the required mental capacity. As long as you can show that you have periods of lucidity, you may still be competent to sign a will. Millions of people are affected by dementia. Unfortunately, many of them did not create a proper estate plan before the symptoms began. If a loved one has dementia or some other mental illness that may affect their capacity, it may not be too late. It is best to consult an estate planning attorney to determine whether the criteria are met to establish competency. In borderline cases an attorney may recommend the person be evaluated by a neuropsychologist for a clinical determination of capacity.
What happens in Nevada if you don't have a will?
If you have no plan then Nevada’s laws on intestate succession will how your property will be distributed. Based on these laws, to whom your property will be distributed depends on which of your relatives have survived you. Another thing dying intestate means is that you have no control over who your heirs are and what each of them will receive. Under NRS 135.050, in Nevada your property goes to your spouse, children, parents or siblings, in that order. In other words, if only one of these relatives survives you, that relative inherits everything. If for example, you have two children or two siblings they will divide your property equally.
Attend a free Webinar! If you have questions regarding creating wills, 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.
