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.
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.
It can be intimidating to consider the possibility of relinquishing control over your property. People sometimes assume that you do surrender control of assets when you create a trust.
In this post we will provide some clarity about creating a trust in northern Nevada.
There are different types of trusts. Perhaps the most commonly utilized trust in Reno NV in the field of estate planning is the revocable living trust.
These trusts are largely useful to enable probate avoidance. If you use a last will to state your final wishes, the estate must be probated before your heirs receive their inheritances.
This process can be expensive and time-consuming. Most people would like to facilitate timely asset transfers.
When you use a revocable living trust to arrange for these transfers the distributions to the beneficiaries will take place outside of probate.
Because of the fact that the trust is revocable, you do retain control of assets that you convey into this type of trust.
You can act as both the trustee and the beneficiary while you are still living, and most people will do this. As a result, you can control investments and give yourself distributions as you see fit.
The control doesn't stop there. Because the trust is revocable, you can actually dissolve or revoke it at any time. The terms that you originally set forth are not etched in stone either. You can change them and add or subtract beneficiaries.
There are irrevocable trusts as well. With some exceptions, these trusts do require you to surrender incidents of ownership, so you do not continue to have control of the property that has been conveyed into the trust.
Because the trust is not revocable, you cannot dissolve it, and generally speaking the terms cannot be changed.
Why would you want to create a trust that did not allow you to retain control? There are a number of reasons.
Certain estate tax efficiency strategies involve irrevocable trusts. Because the assets would be owned by the trust rather than the estate, there are certain benefits.
In addition, when you surrender incidents of ownership by placing assets into an irrevocable trust they are generally going to be protected from creditors and claimants seeking redress. Nevada does allow some irrevocable trusts to be "self-settled," so some incidents of ownership are retained, but these are sophisticated strategies that require the advice of competent counsel to establish and fund.
The best way to proceed if you have questions about estate planning would be to discuss everything in detail with a licensed Reno Nevada estate planning lawyer.
Rather than looking for answers to general questions about what trusts can and cannot do, you would be better off consulting with an attorney. You can explain exactly what you want to accomplish, and your attorney can give you direct answers to your specific questions.
The process of estate planning involves some very measured and informed decision-making. If you make certain assumptions as a layperson you may be making errors of commission and omission.
Because of the fact that there are websites on the Internet selling do-it-yourself generic, fill-in-the-blanks last wills, more and more people are getting the idea that they can go it alone. Unfortunately, this is increasing the numbers of people who are not properly prepared.
With a will, you need to consider the fact that your estate must be probated before the heirs receive their inheritances. The probate laws in the state of Nevada require rigid formalities that may cause delay and expense if they are not followed precisely.
When you work with a qualified estate planning attorney who is licensed in Nevada you can be certain that your will is properly constructed.
If you use a boilerplate document that you picked up on the Internet or at the book store you have no way of knowing if the will is truly up to par.
And then there is the simple fact that a last will may not be your best choice.
Last Will Alternatives
The probate process that we mentioned above is time-consuming, and, when all the costs, fees and expenses are considered, quite expensive.
There are effective ways to arrange for asset transfers to your heirs directly, outside of probate. One of them would be through the creation of a revocable living trust.
With these trusts you can retain control of the assets while you are alive and well. If you were to become incapacitated, your successor trustee would be empowered to handle your financial affairs, usually avoiding the need for a guardianship.
Upon your passing the trustee administers the estate outside the probate court and then distributes assets to the beneficiaries in accordance with your wishes.
Specialized Concerns
There is no one-size-fits-all estate plan because different families have different concerns. For instance, if you have estate tax exposure you must take steps to position your assets in a tax efficient manner to avoid a 40% hit.
If asset protection is a concern you would implement certain strategies that would not be important if you were not concerned about shielding assets from creditors and litigants.
Special needs planning is a factor for some people. You have to be careful about the way you set aside money for a person with a disability who is relying on government benefits like Medicaid and Supplemental Security Income.
People who are owners of small businesses are going to have estate planning concerns that differ from those who work for someone other than themselves.
These are just a few examples of the unique circumstances that require varied approaches.
Decision Makers
It is also important to include an incapacity component within your estate plan. The courts could, at considerable expense to your estate, appoint a guardian to manage your affairs if you don't take the appropriate action. This guardian may not be someone that you would have chosen.
You can select potential future decision-makers using an appropriate revocable living trust combined with a durable power of attorney.
All these solutions are best handled with a qualified estate planning law firm.
It is important to understand that estate planning documents do not exist in a vacuum. Estate planning is one of the most technical and dynamic areas of the law. Properly planning an estate requires consideration of federal and state tax issues, state property law, state probate law and state trust law. Estate planning documents must be carefully customized to meet each individual’s unique circumstances and objectives. If they are not, unintended, and often costly, consequences may result.
Suppose you use a generic template that you find online to create a last will and testament or revocable living trust. Are you sure that the documents that you wind up with will stand up to any challenges that may present themselves after your death? Are you sure the tax sensitive provisions of your documents have been properly considered for your particular circumstances? Could there be conflicting clauses that require your family to go to court to interpret the document after you have passed? Has the document been thoughtfully drafted under state law so that your beneficiaries’ inheritances are protected from a divorcing spouse or other potential creditors?
Another thing to consider is best explained by way of example. Let's say that you never played golf before. You look into the bag and you see a lot of clubs, but you really don't know what club you should use. You may not use the right clubs as you try to negotiate the course without any information. The same is true of estate planning. There are numerous different legal instruments that can be utilized. Just arbitrarily deciding which ones you are going to use in a DIY last will and testament or revocable living trust is simply reckless.
These are a few things to think about, but if you would like to learn more of the facts we urge you to download our free report on DIY estate planning. This special report goes into a good bit of detail about the dangers of do-it-yourself wills and living trusts.
We urge you to download your copy of the report. Access will be granted if you follow the simple instructions that you see after clicking this link: The Dangers of DIY Wills & Living Trusts.
People that have assets that exceed the exclusion amount ($5.25 million in 2013) most certainly need to discuss tax efficiency strategies with a licensed estate planning attorney who places an emphasis on wealth preservation.
However, there are those who the only reason someone would meet with an estate planning lawyer is to avoid taxes. They may reason that because their estate is less than the exclusion amount, there is no need for estate planning. In fact, there are myriad concerns that can be addressed with a properly constructed estate plan that have nothing to do with tax exposure.
One of these concerns could be long-term access to financial resources. You may be concerned about leaving lump sum inheritances to certain people on your inheritance list. After all, you won't be around to help if someone in the family was to burn through his or her inheritance too quickly.
A way to respond to this would be to convey assets into a spendthrift trust. You appoint a trustee, and this could be a family member, the trust department of a bank, or a trust company. This trustee will administer the funds according to your stated wishes and distribute assets to the beneficiary in a measured fashion. The beneficiary will not be able to control the principal, which also means their creditors would not have access, either.
This is only one possible scenario. There are many others, including planning for blended families and providing for a family member with special needs without jeopardizing disability benefits.
Arranging for the transfer of your financial assets to your loved ones is a profound act. It is something that is best undertaken with the benefit of professional guidance.
On the Internet there are marketers that sell generic estate planning documents like wills and trusts.
Statistics tell us that most people don't have a comprehensive estate plan in place. Some of these people finally decide to put the procrastination behind them and they start searching for solutions. They come upon one of the sites, and they see an easy answer because the marketing materials can be convincing.
It is important to recognize the things that you can do on your own with a little bit of guidance and the things that are better left to licensed professionals. Consumer Reports, the highly respected magazine that has been informing people about the quality of various products and services for many years, advised against DIY wills last year.
Legal professors who examined documents constructed with online worksheets and downloads saw a number of different problems with them.
We endeavor to provide legal information that is truly accurate, covering every aspect of estate planning. To this end we have joined with the American Academy of Estate Planning Attorneys and compiled a series of special reports that are available for download on our website.
These reports examine wills, trusts, powers of attorney, legacy planning, asset protection, special needs planning, estate administration, and a number of other topics.
You can download these reports absolutely free of charge. To reach the page that contains a list of the reports and a brief description of each of them simply click this link: Free Nevada Estate Planning Reports.
If you have further questions after reviewing the information contained in the reports simply contact our firm to request a free consultation.
The estate planning process involves a number of different facets, including matters that the typical layperson may not consider. When you know the facts you understand why certain courses of action are recommended by estate planning and elder law attorneys.
On the other hand, when you harbor misplaced notions you may fail to act or take incorrect courses of action. With this in mind we would like to highlight two misplaced notions that can lead to negative consequences.
Incapacity Is Unlikely
You may feel as though it is unlikely that you will ever become unable to make your own decisions. If you feel this way you should ask yourself if you expect to live until you are at least 65.
If you say yes to the above, and you are correct and you do reach the age of 65, it is likely that you will live to the age of 80 at minimum.
Alzheimer's disease is very common among the elderly. 13% of those who are 65 years of age and older have Alzheimer's, and if you confine the sample to those 85 and up you are looking at a figure of 45%.
Given the likelihood of Alzheimer's disease or other forms of dementia, having durable powers of attorney naming agents to act on your behalf the event of your incapacity is important. Having a living trust is an even better plan.
I Don't Need a Trust
There are those who don't even consider the possibility of creating a living trust because they feel as though trusts are for very wealthy people. Of course, wealthy individuals and families should have a living trust at a minimum, but even those with modest means can benefit.
Living trusts are used to facilitate asset transfers outside of probate. Probate is the process of estate administration, and because it is done through the courts, it is time-consuming and often costly. If you create a living trust your heirs will receive their inheritances in a timely manner because these transfers are not subject to the probate process.
When you hear about the pros and cons of Last Wills versus revocable living trusts you may decide that, for you and/or your family, the latter choice is a better one. One of the best things about revocable living trusts is the fact that the resources that you utilized to fund the trust can be distributed to your heirs outside of the process of probate.
Probate is a legal proceeding that can be quite time-consuming. Even in simple uncontested cases involving pretty straightforward property transfers and little or no debt it can take a number of months, up to about a year. In more complex cases it can take years.
There is something to remember, however, when you are executing a revocable living trust. You are likely to still be in possession of some resources that you have not placed into the trust at the time of your passing.
If you do nothing to account for these assets their transfer would indeed be delayed as the probate process ran its course.
Making sure that you have a pour-over will to account for your remaining personal assets is something that is routine for experienced probate lawyers. With this instrument you express your desire to have these remaining resources "poured over" into your revocable living trust.
Some people and even inexperienced advisors assume that a pour-over will avoids probate on those assets that were not funded into the trust. Just the opposite is true. Experienced attorneys will provide a document that assigns non-titled assets to the trust, such as art work and furniture. They will also give detailed instructions as to how to place specific assets into your trust. Properly drafted powers of attorney allow others to place forgotten assets into the trust if you are incapacitated.
People who use do-it-yourself estate planning downloads, or place their trust in inappropriate advisors, may never include such details. These are good examples of why it is always advisable to engage professional expertise when you are executing important legal documents.
Have you considered who would manage your financial afffairs if you became incapacitated? Married couples are sometimes under the impression that their spouse will automatically be given access to all the assets. This may not be the case. Assets that are titled jointly may be easily accessed but that is not always the case. Take for instance real property that is jointly titled. If the well spouse desired to refinance, obtain a secured loan or sell real property that is jointly owned a legal representative would have to be appointed to sign in behalf of the incapacitated spouse. A power of attorney may not adequately authorize an agent to handle these transactions. Then there is the issue of a retirement account or pension benefits solely in the name of an incapacitated spouse. In these cases, the well spouse, child or parent woul likely need to seek a court’s permission to access your assets taking a significant amount of time and money.
Often, when someone becomes incapacitated, assets that are needed by loved ones to maintain the household or pay bills are inaccessible when most needed. Even worse, a dispute can arise as to who should manage the assets which can prolong the process of obtaining a court order.
There are, however, a variety of estate planning tools that can be used to avoid the need for court intervention. Executing a comprehensive durable power of attorney or creating a revocable trust may also be viable options. With just a small amount of pre-planning on your part you can avoid a lengthy and costly court process in the event of your incapacity.
When you are serious about making informed plans for the future you have to be aware of all of the options that are available to you and how to use them effectively. Depending on the resources that you have and what your legacy intentions are some of the instruments that would be useful are rather complex. So, unless you are in the field of financial planning or elder law you probably are not going to have a comprehensive understanding of the challenges that exist and the appropriate responses that are typically utilized by estate planning professionals.
This is why it is important to develop a good working relationship with a legacy planning attorney you can trust. He or she will gain an understanding of your wishes, evaluate your assets, and make the proper recommendations so that your legacy goals will eventually come to fruition.
One of the tools used that can provide tax savings as well as asset protection is the charitable remainder unitrust, which in estate planning circles is often shortened to the acronym CRUT. You create and fund the trust and name both a charitable and non-charitable beneficiary. The non-charitable beneficiary must receive annuity payments equal to between 5% and 50% of the fair market value of the trust annually, so most people are going to act as their own beneficiary. You could serve as the trustee as well.
At the end of the trust term, which can be upon your death if you choose to set up the trust in this manner, the charitable beneficiary assumes the remainder that is left in the trust. This remainder must equal at least 10% of the original fair market value of the CRUT.
Assets that are placed in the trust are no longer the personal property of the grantor so they are protected from creditors and claimants. From a tax perspective, the act of funding the trust reduces the value of your estate for estate tax purposes. And there are also capital gains tax advantages if you fund the trust with appreciated securities. In addition, you are entitled to a charitable deduction, the amount of which is determined by the application of IRS rules regarding charitable remainder unitrusts.
If you have an estate that will likely be subject to an estate tax at your death, make an appointment to meet with a legacy planning attorney to discuss a CRUT or other methods of reducing your taxable estate.
When you are planning your estate it is likely that you have multiple objectives in mind, and if you're like most people making sure that your loved ones are provided for is at the top of that list. To make sure that your family members get everything that you would like to leave them without allowing a significant portion of their inheritances to go to the IRS you sometimes have to take steps to gain estate tax efficiency. At the present time the estate tax exclusion is $5 million, but if no changes are made in the meantime it is going down to just $1 million at the end of 2012, and this is something to keep abreast of during the upcoming election season.
In addition to protecting your assets from erosion as you pass them along to your loved ones you may also feel the desire to make charitable giving a part of your legacy. There are a number of charitable giving vehicles that people utilize when they are planning their estates, and one of them that provides multiple benefits is the charitable remainder unitrust or CRUT.
These vehicles provide an ongoing source of income to the non-charitable beneficiary during the term of the trust, and then when the term expires or the grantor passes away the charitable beneficiary assumes ownership of the remainder. Most the time the grantor will act as the beneficiary and receive the annuity payments from the trust, which must be at least 5% and no more than 50% of the value of the trust per year. Once the term has concluded or upon the death of the grantor the charitable beneficiary must receive no less than 10% of the original value of the trust.
The creation of the trust removes these assets from your estate for estate tax purposes, and you are also entitled to a charitable deduction that is calculated via valuation of the remainder interest. Additionally, if you were to fund the trust with appreciated securities you could have the trust sell them and your capital gains liability would be spread out rather than being due all at once.
When people debate the fairness of the estate tax the primary argument against it is the fact that it is in and of itself an instance of double taxation. You pay income and payroll taxes, and then you have the remainder which may be as little as 70% of what you actually earned. With this remainder you go forth, and as you do you must pay sales tax, property tax, capital gains tax, and any number of additional taxes. Then when you pass away your estate is taxed yet again, and at an exorbitant rate exceeding one third of the taxable portion.
The above is a pretty convincing argument, isn't it? But it really doesn't stop there. Let's say you leave a bequest to your children that is subject to the estate tax. They are successful in their own right and never touch that money. When they pass away and leave it to your grandchildren the taxable portion is once again going to be shaved down by the death levy, and in fact this can go on and on into future generations until nothing is left but the exempt amount.
This can be avoided, at least in part, through the creation of a generation-skipping trust. With these vehicles you name your children and grandchildren as the beneficiaries. They can receive cash distributions, live in property that has been placed into the trust rent-free, and even direct trust administration in large part through a special power of appointment. Plus, since these assets are not owned by the beneficiaries they are protected from the beneficiaries' potential future divorces and creditors (e.g., lawsuits). Perhaps the greatest benefit, upon the death of your children, and even your grandchildren in states like Nevada, because the assets are owned by the trust and not the beneficiary, they are not once again subject to estate taxes.
The children and grandchildren can receive liberal benefits from the trust, but the assets can be passed down to future generations estate tax free. The generation-skipping transfer tax is applicable, but there is a $5 million exclusion so many people will limit their contribution into the trust to this amount.
The subprime crisis and financial meltdown certainly has taken its toll on the real estate market, and most areas of the country have made slow strides to recover. But the fact remains that home ownership has traditionally been the foundational instrument of wealth building in the United States and most Americans would likely still tell you that their homes are their most valuable asset.
When the market is healthy and appreciation is robust it can certainly make sense to invest a large percentage of your income into your residence. So when you're inventorying your assets as you prepare your estate plan you may find that it is the value of your home that pushes your overall worth above the estate tax exclusion of $5 million.
If the value of your home is making your estate vulnerable to the 35% federal death levy one option that is available to you is the creation of a qualified personal residence trust or QPRT. With these trusts you name your beneficiary, appoint a trustee, and fund the trust with the residence. By doing so you remove the value of your home from your estate for estate tax purposes, but it is considered to be a gift into the trust and it is taxable as such.
However, the trust states a term during which you will continue to reside in the house. By so doing you retain an interest in the home, so the taxable value of the gift is reduced by the amount of your retained interest. When the retained income period ends ownership of the residence will be transferred to the beneficiaries designated in the trust and this asset will no longer be subject to an estate tax in your estate.
Nobody is especially anxious to part with any of their hard earned money and hand it over to the tax man. But in spite of the complaining, most people recognize the fact that some taxation is necessary and are perfectly willing to pay their fair share. What people don't want to do is pay taxes multiple times on the same earnings, and this is one of many reasons there is so much support in some quarters for a permanent repeal of the estate tax.
Consider this overly simplified example that demonstrates the logically indefensible nature of the estate tax. Let's say that Elizabeth was an avid saver throughout her life. She socked away a sizable portion of every paycheck that she ever earned in a savings account.
Since she was so frugal it always bothered her to see that she was left holding only about $60 out of every $100 she earned after paying payroll and income taxes, but she was heartened by the fact that she was doing her part as a good citizen.
After saving so diligently for so long she was able to accumulate quite a large sum of money. Every year she paid income taxes on the interest she had earned and then when she died, the estate tax kicked in and her children received just 65% of the savings that she worked so hard to accumulate after paying taxes. And then when her children died and left that money to their children, it was once again taxed at 35% and less than half of the taxable portion of Elizabeth's original bequest was left.
A viable response to this potential scenario is the creation of a legacy trust. With these vehicles you name your grandchildren as the beneficiaries, skipping a generation as it were. Your children can still receive benefits from the trust, but they don't own the assets so they can't be targeted by claimants or former spouses. When your children die, your grandchildren inherit the contents of the trust, and the estate tax is levied only once though two generation enjoyed benefits from the trust. And now, in Nevada, as well as a handful of other states, the tax can be avoided for multiple generations with a properly established trust.
The estate tax is repealed for 2010, but when it was last in effect back in 2009, the exclusion was $3.5 million. The exclusion stood at $2 million from 2006 through 2008. In 2011 the estate tax exclusion is going to be just $1 million, so a lot of estates that had been under the exclusion for years are now going to be exposed to the estate tax.
Home ownership has long been the foundational wealth building vehicle in the United Estates, and many of the people who are now going to be exposed to the estate tax would say that the worth of their homes is what is causing the overall value of their estates to exceed the $1 million estate tax exclusion. For these individuals, an instrument known as a qualified personal residence trust, or QPRT, may provide the solution.
To implement this estate planning strategy you place your home into a special trust trust and you name your children, or whoever it is that you want to leave the property to, as the beneficiaries. When you are drawing up the trust agreement you state a term during which you will continue to live in the house rent free. Upon transfer to the trust, the value of the home is removed from your estate and your children will assume ownership of the property after the term expires, at which time you would begin paying rent to live in the home.
The funding of the trust with the house is subject to the gift tax, but the IRS does not use the fair market value of the home at that time to calculate its taxable value. They reduce the value of the home by the interest that you are retaining while you are still living in it rent free after you placed it in the trust. Assuming the value of your home appreciates at a reasonable rate moving forward (say, 3%), this techniques can provide a fair amount of gift and estate tax planning leverage.
Feel free to contact our office if you would like a consultation on how a QPRT may benefit you.
To learn more about living trust lawyers, get in touch with the trust attorneys at Anderson, Dorn & Rader. Call (775) 823-9455 or fill out the form below to get started.
Learn More About Revocable Living Trusts
A Lifetime Trust is an Irrevocable Trust that will pay out an inheritance to a beneficiary for the duration of his or her life. Creating individual Lifetime Trusts for your family provides a wealth of benefits.
If your children are currently minors, a Trust is a good alternative to having your child’s inheritance endure a court-supervised guardianship. Individual trusts also allows you to give your children an even split of your estate.
Many trusts end when a child reaches adulthood or a specified age such as 25 or 30. If you create a Trust that ends as some point in your child’s life, those funds will loose asset protection and may be taken for a court settlement. A Lifetime Trust offers the benefit of continued asset protect. Asset protection can keep your child’s inheritance safe from his or her creditors or a divorcing spouse.
If your beneficiaries have already reached adulthood, a lifetime Trust is still a good idea. Besides providing continued asset protection from creditors it also provides protection when an heir who is not good with money and may spend his or her inheritance too quickly. Such a Trust will also protect your child from losing all or part of his inheritance in a divorce.
Like other Irrevocable Trusts, a Lifetime Trust can pass to your heir outside of probate and without being included in your taxable estate. For estates worth more than a million dollars, estate tax reduction methods are a must. By creating trusts for each heir you will guarantee your loved ones an inheritance that will not be washed away by estate taxes.
By avoiding probate, you may save your family some of the time and cost associated with this harried process.
There are many advantages to having a Lifetime Trust. If you would like to learn more or would to set up a Lifetime Trust, schedule a visit with the living trust lawyers at Anderson, Dorn & Rader.
