When you hear about mistakes that others make that yield negative consequences in the real world, it can really get your attention and impact your own actions. Yes, people can give you advice, but witnessing examples of what can actually happen can be a wake-up call.
This definitely enters the picture when it comes to estate planning. Attorneys will emphasize the importance, but at the end of the day, the majority of people go through life without any estate planning documents at all. Both younger folks and older individuals have failed to plan ahead appropriately.
You rarely hear about errors that are made by ordinary people, but some celebrity estate planning cases become widely publicized. Did you ever wonder why this information becomes available?
The probate court supervises the administration of an estate when a will is used, or when someone dies without a will. These records are available to the general public, and this is why you read about the details.
If you value your privacy you may want to arrange for asset transfers outside of probate through the utilization of a living trust if you value your privacy. Assets in a living trust can be distributed without probate involvement. This is a subject for another post, but it is related to the Aretha Franklin estate case that we will examine here.
The great soul singer Aretha Franklin died in August of 2018, and she was unmarried when she passed away. She is survived by four adult sons. Clearly, her estate is very valuable, and there will always be additional royalty revenues coming in that are generated by her work.
It has been reported that she had an attorney that had been working with her for over 40 years, but for whatever reason, at the time of her death, it was determined that she had no estate plan in place. This is a very unusual for someone with a considerable legacy to pass along.
When there is no will or any other documents directing asset transfers, the condition of intestacy is the result. Under the rules of the state of Michigan where she lived, the probate court is required to review the situation and appoint a personal representative to act as the administrator.
Final debts would be paid, and other issues could arise during the process. After everything is in order, the court will close the estate and order the distribution of the assets according to the intestate succession laws. In this situation, these laws would allow for everything to be transferred to the four sons.
That was the way that it stood until Franklin’s niece, Sabrina Owens, found some keys to a locked cabinet while she was cleaning the late artist’s home. In this cabinet, there were two holographic wills that were apparently written back in 2010. A holographic will is a will that was written out by hand.
Owens subsequently came upon a third handwritten will in a notebook from 2014 that was under a couch cushion. One of them required two of the four sons to complete business school before they could be given all of their inheritances. A judge will make the ultimate decision, and it would appear to be quite a jumbled legal mess.
As you can see, if Aretha had developed a relationship with a solid estate planning firm that has a background handling high net worth clients, all this confusion would have been avoided.
She could have explained her objectives and her concerns, and a custom crafted estate plan could have been created to ideally suit her needs. Instead, a judge that cannot get inside her head will have to do the best that he or she can to make an imperfect determination.
There is no reason to take any chances when a licensed estate planning attorney is just a phone call away. If you would like to schedule a consultation, our doors are open. We can be reached by phone at 775-823-9455, and if you would for her to reach out electronically, send us a message through our contact page.
For a lot of people, estate planning is simply a matter of slicing up a pie. You decide who will have a seat at the dessert table and how large the respective slices will be for each individual. In a very basic sense, there is truth to this, but there is much more to take into consideration if you want to plan your estate effectively.
First, you have to recognize the fact that there are different types of “pies” as it were. The way that assets are distributed if you use a last will is different than the process if you decide to go with a revocable living trust, or another type of trust. You should certainly explore all the options so that you can make fully informed decisions.
Arranging for the asset transfers is a large part of the equation, but you should also consider the estate administration process that will unfold before the assets can be distributed to the heirs. Gaining an understanding of the different possibilities could definitely influence your perspective.
With the above in mind, we will look at the potential for inheritance disputes that can enter the picture after you are gone if some people are not going to be happy with the decisions that you have made.
When a last will is used as an asset transfer vehicle, the executor would be the estate administrator. This person or entity is not permitted to act in a vacuum. Under the laws of the state of Nevada, the probate court must provide supervision during the administration process.
The estate will remain open while it is being probated for the better part of a year. During this interim, anyone that feels as though there must be some problem with the decedent’s will can come forward and contest the validity of the will.
It is not easy to convince the court that something is amiss, but in some instances, compelling evidence is presented. The thing that is relatively simple is the ability to issue the challenge in the first place. This is one of the drawbacks of probate, but there are others.
If you use a living trust instead of a last will, there is no readily available window of opportunity for people that may want to issue challenges. This is something to think about if you do have concerns about how someone will react to your distribution decisions.
A disgruntled party could file a lawsuit under these circumstances, but it would be complicated and expensive. Plus, you can provide a powerful disincentive when you create the trust declaration. A no contest clause can be included, and this would trigger the total disinheritance of any beneficiary that sues to challenge the trust terms.
Most people keep their monetary affairs close to the vest throughout their lives, and they don’t have a conference call with everyone in the family every time they make a financial decision. This is understandable, and you can apply the same principle to your estate planning efforts.
The final decision is yours, but the dynamic is quite a bit different than it is during your life when you are handling your personal affairs. This financial matter involves everyone that would expect to receive an inheritance, so your choices are impacting them quite directly.
If you know that someone is going to be very displeased, you may want to have a conversation with this person in advance. Clearly, this is not always going to be the way to go, but it is something to seriously consider. While it is true that you will not be around to experience the blowback, other family members will be in the crosshairs.
In a perfect world, you would probably like your surviving family members to maintain good relationships with one another and provide support when they can. When someone feels slighted and isolated from the rest, there can be ongoing resentment that never goes away.
We are holding a number of Webinars in the near future, and you can learn a great deal if you attend the session that fits into your schedule. There is no charge at all, and you can see the dates and obtain registration information if you visit our Reno estate planning Webinar page.
They say that the only two certainties of life are death and taxes, and everyone is well aware of the April 15th date that approaches all too rapidly. With few exceptions, most people are diligent about making preparations for tax day. Yet, for some unknown reason, the majority of the same folks totally ignore the other inevitability that we will all face at some point in time.
A while back, a website that is focused on legal matters did some research to get a feel for the estate planning preparedness of Americans. The results were quite surprising, but not in a good way. Overall, 57% of the adults in our country are going through life without any estate planning documents at all.
When you look at this figure, you would naturally assume that people that are younger are going to bolster the statistic, and they do to some extent. A rather eye-popping 92% of individuals under the age of 35 are rolling the dice without a will or a trust or any type of postmortem asset transfer plan.
You can say that people in this age group are rarely going to pass away, and generally speaking, this is true. However, accidents happen every day, and younger individuals are stricken by catastrophic illnesses. It is rather arrogant to assume that you will never be “one of the statistics.”
When you are talking about people in their mid-20s to mid-30s, a significant percentage of them are parents of dependent children. Anyone that is responsible for the well-being of minors should certainly cover all their bases with regard to any eventuality that can come down the pike.
The statistics continue to tell a sad tale when you look at the older age groups. Only 44% of baby boomers, which are people between 45 and 64, have estate plans in place. A mind-boggling 22% of senior citizens over the age of 65 have done nothing to prepare for the inevitable.
If you pass away without any estate planning documents, the condition of intestacy would exist. Interested parties would inform the probate court, and the court would supervise the intestate estate process. A personal representative would be named to serve as the administrator; this role is similar to that of an executor.
There are numerous different circumstances that can come into play that would impact the situation, and the exact details vary on a case-by-case basis. Depending on your true wishes, your family dynamic, and the nature of your assets, the outcome can be disastrous.
When final debts have been paid and the court has made all its determinations, the remaining assets would be distributed in accordance with the intestate succession laws of the state of Nevada.
In fairness, it is possible that this would wind up being consistent with what you would have done, but it is very unlikely. And even if it is, there would be a lot of totally unnecessary expenditures and time consumption during the probate process.
One of the questions that was asked in the survey that we have been looking at is somewhat humorous, but it is instructive at the same time. Right around one third of people said they would rather have a root canal, give up sex for a month, or do their taxes than engage in the estate planning process.
We can say with absolute certainty that the real experience is nothing to dread, and we go the extra mile to make our clients feel comfortable on every level. The reality is, estate planning is one of the core responsibilities of adulthood, and there is no point in running away from it.
Personalized attention is the key to a well-constructed estate plan, because there is no one-size-fits-all approach. This is exactly what you get when you make a connection with our firm. If you are ready to do just that, you can call us at 775-823-9455 to set up a consultation.
You can alternately send us a message through our contact page and we will get back in touch with you promptly.
There are many tools in the estate planning toolkit, so there are various strategies that can be implemented depending on the circumstances. This is one of the reasons why it is important to discuss your situation and your options with an estate planning attorney. If you make assumptions without enough information, you may make mistakes that could have been avoided.
This can apply to people that are partners in small businesses. You may assume that you have no choice but to leave your share in the business to your family in your last will, even if it is problematic for your partner and to some extent, your loved ones. Fortunately, there is a widely embraced solution.
The best way to explain the succession value of a buy-sell agreement is to present a very simple hypothetical example. Let’s say that you and a coworker decide to strike out on your own when you are both relatively young. You start your own business, and over time, it starts to thrive.
After a couple of decades, it generates a great deal of revenue, and you and your partner own the real property and equipment outright. It is worth a lot of money, and your share is by far your most valuable possession. Your partner can say the same thing.
What you do when you decide to put an estate plan in place? A buy-sell agreement can simplify what would appear to be a complicated situation. With the cross purchase plan, you and your partner take out insurance policies with payouts that are equal to the value of a share in the business.
When one partner passes away, per the agreement that both people entered into, the insurance proceeds are used to buy the lead partner’s share from his or her family. In this manner, the surviving partner can conduct business as usual, and the family has liquidity to spread around multiple heirs.
There is another type of agreement that centers around the same concept, but the business itself as an entity takes out the insurance policies. It should be noted that transfers to the surviving partner partners would not be subject to regular income taxes, and this is a great benefit.
While we are on the topic of small business ownership, estate planning, and insurance, we should take a brief look at another scenario that is not uncommon. We will use the same example to assist with the explanation with a few changes.
Instead of going into partnership with a coworker to start your own business, you go it alone. Everything goes the same way with regard to the success of the enterprise and its status as your most valuable possession.
You have two children, a son and a daughter. Your daughter worked in the business with you while she was in high school, but your son was not interested. After college, your son began his career in his chosen field, and your daughter asked if she could help you run the family business.
She works hard and does everything you could possibly ask for and more. Her efforts definitely make the business even more profitable, and you would like to leave it to her when you pass away. Though he never shared the same passion for this particular line of work, you love your son just as much as you love your daughter.
What do you do to balance the inheritances that you will leave to each of your children? The answer is to take out a life insurance policy that is equal to the value of the business and make your son the beneficiary. After your passing, your daughter would be the sole owner, and your son would receive an inheritance of equal value.
We are offering some fantastic learning opportunities over the coming weeks. The attorneys at our firm have scheduled a series of estate planning Webinars, and former attendees give us glowing feedback about the experiences they have had at our sessions.
Best of all, there is no admission charge, so this is an offer that is hard to refuse. If you agree, you can reserve your seat right now if you visit our Webinar schedule page and follow the simple instructions.
Many people that reside in our area have been very successful financially, and we have developed numerous relationships with high net worth families over the years. We continue to build on them, and it is gratifying to help successful people preserve their legacies for the benefit of their loved ones.
One of the most important things to take into consideration when you are engaged in the estate planning process is the potential for taxation. Though there are state-level estate taxes in some states, there is no such levy in Nevada. However, everyone in all 50 states must be concerned about the ravages of the federal estate tax.
This tax carries a 40% top rate, so we are talking about a significant level of asset erosion. It can be applied on transfers to anyone, even immediate family members, with one exception. If you are married to an American citizen, you can use the federal estate tax deduction to transfer any amount of property to your spouse in a tax-free manner.
At the time of this writing in 2019, the federal estate tax exclusion is $11.4 million. This is the amount that you can transfer to anyone other than your spouse before the estate tax would become applicable. Each year there are adjustments to account for inflation (for example, it was $11.18 million last year), so you will probably see a tick upward in 2020.
The first thought that would naturally cross your mind when you digest all the numbers above would be to give gifts to your loved ones while you are still living to avoid the estate tax.
Wealthy folks used to do this right after the estate tax was initially established in 1916. A gift tax was enacted eight years later to close this window, but it was repealed in 1926. The respite was short-lived, because the federal gift tax was reenacted in 1934, and it was unified with the estate tax in 1976.
As a result of this unification, the $11.4 million exclusion is a unified exclusion. It applies to significant gifts that you give while you are alive along with the estate that will be transferred after your death. This is the bad news, but the qualifier “significant” is the good news.
Relatively modest gifts that you give are not subject to taxation, because there is another gift tax exclusion that sits apart from the unified federal gift and estate tax exclusion. This is the annual per person exemption that allows you to give as much as $15,000 to any number of individuals within a calendar year free of transfer taxes.
This may not sound like much if you are exposed to the estate tax, but it can add up considerably when you see a bigger picture.
If you are married, you and your spouse would have a total of $30,000 to give to an unlimited number of recipients each year. Sustained gift giving over an extended period of time to people that would otherwise be inheriting the money can be an effective estate tax efficiency strategy.
Direct gift giving is a possibility, but this exclusion is often used to fund certain types of trusts, and it can be utilized to transfer assets among members of a family limited partnership.
There are two other types of gifts that can be given without incurring any transfer tax liability. One of them is the educational exemption. Under the tax code, you are allowed to pay school tuition for students without incurring any tax liability for your generosity.
This is a tuition only exemption that does not apply to books, fees, and living expenses. This being stated, you could use your annual $15,000 per person gift tax exclusion to provide extra support.
In addition to the educational exclusion, if you choose to pay medical bills for others, including health insurance premiums, there would be no transfer tax liability.
Our attorneys are holding a series of Webinars over the coming weeks, and we urge you to attend the session that fits into your schedule. There is no admission charge to pay, but we ask that you register in advance so we can reserve your seat. To check out the dates and obtain registration information, visit our Webinar schedule page.
The Kiddie Tax can apply to the unearned income of children. Read on to learn if this tax applies to you or your children. Also, learn ways to avoid the Kiddie Tax.
There are certain trusts that can be looked at as asset protection trusts for people that are exposed to the estate tax. These would be irrevocable trust, but there are other trusts that fit into this category that can be useful for other purposes. Since the names of these devices are wordy, they are often reduced to acronyms, and we will provide some decoding in this blog post.
One of these irrevocable trusts that is not exclusively tied to the objective of estate tax efficiency is the supplemental needs trust. Many people with disabilities rely on government benefits like Medicaid and Supplemental Security Income (SSI). The latter program is self-explanatory for the most part, and most people are aware of the fact that Medicaid is a source of health care insurance.
These are need-based benefits, so an applicant cannot gain eligibility with a significant store of assets in his or her name. As a result, if you want to provide for someone that is depending on Medicaid and/or SSI, you have to keep ongoing benefit eligibility in mind. There is a point of bifurcation at this point that we should cover so that you fully understand the lay of the land.
There is a type of trust called a supplemental needs trust that can be utilized under these circumstances. The trustee would be able to use assets in the trust to satisfy certain needs of the beneficiaries without violating any program rules. It would be possible for a parent, a grandparent, a trustee, or a court to establish this type of trust with the beneficiary’s own money.
As a result, it would be possible for you to give someone a direct gift that is used to establish a supplemental needs trust, which would be a first party special needs trust, That’s the good news, but the bad news is that the Medicaid program is required to seek reimbursement from the estates of people that used these benefits during their lives.
Because of this, if you go this route, Medicaid would absorb any remainder that is left in the trust after the passing of the grantor/beneficiary. To prevent this, you could establish the trust initially with your own resources. This would be a third-party trust, and assets that remain in the trust after the death of the beneficiary would be protected.
The estate tax exclusion stands $11.4 million right now, so if your estate is valued at more than this amount, you have to take steps to mitigate the damage. One type of trust that can be of assistance is the qualified personal residence trusts (QPRT).
Since we are covering a number of different devices here, we are providing short explanations. To execute this strategy, you place your home into the trust, and you name a beneficiary to assume ownership of it after the term expires. You are effectively removing your home from your estate for tax purposes, but the transfer would be exposed to the gift tax, which has the same rate.
When you establish the trust agreement, you set forth a term during which you will continue to live in the home as usual (which is called the retained income period). Let’s say that you choose to instruct the trust to allow you to stay in the home for 15 years.
No neutral buyer would pay fair market value for a piece of property that they could not possess for 15 years. The IRS takes this to into account when the taxable value of the gift is being calculated. Because of this, at the end of the process, the tax on the gift would be much less than the estate tax that would be applied on the immediate and direct transfer of the home after your passing.
The estate tax and the gift tax are applicable on transfers to anyone other than your spouse, as long as your spouse is an American citizen. If you are married to someone who is a citizen of another country, you could establish and fund a qualified domestic trust (QDT.)
Your spouse could receive earnings from the trust estate tax-free throughout his or her life if you do in fact die first. Portions of the principal could be distributed as well if you stipulate this in the trust declaration, but the estate tax would be applicable on these transfers.
After the passing of your surviving spouse, your final beneficiaries, presumably your children, would assume ownership of the trust. Transfer taxes would be a factor, but the resources would have earned income for a longer period of time while your surviving spouse was still alive.
We are here to help if you would like to learn more about advanced trusts or any other estate planning matter. You can send us a message to request a consultation appointment, and we can be reached by phone at 775-823-9455.
Trusts can be drafted to be quite flexible. This article examines several ways you can add flexibility to your trust. This added flexibility will increase the usefulness of your trust.
Where you die matters. While you’ll pay the same federal estate tax no matter where you die, 1/3 of the states have a separate estate or inheritance tax. The most populous state, California, is the latest state to consider adding a state estate tax. Read on to learn more.
When and Where You Die Matters
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.
