We serve clients in the Reno-Tahoe area, and there are many very successful people here. It is a good feeling to reach your financial goals and go forward with the knowledge that you will be able to leave a legacy for your loved ones to draw from after you are gone. This being stated, there is a looming threat that can have a negative impact on your family.
There is a federal estate tax in the United States, and the maximum rate is a whopping 40 percent. Some states in the union impose state-level estate taxes, but fortunately, here in Nevada there is no state estate tax. However, if you own valuable property in a state that does have its own death tax, it could be a factor for you.
The majority of Americans do not have to worry about the federal estate tax, because there is an exclusion that is relatively high. This is the amount that you can transfer before the estate tax would be applied. In 2011, a $5 million exclusion was established, and this figure was retained with adjustments to account for inflation through 2017.
During that year, new tax legislation was enacted, and the estate tax was impacted significantly. The exclusion went up to $11.18 million for 2018, and this is the benchmark under this law. Now that the new year is upon us, we have a slightly higher figure, because an inflation adjustment has been added. The federal estate tax exclusion in 2019 is $11.4 million.
It is important to note the fact that this is a per person exclusion, so a married couple would have a total exclusion of $22.8 million using the figure that is in place this year. Plus, the estate tax exclusion is portable between spouses. This was not the case prior to 2011. In this context, the term “portability” refers to the ability of a surviving spouse to use the exclusion that was allotted to his or her deceased spouse.
2019 Gift Tax Exclusion
When you hear about the existence of the federal estate tax, you would logically consider lifetime gift giving as a way to get around it. This used to be possible shortly after the enactment of the tax in 2016, but the gift tax was put into place in 1924 to close the loophole. It was repealed in 1926, but it came back for good in 1932.
The gift tax the estate tax are unified under the tax code. This means that the $11.4 million exclusion that we have in 2019 is a unified exclusion that encompasses lifetime gifts along with the value of your estate. For this reason, large gift giving is not an effective estate tax efficiency strategy.
In addition to the unified gift and estate tax exclusion, there is a separate annual gift tax exclusion. This allows you to give a certain amount to any number of individuals every year free of the estate tax. It is sometimes adjusted to account for inflation as well, but there will be no changes in 2019. The annual gift tax exclusion is $15,000 per person, so a married couple would have a total annual exclusion of $30,000.
If you are exposed to the estate tax, the utilization of this annual exclusion could be useful to you. To provide an example, let’s say that you have five married children. You could give $30,000 to each husband and each wife every year. This would allow you to divest yourself of $300,000 annually tax-free.
If you are on this website, you must be looking for sound information about estate planning and elder law topics. You are definitely in the right place, because we have many resources here, and you are welcome to explore the site and take advantage of the written materials.
In addition to this, we go the extra mile to provide learning opportunities to members of our community. Our estate planning attorneys hold Webinars on an ongoing basis, and you can learn a lot if you attend one of these sessions. There is no charge at all, but we do ask that you register in advance so that we can save your seat. To get all the details, visit our estate planning Webinar page.
When we consult with clients, we often hear many of the same questions. With this in mind, we present a hypothetical question-and-answer session with a Reno estate planning lawyer in this post.
To die without an estate plan is called dying intestate. Under the rules of intestacy, the probate court would supervise the administration of the estate. Creditors would be given an opportunity to come forward seeking satisfaction, an estate is inventories and valued, disputes are resolved, and ultimately the assets would be distributed under intestate succession laws.
That’s the good news, but the bad news is that it is very possible that your assets would not be distributed in accordance with your wishes. For example, if you are happily married, you have no children, and your parents are still living, you would probably want your spouse to inherit everything. In Nevada, under intestate succession rules, your spouse would inherit half of your separate property, and your parents would inherit the rest. Intestacy law does not appropriately deal with most issues that arise with separate property. Further, intestacy law does not account for many modern day families, such as blended families with step-children, non-traditionally married couples, and a myriad others.
There is no reason to surrender control of your estate to the judicial process when it is so easy to engage the services of a licensed Reno estate planning lawyer.
It is true that there are some types of trusts that are used by high net worth individuals that are exposed to the federal estate tax. However, there are other types of trust that can be quite useful for people of relatively ordinary means.
Far and above the most common is the revocable living trust. If you use a last will, it would be admitted to probate after you die. The court would provide supervision, and the executor would handle the estate administration tasks. But this process will take eight or nine months to a year to run its course, and inheritors receive nothing during this interim. There are also innumerable expenses that pile up during probate, often at a cost between 4% up to 8% of the estate value.
If you use a living trust instead, the trustee that you name in the trust agreement would be empowered to distribute assets to the beneficiaries outside of probate. This is one advantage, but there are a number of others, including the option to protect an inheritance through a trust against lawsuits, creditors, divorcing spouses, or other predators.
A living trust is beneficial whenever a client has a goal to avoid probate and make the process easy for their loved ones. It's not only for wealthy people, but for people who want to better take care of their life planning.
Since the Internal Revenue Service requires you to report all sources of income, you may assume that inheritances that you leave to your loved ones would be taxed. In actuality, inheritances are not subject to taxation, with the exception of inheriting retirement accounts (such as traditional IRA or 401(k) accounts).
There is, however, a federal estate tax that might apply to your estate before everything is distributed to the beneficiaries as an inheritance. But, the vast majority of people do not have to be concerned about the estate tax because there is a VERY large exclusion. Only the portion of your estate that exceeds the amount of this exclusion would be taxed. At the time of this writing in 2019, the exclusion stands at $11.4 million.
These are a few short questions that we frequently hear from our clients, and you can ask your own if you attend one of our upcoming Webinars. The information sessions that we hold provide a treasure trove of useful information, so we strongly encourage you to attend the Webinar that fits into your schedule. To get all the details, visit our Webinar page and follow the simple instructions to register for the date that works for you. Starting in 2019, we are offering Webinars semi-monthly in the evening to accommodate those people that cannot attend during the middle of the day.
Most people will be best served by the creation of a revocable living trust as a primary estate planning vehicle. This being stated, there are advanced techniques that can be utilized to address more complicated scenarios. In this blog post, we will take a look at three of them, and we will examine others in future articles.
Many people with disabilities rely on Medicaid, which is a government health insurance program that is available to people with very limited financial resources. Clearly, people with special needs are going to accumulate significant health care expenses, so this coverage is a lifeline.
Another need-based benefit that a lot of individuals with special needs rely upon is Supplemental Security Income. The name is self-explanatory: this program provides a modest but steady stream of income to people that can qualify.
If someone that was enrolled in these programs was to receive an inheritance, benefit eligibility could be lost. However, this does not mean that you cannot include a loved one with special needs in your estate plan. There is a legal device called a supplemental needs trust that can be utilized to make your family member more comfortable.
You fund the trust, and you name a trustee to handle the administration tasks. It can be someone that you know personally, but many people use a fiduciary like a bank or a trust company. This can be a good idea for a number of different reasons, not the least of which is the fact that the fiduciary would fully understand the legal intricacies.
The government benefits do not necessarily meet all of the needs of the recipient. These are called supplemental needs, and the trustee can use assets in the trust to satisfy these needs. There are certain things that can and cannot be paid for, and this is why it is wise to empower a trustee that has a thorough understanding of the parameters.
Under ordinary circumstances, the Medicaid program is required to seek reimbursement from the estates of recipients after they pass away. When you establish a trust for the benefit of someone else with your own money, it is a third-party special needs trust. The Medicaid program would not be able to attach assets that are remaining in the trust after the passing of the beneficiary. In the trust declaration, you name a successor beneficiary, and this individual would assume ownership of the remainder.
To explain this second scenario, we will utilize a simple example. Let’s say that you run a business with a single partner named Bill. You both have equal shares in the business. If Bill becomes incapacitated, who will vote Bill’s interest in the business? If Bill dies before you do, what happens to his share in the business?
This question can be answered through the utilization of an estate planning device called a buy-sell agreement. For purposes of incapacity, you can restrict the class of persons who can vote Bill’s interest in the business. For death planning, you and Bill get together to determine the value of a share in the business. Next, each of you would take out insurance policies on one another equal with payouts that are equal to this amount. After one partner dies, the other party would receive the proceeds from the insurance policy. The money would be used to buy the share that was owned by the deceased partner from his or her family. This is commonly referred to as cross-purchase buy-sell arrangement.
It is possible to positively influence the behavior of someone on your inheritance list through the creation of an incentive trust. To provide another example, let’s say that you have a grandson that has struggled with a substance abuse problem for years. He has had success for extended periods of time, but there have been relapses on a number of different occasions.
You are concerned that he may utilize his inheritance to indulge in his excesses. Under these circumstances, you could convey assets into an incentive trust. The trustee would follow instructions with regard to the conditions that must be met before income or principal will be distributed to the beneficiary. Using this example, you could allow for distributions so long as the beneficiary remains clean.
These are a handful of the different situations that can be interested through the utilization of advanced estate planning techniques, but there are many others.
If you would like to build on your knowledge, you have some great opportunities coming up in the near future. Our estate planning attorneys are very passionate about education, and they go the extra mile to share information with community members through our free Webinars.
There are some dates on the schedule right now, and there will be more added on an ongoing basis. You can really learn a lot if you attend one of these sessions, so we urge you to attend the one that fits into your schedule. To see the dates and obtain registration information, visit our Webinar schedule page and click on the session that interests you.
Often, clients want to continue to control their beneficiaries after death, just as they’ve done during their lifetime. They want to etch in stone the exact circumstances under which distributions should be made to the beneficiaries. Sometimes they think the beneficiary will have to go to the tombstone like a confessional or ATM.
The problem is the client doesn’t know what may happen in the intervening years. Here are just a few of the several things that regularly change after a plan has been drafted:
Rather than trying to precisely anticipate every possible future scenario, which is a fool’s errand, it’s better to put that in the hands of the trustee. The trustee can be given discretion to withhold distributions based on pre-set factors such as:
That’s not to say you shouldn’t set forth your general wishes. But, most of the specifics should be left for the trustee to decide.
For example, a client in San Francisco in 1990 might have decided to provide for a beneficiary’s rent and set forth a specific dollar amount of $1,000 to cover it, expecting that would be ample. It would be much better to give the trustee discretion to pay for the beneficiary’s support, in the trustee’s discretion. Imagine how the average rents have changed over two decades in San Francisco, where the rent of even a studio apartment is now over $2400. If a specific dollar amount were used, even inflation-adjusted, it would not allow the flexibility to respond to the changing world. Giving the trustee discretion achieves the desired result: to pay for the beneficiary’s rent.
The trustee selected by the client is in a much better position to judge when a distribution should be made, for rent in the prior example. The first five letters say exactly what you should do with them: t-r-u-s-t them. Trust that the trustee will make the right decision. If you don’t trust that person, put someone in that role whom you do trust.
The client can only gaze into a crystal ball and wonder what might happen in the world and in the beneficiary’s life. Trustees have the benefit of 20/20 hindsight. They know what has happened since the client drafted their estate plan and died. They know the beneficiary’s circumstances and they know the current state of the world. They are in a far better position to make a decision.
If you would like to learn more about wills and trusts or other estate planning matters, attend one of our upcoming Webinars. They are free to attend, and you can get all the details if you visit our Webinar information page. Or you can call us to arrange a free consultation to discuss living trusts, or other estate planning matters, at (775) 823-9455.
When you are caught up in your day-to-day activities it can be difficult to take a step back and look at the bigger picture. This is certainly true for a small business owner because it takes so much time and energy to run your business successfully.
Retirement and estate planning involve some complexities for everyone, but when you are a small business owner you have added issues to consider.
When you work for a company you can simply put in your notice and accept your plaque as you walk out the door. On the other hand, when you are the owner of the business you must consider business succession strategies.
The sooner you determine how you want to exit, the better. Your exit strategy might affect the decisions you make every day. For example, if your intention is to pass the business along to a family member, you may be inclined to invest money into the infrastructure. If you are going to close the business entirely or sell it, you may focus on maximizing current revenue above all else.
Each situation is going to be unique. The best way to explore your options when it comes to small business succession planning would be to arrange for a consultation with an estate planning lawyer who has a background assisting business people.
Building a business may be your life’s work. It is important to make sure that you are comfortable with how you will be exiting.
With the above in mind, consider a partner in a small business. The value of the business may be the largest asset that this individual has to pass along to his or her family. However, there may well be multiple heirs, so this value must be divided somehow.
The family could sell the share in the business and split the proceeds, but this leaves a number of issues. Do the remaining partners have the cash to buy out the family? Or does the family sell the share of the business to a new investor? If the family tries to sell a fractional share of the business, they will not likely obtain the full value of the fractional share! Not to mention that the surviving partners would not necessarily embrace a new investor.
This type of situation can be addressed through a properly drafted operating agreement. Alternatively, this can be addressed through the execution of a buy-sell agreement called a cross-purchase plan.
In a cross-purchase plan, the value (or the methodology of the value) of the business interests is agreed-upon by the partners. The partners then purchase life insurance coverage on one another with the proceeds equaling the value of the business interests. Under the terms of the agreement, the remaining partners purchase the share that was owned by the deceased partner from his or her family with the combined insurance policy proceeds. In this manner, the family has liquidity while the surviving partners retain control.
A lot of people get their first exposure to retirement planning on the job. Most companies will give you the opportunity to participate in a group 401(k) retirement savings plan, and many of them will actually match your contributions up to a particular percentage. Those who contribute into a 401(k) account as employees fund their retirement with pre-tax earnings. The participant will eventually pay taxes on the withdrawals, but those taxes are deferred for a very long time.
When you work for yourself, you must make different arrangements. It is possible to open your own 401(k) account as a self-employed individual, and those who are serious about being able to retire in comfort should certainly consider doing so. As a self-employed individual with a 401(k) account, you have to make deposits on your own, but they are tax-deferred in the same manner. Most small business owners also look at other retirement planning options, such as SEP IRAs.
With nearly every retirement account, you must leave the account untouched until you are at least 59.5 years of age if you do not want to pay penalties. Once you turn 59.5, you can begin to take distributions in a penalty-free manner, but you don’t have to begin taking distributions until you are 70.5 years of age.
Retirement planning, business succession planning, and estate planning should all be addressed simultaneously to ensure your overall financial goals remain intact for you and your family.
Our Reno estate planning lawyers are holding some free Webinars in the near future, and you can click this link to register for the session that works for you.
The idea of estate planning might be one of the scariest things you have to confront as an adult. After all, nobody wants to think about their death. Or incapacity. But estate planning does not have to make chills run down your spine. On the contrary! Estate planning is empowering for both you and your family and allows you to live confidently knowing that things will be taken care of in the event of your passing or incapacity. Remember, estate planning is not just for the ultra-rich. If you own anything or have young children, you should have an estate plan. Read below to find out reasons why.
Proper estate planning accomplishes many things. It puts your financial affairs in order. Parents should designate a guardian for their minor or disabled children, so the children are cared for by someone who shares your values and parenting style. Homeowners can make sure their property is transferred to the proper beneficiary in the event of untimely death. Business owners can ensure the enterprise they’ve worked so hard to build stays within the family.
Yet, according to WealthCounsel’s 2016 Estate Planning Literacy Survey, only 40% of Americans have a will and just 17% have a trust in place. This means a majority of American families not being adequately protected against the eventual certainty of death or the potential for legal incapacity.
When it comes to estate planning, knowledge is vital. Less than 50 percent of those surveyed by WealthCounsel understood that an estate plan can be used to address several concerns - financial or non-financial matters - including health decisions and guardianship, avoiding court and preempting family conflicts, protecting an inheritance for your beneficiaries, as well as taking advantage of business and tax benefits.
Legal disputes over estate plans and wills - or, usually, the lack of having these in place at all - are common. These conflicts can cause harm to family relationships and be financially burdensome. Disputes among the rich-and-famous often made headlines, but disputes among everyday folk stay buried in courts for years.
Some scary outcomes of inadequate or non-existent estate planning include:
These horror stories are not limited to wealthy celebrities. WealthCounsel’s survey found that more than one-third of respondents know someone who has experienced, or have themselves suffered, family disputes due to the failure of an existing estate plan or inadequate will. Additionally, more than half of those who have established an estate plan did so to reduce family conflict. Preserving family harmony is for everyone - not only for the wealthy or celebrities.
Estate planning can be confusing as each circumstance is unique and requires different tools to achieve the best possible outcome. Nearly 75 percent of those surveyed by WealthCounsel said estate planning was a confusing topic and valued professional guidance in learning more - so you’re not alone if you aren’t sure where to begin.
We’re here to help. An estate planning attorney is essential in determining the best way to structure your will, trust, and estate plan to fit your needs. If you or someone you know has questions about where to begin - contact us today. Anderson, Dorn & Rader, Ltd. has been protecting families and their legacies for decades. We offer free, no-obligation Webinars every month around Northern Nevada to teach and guide people about how to plan appropriately for these inevitable issues.
The estate planning lawyers at our firm place an emphasis on education, because far too many people have misconceptions about wills and trusts. One of the most common ones is the idea that a will is the only choice because trusts are "only for very wealthy people." Trusts are often misunderstood as being only useful for the rich.
Yes, very high net worth individuals can benefit from the utilization of certain types of trusts. These are going to be irrevocable trusts that are used for estate tax avoidance, income tax planning, and asset protection. However, irrevocable trusts are rarely used in an individual's estate plan. A revocable living trust is a tool that is often the best choice for a wide range of different people that do not consider themselves to be among the financial elite. Let’s look at a handful of the benefits that living trusts provide.
A lot of people are under the assumption that you surrender all personal control of assets that you convey into a trust. This is not the case when it comes to a living trust. A "trustee" is the person that administers, or manages, assets in a trust, and you can be the trustee for your own trust. When you establish the trust agreement, you name a successor trustee to handle these chores after you are gone. You can name someone that you know, or you can use a professional fiduciary such as an attorney, certified public accountant, trust company or the trust department of a bank.
Other people assume that they are "giving away" their estate by transferring property into a trust. A "beneficiary" in the trust is the person that enjoys the use of the assets in the trust. You will be the beneficiary and utilize assets in the trust as you see fit for the remainder of your lifetime. You also name a successor beneficiary to receive distributions from the trust after your death. If you choose to do so, you can name multiple beneficiaries.
In other words, since you manage and enjoy your own estate in the trust during your lifetime, you retain full control and use of your property without limitation. Your control is absolute, because you are not forever beholden to the original terms that you set forth when you established the trust declaration. You can change the beneficiaries, and you can name a different trustee. Plus, you can convey additional property into the trust at any time. The trust is a tool that ensures your estate will be managed by the proper person for your designated beneficiaries upon your death.
In fact, you can dissolve the trust entirely if you ever want to because after all, it is a revocable living trust.
As we touched upon above, you can use a professional to act as the trustee after you pass away. Many people will go this route for a number of different reasons. For one, there would be no succession concerns, because the professional trustee (such as a law firm or a bank) will almost always be there upon your death. Secondly, there is going to be professional oversight with regard to the way the trust is administered.
Another benefit is the fact that a professional will know how to invest the trust assets wisely. Lastly, you can rely on the fiduciary to show no favoritism and follow your instructions to the letter without emotion.
You do not have to instruct the trustee to distribute everything in the trust right after your passing. For example, you could allow for set monthly distributions to the beneficiaries, or you could direct the trustee to distribute only the earnings without dipping into the principal at all. Some people will allow for larger, lump sum distributions when the beneficiaries reach certain age thresholds.
Of course, you could give the trustee latitude with regard to emergency distributions. The exact details are up to you, and this is another great benefit that you gain if you utilize a revocable living trust as your primary asset transfer vehicle.
Alzheimer’s disease strikes approximately four out of every 10 people that are 85 years of age or older. Of course, some people become unable to make sound decisions for other reasons, and incapacity can strike at a younger age. To account for this, you could empower the successor trustee, or a different individual or entity, to act as the trustee in the event of your incapacity.
If you would like to learn more about Reno wills and trusts and other estate planning matters, attend one of our upcoming Webinars. They are free to attend, and you can get all the details if you visit our Webinar information page. Or you can call us to arrange a free consultation to discuss living trusts, or other estate planning matters, at (775) 823-9455.
If you have not thought a lot about estate planning until now, you may assume that you will eventually go to an attorney to execute a Will. Many people know that trusts exist, but they assume that they are only useful for people that are extremely wealthy. In fact, this is a myth. There is a certain type of trust called a Revocable Living Trust that is very useful for most people. Let’s look at some of the benefits that are realized through the utilization of a Revocable Living Trust.
After you pass away, someone has to handle the estate administration tasks and get the assets into the hands of the beneficiaries. When a Will is used, this person or entity is called the executor or personal representative. If you have a considerable variety of assets that are all scattered about, the estate administration process can be very time-consuming and complicated. The administrator will have to search for all of the property that comprises the estate, and this can be a daunting task. If you have real property interests in more than one state, the personal representative may have to go through multiple different administrative processes in multiple states.
Things are entirely different when a Living Trust is used as the centerpiece of your estate plan. All of your assets can be transferred into the trust while you are still living. This consolidation would make things quite simple for the Trustee (that you name in the trust) to administer your estate.
Some people assume that an executor can distribute assets to the beneficiaries under a Will independently, without any supervision. In fact, this is not the case at all. According to the laws of the state of Nevada, the executor would be forced to admit the will to probate, and the probate court would supervise the administration of the estate.
There are a number of drawbacks that go along with the probate process if you are someone that is in line for an inheritance. First, there is a waiting game involved. It takes about nine months to a year for a simple case to pass through probate, and no inheritances can be distributed until the estate has been probated and closed by the court. More complicated estates, or estates that end up being challenged in court, could be tied up in probate for years.
Second, probate expenses are another pitfall. There are filing fees and the executor’s payment for his or her time trouble. The executor will usually hire a probate lawyer, so legal fees enter the picture. And there are accounting, liquidation, and appraisal expenses. After you add in miscellaneous costs, you are looking at a significant figure, and these expenditures reduce the value of the estate before it is transferred to the heirs.
Finally, one of the biggest problems with probate is the loss of privacy. In some cases, after a very high profile person dies, the press reveals all types of information about how the assets were distributed. You may wonder how this is possible, but the answer lies in the fact that probate is a public proceeding. Anyone that is interested can access probate records to find out what took place.
These drawbacks are avoided when a Revocable Living Trust is used, because the trust administration process is not subject to probate and is administered privately.
A significant percentage of seniors become unable to make sound financial decisions at some point in time. There are many different underlying causes of incapacity, but Alzheimer’s disease is one of the leading culprits. It strikes around 40 percent of seniors that are 85 years of age and older. To account for this, if you establish a Revocable Living Trust, you could empower a disability trustee to administer the trust in the event of your incapacity.
A Will, by itself, only applies at death. There are no provisions in a Will that allows someone to manage an estate during a period of incapacity.
If you use a Will, you most likely allow for a lump sum distribution of the estate. This can be disconcerting if you have a beneficiary that is not good at handling money, is in the middle of a lawsuit, or is likely to get divorced in the future. You can account for all of these issues if you use a Revocable Living Trust. It would be possible to instruct the Trustee to distribute limited assets on an incremental basis to prolong the viability of the trust.
You can learn a lot more about Living Trusts and other estate planning strategies if you attend one of our upcoming Webinars. They are being offered free of charge, and you can click the following link to see the schedule: Reno, Nevada Estate Webinars. Or feel free to call our office at (775) 823-9455 to schedule a consultation.
Did you ever wonder what happens to your digital footprint when you pass away? Well you should, particularly if you are part of the 77 percent of Americans who go online every day. As the internet has become more of an integral part of our lives, our information -- pictures, videos, financial, emails, social media accounts, and other personal information -- is constantly being stored online. All of this information is known as your “digital assets.” While the internet has made our lives easier by allowing us to access our information with the simple push of a button, it may be difficult for our loved ones to do the same once we are gone.
Digital assets encompass any of your information that you store or use online -- this includes social media accounts such as Facebook. While you may not consider these digital assets as having much monetary value, they store critical information or have sentimental value. Consequently, when you plan for your estate you should include your digital assets because they are an asset owned by you. Indeed, when it comes to your digital assets you will have to make special advanced arrangements so your executor -- the person in charge of your estate when you pass away -- can access them upon your passing. Many online providers, such as Facebook, Google, and Yahoo!, have specific procedures for handling your account upon your passing. In order to ensure that your wishes are carried out, you must follow their rules. Strictly speaking, providing usernames and passwords to another person, even your executor or successor trustee, may be a violation of the terms of service for many online accounts, and could cause trouble for your executor or successor trustee. You should also consider access to your computer and back-up hard drives, tablets, and smartphones. Being proactive is key when it comes to your digital assets so that they may be accessed when needed. And, as with any estate plan, regularly revisiting your plan for your digital assets is key.
Depending on where you live your digital estate plan may need to be formalized into a legal document. You can then name an executor specifically for your digital assets or, alternatively, name someone with whom your traditional executor can work with in order to settle your digital estate. Make sure to instruct your executor as to the location of your digital asset inventory for easy access. Keep in mind that because your will becomes a public document upon your death due to probate, you should never put any of your username or password information in your will. Instead, have your will refer to an outside document that contains all the needed information regarding your digital assets.
Under Nevada law, in accordance with recent laws passed in 2017, you should specifically grant authority to your Trustee under a Living Trust, your Agent under a Power of Attorney, and an executor under a Last Will and Testament in order to ensure all digital information can be accessed in the event of an incapacity or death.
Attend a FREE Webinar to learn more about estate planning, dealing with digital assets, and all the important aspects of protecting your loved ones! If you have questions regarding digital assets, or any other estate planning issues, please contact Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.
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.
