When we think of estate planning, we often think about preparing our accounts and property to go to our loved ones in a tax-efficient way, protected from probate, disgruntled heirs, beneficiaries’ creditors, divorcing spouses, bankruptcy, and the poor spending habits of children or other beneficiaries. We rarely consider preparing for receiving an inheritance of our own.
Believe it or not, there are some essential things you must consider when you anticipate receiving an inheritance. Understanding these issues can be crucial to protect that inheritance from unnecessary taxes and outside threats like creditors, divorcing spouses, and bankruptcy.
The first way to properly prepare to receive an inheritance is to discover what you will be inheriting. Is it real estate, a 401(k), or an individual retirement account (IRA)? Perhaps it is publicly traded stock, an interest in a family business, or just simply cash from a savings account or life insurance policy.
Whatever it is, there are steps you can take today to plan to receive and manage it properly. For example, if you will receive a large IRA account from a parent, do you understand the new rules associated with inherited IRAs as implemented by the SECURE Act passed in late 2019? If not, you should educate yourself now on how to maximize the tax benefits available under the law regarding required distributions. Without an understanding of these often complicated rules, you could make an irreversible mistake and withdraw all of the IRA funds at one time, thereby substantially increasing your tax liability in the year of withdrawal. There are a variety of nuances to these rules that a tax adviser or attorney can help you understand and navigate properly.
Likewise, if you are receiving rental property as a part of your inheritance, you should consider the business of being a landlord and if you even have an interest in continuing to operate such a venture. If not, you may want to prepare to find a buyer for the property who can offer you a fair price as soon as possible. Or, at the very least, look into hiring a property management company to take over as soon as you inherit the property.
If your loved one has completed trust planning that includes establishing an irrevocable trust for you, such trusts frequently include important features that are generally referred to as powers of appointment. A power of appointment in a trust is a right, often given to the beneficiary of the trust, to gift trust property to someone else or, in some cases, to yourself. These powers are often limited to making gifts to only certain classes of people (such as the descendants of the trust makers), or they may be limited to making gifts only at death (a testamentary power of appointment) or during life (a lifetime power of appointment). Some trusts include both types of powers. These can be powerful planning tools that have been given to you through trust documents. Failure to recognize the existence of these powers can lead to unintended consequences, or at the very least, crucial missed asset protection and tax-planning opportunities.
If you know that you have been granted a power of appointment, you should attempt to obtain a copy of the relevant trust documents to carefully review and determine the nature of these powers. An experienced estate planning attorney can help you with this task. With this information, your professional advisers can properly advise you on the planning opportunities and tax consequences of the powers of appointment that may be available to you.
A common mistake made by married individuals who receive an inheritance is to commingle that inheritance with the property of both spouses. How can this be a mistake? An example may best illustrate the point:
Imagine Robin receives a cash inheritance from her deceased father of $300,000 and she and her spouse Morgan decide to use the inheritance to buy a vacation cabin in the mountains. When purchasing the property, the title company assumes that because they are a married couple, they want to take title to the property as joint tenants with rights of survivorship and the deed gets prepared and recorded accordingly. Further imagine that over the years, they furnish the property together, maintain it, and enjoy many family vacations there. One night, however, Morgan has a little too much to drink at a bar, gets behind the wheel, and causes a deadly accident that results not just in a DUI, but also in a wrongful death lawsuit. Because Morgan’s name is on the title to the property as a joint owner, Robin and Morgan discover that the family cabin is an asset that can be used to satisfy the lawsuit judgment against Morgan. As a result, they are forced to sell the cabin and use half of the proceeds to satisfy the judgment.
This unfortunate circumstance can be the result of Robin’s failure to keep her inheritance as separate property. By commingling her property with Morgan, she made it much easier for the judgment creditor in the lawsuit to reach what otherwise would have been considered Robin’s separate inheritance property.
Commingling inherited property can also lead to a similar result if Robin and Morgan ultimately divorce and the family court judge has to determine how to divide the marital property. Failing to keep the inherited property separate during marriage can often lead to that property being divided between spouses at divorce.
A fourth way for you to prepare to inherit property is by using an inheritor's trust. This is a special type of trust that can be established by the individual who will be leaving an inheritance to you. An inheritor's trust is designed to receive the inheritance that you would otherwise receive directly. It must be carefully designed and implemented to work properly, and an experienced estate planning attorney should most certainly be used in the effort. A properly drafted inheritor's trust includes the following key elements:
An inheritor's trust includes the following benefits:
An inheritor's trust can be a powerful tool to use when you anticipate receiving a large inheritance and would like to make sure that the inheritance is protected from certain tax consequences or threats from creditors.
If you would like to learn more about any of these concepts, give us a call. We would love to discuss these ideas in greater depth with you so we can help you build and protect your wealth more effectively.
The primary purposes of a Revocable Living Trust are to avoid Probate Court's costs at death and a guardianship proceeding should the creator of the Trust (the Trustor) become incapacitated during life. In order for a Successor Trustee to properly administer the Trust in the event of incapacity or death, the assets in the Trust should be identified.
Typically attached to an individual Revocable Living Trust is Schedule A that lists all the Trust assets. This provides a roadmap for the Successor Trustee to find the Trustor's assets held in the Trust and to begin administering the assets correctly. For married couples completing a joint Revocable Living Trust, Schedule A will identify Community Property, Schedule B will identify the Husband's Separate Property, and Schedule C will identify the Wife's Separate Property. Identifying the property's character can be very important for the Successor Trustee to properly administer the Trust for beneficiaries and determine if the step-up in income tax basis to Fair Market Value at death is applicable to the asset. The Trustors should update Schedules A, B, and C in writing as material changes are made to their assets such as new bank accounts, brokerage accounts, real estate, life insurance, safe deposit boxes, etc. While the Trustors can make updates and changes to their Schedules, the Trustors should never write on their trust document as any handwritten modification to a Trust document that is not properly executed/notarized will not be effective.
An example of Schedule A is included at the end of this article for a sample client assuming all their property is Community Property. While Schedule A provides the roadmap for administering Trust assets for Successor Trustees, it does not by itself fund assets into the Trust. To properly fund real property into a Trust, a deed must be prepared and recorded, bank account and brokerage accounts re-titled to the Trust, qualified plans and IRA beneficiary designations updated, life insurance beneficiary designations completed, and business interests assigned to the Trust.
Consult with an Estate Planning Professional
While Estate planning can be complicated, it is essential in protecting yourself and your loved one's financial future. Give Anderson, Dorn & Rader Ltd. a call at 775-823-9455 to make a free consultation with an estate planning attorney and see how we can help protect your legacy and your family.
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.
When you establish a revocable living trust, you are also generally the initial Trustee of the trust, administering the trust assets for your own benefit as a beneficiary of the trust. If you are married, your spouse can be a trustee with you. This way, if either of you become incapacitated or die, the other can continue to handle your financial affairs without interruption. What happens if you and your spouse are unable to serve as trustees due to incapacity or death? Generally, your revocable living trust will provide for a Successor Trustee to manage your trust assets for your benefit. The Trustee should be prepared to manage your financial affairs by collecting income, paying bills/taxes, selecting health-care professionals if needed, providing for your well-being, providing for dependents if any, and keeping accurate records.
Some people choose an adult son or daughter, a trusted friend or another relative. Some like having the experience and investment skills of a professional or corporate trustee (e.g., a bank trust department, trust company, or law firm). Naming someone else as trustee or co-trustee with you does not mean you lose control. The trustee you name must follow the instructions in your trust and report to you. You can even replace your trustee in your revocable living trust should you change your mind.
At death your assets can be left outright or continuing sub-trust for asset protection of your heirs/beneficiaries. Sub-trusts provide asset protection to your beneficiaries from their own creditors, or potential x-spouses. If you leave your assets in sub-trust for asset protection of your beneficiaries, consider if each heir should be their own trustee or if a professional trustee, or another person would be a better choice. For special needs beneficiaries, or a spendthrift beneficiary, often a professional trustee is helpful.
You may be elderly, widowed, or in declining health and have no children or other trusted relatives living nearby. Or your candidates may not have the time or ability to manage your trust. You may simply not have the time, desire or experience to manage your investments by yourself. Also, certain irrevocable trusts will not allow you to be trustee due to restrictions in the tax laws. In these situations, a professional or corporate trustee may be exactly what you need: they have the experience, time and resources to manage your trust and help you meet your investment goals.
Professional or corporate trustees will charge a fee to manage your trust, but generally the fee is quite reasonable, especially when you consider their experience, the services provided, and the investment returns that a professional trustee can deliver.
We can help you select, educate, and advise your successor trustees so they will have support and know what to do next to carry out your wishes. Give us a call today at (775) 823-9455 to schedule a consultation.
Although many people equate “estate planning” with having a will, there are many advantages to having a trust rather than a will as the centerpiece of your estate plan. While there are other estate planning tools (such as joint tenancy, transfer on death, beneficiary designations, to name a few), only a trust provides comprehensive management of your property in the event you can’t make financial decisions for yourself (commonly called legal incapacity) or after your death.
One of the primary advantages of having a trust is that it provides the ability to bypass the publicity, time, and expense of probate. Probate is the legal process by which a court decides the rightful heirs and distribution of assets of a deceased through the administration of the estate. This process can easily cost thousands of dollars and take several months to more than a year to resolve. In Nevada, a gross estate of $400,000 in assets under NRS 150.060(4) is subject to $10,000 in fees plus court costs. Larger estates have an even more onerous probate fees. Or course, not all assets are subject to probate. Some exemptions include jointly owned assets with rights of survivorship as well as assets with designated beneficiaries (such as life insurance, annuities, and retirement accounts) and payable upon death or transfer on death accounts. But joint tenancy and designating beneficiaries don’t provide the ability for someone you trust to manage your property if you’re unable to do so, so they are an incomplete solution. Additionally, joint tenancy creates pitfalls for income tax purposes versus a trust. Last, having a will only does not avoid probate.
Of note, if your probate estate is small enough - or it is going to a surviving spouse or domestic partner - you may qualify for a simplified probate process in Nevada. In general, if your assets are worth $100,000 or more, you will likely not qualify for simplified probate and should strongly consider creating a trust. Considering the cost of probate should also be a factor in your estate planning as creating a trust can save you both time and money in the long run. Moreover, if you own property in another state or country, the probate process will be even more complicated because your family may face multiple probate cases after your death, one in each state where you owned property - even if you have a will. Beyond the cost and time of probate, this court proceeding that includes your financial life and last wishes is public record. A trust, on the other hand, creates privacy for your personal matters as your heirs would not be made aware of the distribution of your assets knowledge of which may cause conflicts or even legal challenges.
A common reason to create a trust is to provide ongoing financial support for a child or another loved one who may not ever be able to manage these assets on their own. Through a trust, you can designate someone to manage the assets and distribute them to your heirs under the terms you provide. This will also protect an inheritance from being lost to a child’s soon to be ex-spouse in a family law matter. Giving an inheritance to an heir directly and all at once may have unanticipated ancillary effects, such as disqualifying them from receiving some form of government benefits, enabling and funding an addiction, losing it in a family law matter, or encouraging irresponsible behavior that you don’t find desirable. A trust can also come with conditions that must be met for the person to receive the benefit of the gift. Furthermore, if you ever become incapacitated your successor trustee - the person you name in the document to take over after you pass away - can step in and manage the trust’s assets, helping you avoid a guardianship or conservatorship (sometimes called “living” probate). This protection can be essential in an emergency or in the event you succumb to a serious, chronic illness. Unlike a will, a trust can protect against court interference or control while you are alive and after your death.
Trusts are not simply just about avoiding probate. Creating a trust can give you privacy, provide ongoing financial support for loved ones, and protect you and your property if you are unable to manage your own assets. Simply put, the creation of a trust puts you in the driver’s seat when it comes to your assets and your wishes as opposed to leaving this critical life decision to others, like a judge.
To learn more about trusts - and estate planning in general, including which type of plan best fits your needs - contact Anderson, Dorn & Rader, Ltd. today at 775-823-9455 to make an initial consultation appointment with one of our estate planning attorneys or make a reservation to attend one of our free estate planning Webinars online HERE.
The basic purpose of a trust in estate planning is to minimize estate taxes and avoid probate. What is a trust, exactly? It is a fiduciary agreement (one based on confidence and trust) between a trustee and the grantor (maker) of the trust.
The agreement authorizes the trustee to hold and manage the trust assets on behalf of the beneficiaries, and provides specific instructions on how to manage and distribute those assets. There are many different types of trusts, each with their own specific purposes or goals. So, how well do you know your trusts? Let’s find out.
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Wills are very common estate planning tools with great value when it comes to having the freedom of determining to whom your estate will be distributed after your death. Without one, you die “intestate,” which means how your estate is distributed is established by the intestate succession laws in your state. Even with its clear benefits, there can be complications if your will is challenged after your death. Will contests can be expensive and stressful on your family. An easy way to guard against one common challenge to the validity of your will is to create, what is called a “self-proving will.”
The first step in drafting your will is making sure it meets all of the legal requirements to be valid. Each state sets out the specific legal requirements for a valid will. Most states accept wills from another state, as long as the legal document is considered valid under the other state’s laws. The general requirements for a valid will are the same in most states. The will must be in writing, it must be signed by the person creating the will, and it must be signed by at least two witnesses who were present at the execution of the document by the "testator" (the person whose will it is) and the signatures of the other witnesses.
Nevada’s laws regarding “Wills and Estates of Deceased Persons,” are set forth in the Nevada Revised Statutes, Title 12, Chapter 133 Wills, Sections 133.020 through 133.050. In Nevada, every person of sound mind, over the age of 18 years, can create a will. The terms “sound mind” simply means the person has not been determined to be, or is not obviously legally incompetent. As in most states, a will in Nevada must be in writing and signed by the testator and two witnesses.
Witnesses must also be 18 years of age or older and generally competent. The beneficiaries should not be witnesses; rather the witnesses should be independent third parties. A will is not invalid because one of the witnesses is a beneficiary. However, if there are not at least two disinterested witnesses, then the one who is a beneficiary must give up the portion of their gift that exceeds the amount or value they would have received under the laws of intestate succession.
It is not uncommon for wills to be challenged. The benefit of creating a self-proving will is that, the court will automatically accept the will as authentic. Consequently, the probate process, when a self-proven will is involved, is much simpler. There is no need for the witnesses to be located and brought into court to give testimony.
Creating a self-proving will in Reno is not very difficult. The only extra step is for the testator and the witnesses to affirm the will’s authenticity by notarized affidavit, or by affirming under penalty of perjury that they have witnessed the signing of the testator, verified that he or she is over the age of majority and is apparently competent. The process of self-proving a will can be completed at the time the will is executed, or later, including upon the testator’s death. The affidavit is typically made a part of the will and attached to it. Even if the witnesses are available to testify when the testator dies, having a self-proving affidavit eliminates the delay and effort in requiring the witnesses to testify in court.
If you have questions regarding self-proving wills, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Estate planning in Reno and throughout Nevada involves everything related to transfer of your assets at the time of your death. One of the primary estate planning tools is the will. However, it is only one tool included in the many available in our services. As Reno estate planning attorneys, the firm of Anderson, Dorn & Rader, Ltd. is equipped to assist your personal representative through the probate process to manage, transfer, and distribute your real and personal property, upon your death, pursuant to your last will and testament. These services will be accomplished in the manner that allows your estate to avoid as much tax liability as possible.
A will describes to everyone who survives you, exactly how you want your assets to be distributed when you die. A will can be revoked or modified during your lifetime. Generally, a will should address the following:
A Survival Clause provides instructions on how to handle the situation where a named beneficiary has died before you. If these instructions are not included, the property you intended to leave to that person will go to their heirs, possibly through a second probate. If that is what you intend, then the situation would need to be addressed by use of the right of representation. If you want to identify an alternative beneficiary, you must also do so in a survival clause.
The Tax Apportionment Clause directs the inheritance and estate taxes to be paid from the gross estate, prior to your property and money being distributed to named beneficiaries. With this important clause, your beneficiaries will receive their share of the estate reduced by their fair share of taxes based on the amount to which they are entitled to receive from your estate.
A Simultaneous Death Clause is also an important section. Similar to the survival clause, it deals with the possibility that you and one of your beneficiaries may die at the same time, or within a few days from each other, like in a car accident. If this were to happen, it would be treated as though the beneficiary died before you, thus avoiding a second probate.
If both you and your spouse die at the same time, you can declare in your will that your spouse not to be affected by the simultaneous death clause. You can also indicate that the spouse with the smaller estate be considered to have survived the other. This type of provision may help to reduce federal estate taxes. Generally speaking, however, if your estate is subject to the estate tax, you will be much better served with a trust combined with other strategies, than with a will. Because wills are subject to probate, expenses are multiplied.
Your will should include the nomination of the person you wish to serve as the personal representative of your estate. The probate court will ultimately either accept or reject this person, depending on whether there are any legitimate objections. You should also include an alternative personal representative, just in case your first choice is unable to serve. Your will should also appoint a guardian in the event you have any minor children that survive you. An alternate guardian should be identified, as well.
If you have questions regarding wills in Reno, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
A trust is a great way to plan for future management of your property, in the event you become unable to do so yourself. Like most things, the terms of the trust must come to an end at some point. When that happens depends on the circumstances.
The definition of a trust
A trust is simply a special type of arrangement where the original owner of the property (known as the “trustor”) places that property into a trust, while designating someone else (known as the “trustee”) to take care of it, for the benefit of another person (known as the “beneficiary”). The instructions for using the property or taking care of it, are set out in the written document, called the "trust instrument."
How a trust can be terminated
The most common way for a trust to end is upon the exhaustion of the trust property. For instance, if the trust property is cash or stocks, then the trust ends when all of the funds are paid to the beneficiary. If, on the other hand, the property was tangible like a house or car, then the trust will end when that property is destroyed.
The other most obvious way a trust ends is when the document itself specifies. The terms of the trust can either designate an ending date or a specific condition upon which the trust will end. Common examples are trusts that end when a minor reaches the age of 21 or graduates from college.
Terms of a testamentary trust
Testamentary trusts customarily state when the trust will end, such as when the beneficiary dies or completes his or her education, as mentioned above. In some case, when the value of the trust falls below a minimum value, and it appears that continuing the trust would defeat or substantially impair the accomplishment of the trust's goals, that situation could also terminate the trust.
Termination of a Living Trust
As with other types of trusts, a living trust can terminate on the date specified in the trust document, or when some condition is met or event occurs, such as the death of the beneficiary. If the trust is irrevocable, some state laws provide that the trust can terminate early if the material purpose of the trust has been completed.
What happens after the trust terminates?
Once a trust terminates, and there is property remaining in the trust, the trustee and the beneficiary will work together to determine the best way to distribute that property. It is a good idea to include instructions in the trust instrument addressing how the assets should be distributed, in that case. If, however, there are no instructions, the trustee and the beneficiaries must decide the most reasonable method of dividing the assets.
If you have questions regarding your rights with respect to the end of a trust, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
In general, trusts are very valuable estate planning tools. A Family Wealth Trust can be used, not only for making estate administration simple and easy, but also for safeguarding the family’s legacy. They can be useful in regulating a younger heir’s access to assets and in providing long-term oversight and management of investments. The trustee of a Family Wealth Trust will be responsible for investing your assets and making sound decisions when it comes time to make distributions to your beneficiaries.
The primary goal of asset protection is to shelter the wealth you have accumulated from unnecessary risks. A family wealth trust can be a very effective and flexible option for doing just that. Regardless of the value of your estate, you should consider asset protection for, and creating an estate plan that will ensure your family wealth will be passed on to your loved ones.
What Is a Trust?
A trust is simply an agreement between three parties: the trustor, the trustee and the beneficiary, regarding to whom the property will be transferred. The “trustor” is the person who owns the assets in, and creates the trust. The “trustee” is the person who manages the assets of the trust. The “beneficiary” is the person who gets the benefit of the assets after certain conditions are met. Initially, the trustor will likely be the beneficiary, but at the death of the trustor, beneficiaries will be named in the trust agreement to receive the assets. There are few limitations on who can serve as trustee. Commonly, trustees are the trustor, and when the trustor can no longer act as trustee they will be succeeded by trusted friends or relatives of the trustor. They can also be professionals, such as accountants or attorneys. A corporate trustee can also serve as trustee for a family wealth trust.
How can Family Wealth Trusts provide protection for assets?
Family wealth trusts become irrevocable at the death of the trustor, which simply means the terms of the trust cannot be changed. Also, when the trust is created, the assets are permanently removed from the trustor’s estate, in order to be placed in the trust. So, when the trustor passes away, the assets in the family wealth trust are passed on as trusts to the beneficiaries who, in many cases can also act as their own trustees. When the beneficiary dies, the inherited assets are not considered part of the beneficiary's estate. This also means those assets will not be subject to estate taxes, which can be a huge benefit in protecting family wealth.
What is the benefit of a Generation-Skipping Trust?
Another option to consider in family wealth planning, is the Generation-Skipping Trust. If you transfer your property to a grandchild, instead of your daughter or son, that transfer could be subject to a specific tax referred to as the “generation skipping transfer tax.” The generation skipping transfer tax is a tax assessed on property as it is passed on to a generation that is two or more levels below the generation actually transferring the property.
The Generation-Skipping Trust, also known as a “dynasty trust,” is designed specifically to avoid, or at least minimize, taxes on transfers to subsequent generations. This can be accomplished by holding the assets in the trust and distributing the funds in a pre-defined way to each generation. Consequently, the entire amount of the trust will be protected from estate taxes with each passing generation.
These trust provisions are somewhat sophisticated and require careful planning, but can be significant if they are properly prepared.
Trusts are a vital wealth planning tool, not only for asset protection, but also for safeguarding the family’s wealth, regulating access to property and assets by younger family members, and providing long-term oversight and investment management for families. The trustee is responsible, either directly or indirectly, for investing those assets and making sound decisions in making distributions to beneficiaries.
Regardless of the size of your estate, it is important to consider protecting your assets and creating a plan to ensure that your family wealth will be passed on as you wish. The goal of asset protection is to shelter the wealth you have created from unnecessary risks. A family wealth trust can be the most effective and flexible option for protecting family wealth. When your estate planning attorney properly customizes a trust for your family, the benefits will far exceed simply leaving assets to family members in your will. Remember, a Family Wealth Trust is not just for the wealthy.
What Is a Trust?
A trust is just an agreement between a trustor, trustee and beneficiary regarding how and when assets will be transferred. The “trustor” is the person who owns the assets in and creates the trust. The “trustee” is the person to whom the legal title of the assets passes. The “beneficiary” is the person who eventually receives the assets after specific conditions have been met. Trustees can be friends, relatives or professionals, such as attorneys or accountants. In some cases, an entity such as a bank or a trust company can serve as trustee.
How do Family Wealth Trusts actually provide protection?
Usually, a family wealth trust becomes irrevocable when the trustor dies. This simply means its terms cannot be changed once it has been created. Furthermore, the assets are no longer part of the trustor’s estate once the trust becomes irrevocable. So, when the trustor passes away, these assets are not considered part of the personal estate and will not be subject to the beneficiary's creditors. This is only one advantage of this type of trust.
A Generation-Skipping Trust
Another option to consider is the Generation-Skipping Trust, which will allow you to retain your tax exemption on gifts to your grandchildren and avoid the tax on any amounts exceeding that exemption. In 2014, the Generation-Skipping tax exemption is $5.34 million, which is the same as the federal estate tax exclusion. This is also a beneficial estate planning tool, if you want to leave assets to your grandchildren. For instance, you can put $100,000 in a generation-skipping trust and allow it to accumulate earnings for any number of years. Still, your lifetime exemption would only be reduced by the original $100,000. If you have any questions about these or any other asset protection tools, please contact our office.
A Will is probably the most common estate planning tool. It is also a very easy way to make sure your property is passed on to those individuals you choose, after your death. Not everyone is competent to create a will, however. If you do not have the legal capacity required at the time you execute your will, it will not be considered valid. There are basic requirements, established by law, which must be met for your will to be valid. Basically, the testator (the person executing the will) must have the legal and mental capacity to create the document, and there must be no undue influence, fraud or duress in creating the will.
What is competency?
Generally speaking, the testator must be old enough to create the will and must be able to understand the nature and extent of his or her property, as well as the identity of his or her heirs. In Nevada, a testator must be at least 18 years old and of “sound mind,” according to statute.
Under Nevada law, an incapacitated person is defined as follows:
“Incapacitated person” means a person who is impaired by reason of mental illness, mental deficiency, advanced age, disease, weakness of mind or any other cause except minority, to the extent of lacking sufficient understanding or capacity to make or communicate responsible decisions.
In some cases, incapacity is only temporary, such as when a person is unconscious or in a coma. In those cases, they are considered incapacitated because they cannot respond to questions or make decisions on their own, not because of any mental issues. If that temporary condition is resolved, capacity is considered to be restored. So, not all incapacity results in a will being deemed void.
What if someone contests the will?
It is the court that makes the legal determination that someone is incapacitated. The court generally reviews the opinions of medical experts, but may request further examinations or independent analysis by a psychologist or psychiatrist if there is any contest to the will or the competence of the testator. Family members, beneficiaries of the will, as well as the person whose capacity is in question, can also contest the will and require the court’s final determination.
What if undue influence or fraud is suspected?
A suspicion that the testator was unduly influenced by someone else to create the will or to include certain terms in the will may arise. This is a concern where there is evidence of exploitation of an emotionally vulnerable testator, who might otherwise be competent. In those cases, evidence from family members who once were close, but have been excluded by the testator since another person has moved in with or extracted the affections of the testator or even a forensic specialist may be needed to determine whether the signs of undue influence are present.
In some situations, it can be shown that a beneficiary of the will made a specific false statement to the testator, which resulted in the testator changing his or her will in a way that benefits that beneficiary. One common type of fraud occurs when a testator, who has had several mental lapses and allowed a beneficiary to make decisions for him or her. The testator in that situation is more likely to be suspected of allowing fraud to influence the decision. These are all considerations in determining whether the person making the will was “competent” under the law.
These same considerations are applicable to any testamentary document such a trusts, and assets where beneficiaries can be named such as POD and TOD accounts.
If it is time you created your estate plan or had it reviewed, you should do so now to avoid the possibility of future incapacity. See a qualified northern Nevada estate planning attorney to get the process started.
In the case In re Estate of Karter Wu (Supreme Court of Queensland, Australia), Mr. Wu created and stored his Last Will and Testament on an iPhone, along with a series of other documents, most of them final farewells.
Wu’s iPhone Will named an executor and successor, set forth how he wished to dispose of his assets at death, dealt with his entire estate, and authorized the executor to deal with his financial affairs. The Will began with the words “This is the Last Will and Testament of Karter Wu.” At the end of the document, Wu typed his name where the testator would normally sign his name, followed by the date and his address. The Australian court admitted the Will to probate.
The law for the execution of a valid Will in Queensland, Australia, is set forth in the Succession Act of 1981. The Act provides the requirements for execution, however, it provides that, if the court is satisfied that a person intended a document to form his Will, then the document shall be considered a Will as long as it purports to state his testamentary intentions. Australian law defines a “document” to include any disc, tape, article, or any materials from which writings are able to be produced or reproduced. Citing a New South Wales, Australia, case that held a Word document stored on a laptop computer to be a document, the court held the electronic record on the iPhone was a document for purposes of the statute. Since the record contained on the iPhone named an executor, authorized the executor to deal with his financial affairs, and provided for the distribution of Wu’s entire estate at a time he was contemplating his imminent death, the court held that it met the requirements of the Succession Act 1981.
California Probate Code § 6110 provides that a Will shall be in writing and signed by the testator, or signed in the testator’s name by some other person in the testator’s presence and at the testator’s direction, or by a conservator pursuant to court order. The Will must have the signatures of two witnesses. If the Will does not meet these requirements, it shall be treated as if it did meet the requirements if the proponent of the Will establishes by clear and convincing evidence that, at the time the testator executed the Will, he or she intended the document to be his or her Will.
Similarly, New Jersey law provides at N.J.S. 3B:3-2 that a document or writing is treated as complying with the normal rules for executing a Will if the proponent of the writing establishes by clear and convincing evidence that the decedent intended the document to constitute the decedent’s Will.
The California and New Jersey statutes are based on § 2-503 of the Uniform Probate Code. The impetus for the enactment of this section of the Uniform Probate Code may have been a case where an attorney attempted to probate the unsigned draft of a Will of a decedent who was killed in the World Trade Center attack on September 11, 2001.
California Probate Code § 6130 further provides: “a writing in existence when a Will is executed may be incorporated by reference if the language of the Will manifests this intent and describes the writing sufficiently to permit its identification. California Probate Code § 6131 states: “a Will may dispose of property by reference to acts and events that have significance apart from their effect upon the dispositions made by the Will, whether the acts or events occur before or after the execution of the Will or before or after the testator’s death. . . .”
Recently, a Will was admitted to probate in California where the Will referred to the disposition of assets in accordance with recordings that the decedent had left, both prior to the execution of the Will and would leave after the execution of the Will, on his answering machine at his residence. The judge found that the recordings constituted a writing within the meaning of the California Probate Code and were to be incorporated by reference and were to be considered to be acts of independent significance. Therefore, the recordings were given effect with regard to the disposition of property as governed by the Will.
While the existence of these statutes in many states have broadened what may be admitted as a Will for probate, it is not a good idea to rely on these statutes to assure that one’s Will will be accepted by the local probate court. Having a Will drafted by an attorney experienced in estate planning and drafting is always the best course of action to assure there will be no problems with the disposition of one’s estate at death.
Furthermore, there are many reasons why one may not wish to subject his or her estate to probate upon death, including potential additional costs, delays in administration, and the publicity of both the extent of the decedent’s wealth and the identification of the beneficiaries of the estate. There are many ways to avoid a probate administration at death, including the execution and funding of a revocable or irrevocable trust during the individual’s lifetime.
For more information about the ways to avoid probate, contact our law office. Our office focuses on estate planning, probate administration, and methods to avoid probate for those who have a desire to do so. We work with clients of all wealth levels and ages. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information regarding estate planning and estate and trust administration strategies. You can get more information about scheduling a complimentary estate planning appointment and our planning and administration services by calling Gerald M. Dorn, Esq. at (775) 823-9455
A living will is an advance directive for health care, along with a health care power of attorney, should be part of any comprehensive estate plan. It is important to plan ahead for the possibility of incapacity before passing away, but many people fail to do so.
Take a closer look at the different things you need to know about living wills in Nevada in this infographic.
A very common question asked by estate planning clients is “what happens to my property if I am single when I die? The answer to this question generally depends on three things: (1) whether you have a will, (2) the laws of the state you live in and (3) which of your relatives are still alive when you pass away. This would be true even if you are married when you die. Each state has its own set of “intestate succession” laws which determine where you property will go if you die without a will. If you have a will, on the other hand, the terms of your will determine who will inherit your property.
A will is an estate planning document that allows you to specify the individuals, institutions or other organizations (including charities) you want your assets distributed to when you pass away. Whether you are married or single when you die, the terms of your will always determine where your property will go. If you die without a will, or “intestate,” the laws of your state will determine how your assets are distributed.
In Nevada, if you have children but no spouse, your children will inherit everything. If your parents are living, but you have no children when you die, they will inherit everything. Likewise, if your parents are deceased and you have no children, but your siblings survive you, they will inherit everything. If any of your siblings are deceased, the share they would have received will go to their descendants.
If you do not have a will, and you have children, In Nevada they will receive what is called an “intestate share” of your estate. The size of the share will depend on how many children you have, because they will share equally. They must legally be your children; it will not go to step children. If you legally adopt a child, he or she will receive an intestate share along with any biological children. However, foster or stepchildren who have not been legally adopted do not receive a share.
If you have a child who was legally adopted by another family, that child will no longer be entitled to a share of your estate. Men who have children born outside of marriage can only receive a share if paternity has been acknowledged or proved in court. A child that was conceived by you, but not actually born before your death, will still receive a share of your estate in Nevada.
There are a few miscellaneous rules or definitions that may apply to your particular situation. For example, “half” relatives inherit as if they were “whole.” So, your brother with whom you share a mother, but not a father, will have the same right to your property as he would if you had both parents in common. Citizenship does not affect inheritance, either. Nevada also recognizes what is known as the “killer” rule, which provides that if someone commits a felony and it results in your death, that person cannot inherit any part of your estate.
If you have any questions regarding inheritance and intestate succession laws in Reno Nevada, or need assistance in will drafting in Nevada, please give us call.
Many people who are not wealthy assume that trusts are only useful for high net worth individuals. They are under the impression that last wills are for "the rest of us."
This may be a mistaken assumption. All trusts are not created equal. Different trusts serve different purposes. Yes, there are trusts that are used to accomplish objectives that are needed primarily for the wealthy. On the other hand, there are other types of trusts that would not only be useful to high net worth individuals, but to the "mere mortal," as well.
One of these trusts is the revocable living trust.
The Value of a Revocable Living Trust
With a revocable living trust you as the person creating the trust will be referred to as the trustor. You name a trustee to administer the trust. You also name a beneficiary or beneficiaries who will receive distributions out of the trust.
At first you as the trustor can act as both the trustee and the beneficiary. Under this arrangement you do not surrender control of the assets while you are living. Further, because the trust is revocable, you can actually dissolve it at any time. You can also amend the terms and add or subtract beneficiaries as you see fit.
In the trust agreement you name a successor trustee who will assume this role after your death or incapacity. This is the individual or entity that will administer the trust in accordance with your wishes.
You can ask someone you know to act as trustee. However, there are other options. First of all, you may not have a personal relationship with anyone who has experience in asset management.
Secondly, even if you did know someone who is qualified, if he or she passes away or becomes incapacitated, you should have an alternate to replace them.
As an alternative you could name a trust company or the trust department of a bank to act as trustee.
When you convey assets into a living trust, your beneficiaries will receive their inheritances outside of the process of probate. When you use a will the estate must be probated before inheritances are distributed.
Probate can take a significant amount of time. There are also expenses incurred during probate. Probate costs will decrease the amount of the inheritances that will be received by the heirs.
With a living trust probate is not a factor. The trustee distributes assets to the beneficiaries in a fast and efficient manner.
Another benefit is the fact that you can include the selection of a disability trustee. If you were to become incapacitated and unable to handle your financial affairs, this disability trustee would administer the trust on your behalf, because you are still the primary beneficiary.