In my last blog post, I discussed the two best reasons for avoiding probate court, (1) time and (2) cost. I often get asked by clients whether having a will is sufficient to avoid probate in Nevada. The question is usually asked by children of a deceased parent who are facing the time consuming and expensive probate process because proper estate planning did not take place during the parent’s lifetime. My answer, in short, is that in Nevada having a will is not enough to keep a person out of probate court at their death.
A will is a legal instrument that determines how assets are to be divided at a person’s death. Wills are an effective way to accomplish this goal. However, if a person only uses a will, a probate will be required for the distribution of those assets that do not automatically transfer to another person, such as with real property. With only a will, children and other beneficiaries can be stuck with a time consuming and expensive probate case.
There are several effective estate planning techniques which can be implemented to completely avoid probate. For example, a person can create a revocable trust. This estate planning tool allows a person to not only to avoid probate and designate beneficiaries of their choice; it also helps protect a person in the case of incapacity prior to their death and can accomplish some estate tax planning. One can also make an effort to avoid probate by making arrangements for the automatic transfer of assets, such as by naming designated beneficiaries on bank and other investment accounts.
Each method of avoid avoiding probate has advantages and disadvantages. It is important to speak with an estate planning attorney before making any decisions to make certain your planning is done correctly and your goals are successfully met. If you have any questions about avoiding probate and setting up your estate plan, feel free to contact one of our attorneys for a free ½ hour consultation.
This title could be read on a poster in the stands at a football game, or on a sandwich board worn by a person on the streets in a big city. I do not mean to sound like a religious fanatic. What I am referring to is that this is the last few weeks of your lifetime wherein the $5 million lifetime gift tax exemption is available for estate planning (that we know of). We have “blogged” about this topic before, so I’ll spare our loyal readers from any more of my comments on this. But I will provide you a link to a great article that accurately discusses why there is very little time left to delay if a person intends to make a gift during this calendar year. Please read this free article from the Wall Street Journal written by Mr. Charles Passy.
Attorney Jason C. Walker
Wednesday, October 10, 2012 at 12:00 noon
at the Clark County Library, 1401 E Flamingo Road.
Our lunch sponsor will be Judge Ann Zimmerman. Our speaker is James O’Reilly with Elder Law Services/Jeffrey Burr, LTD. He will be discussing solutions for seniors.
For some, implementing a gifting strategy is an important aspect of the estate planning process. While the costs of education seem to be continually increasing, many people are considering implementing a gifting strategy that will provide financial assistance for the education of a child or grandchild. More common ways to implement this strategy normally requires a person to choose between creating a 529 Plan or an irrevocable gifting trust.
A 529 Plan account is a college savings plan created under state law. After tax dollars are contributed to the 529 Plan account. Although there is no federal income tax deduction for these contributions, these after tax dollars contributed grow federal income tax free for the beneficiary of the account. The money must only be used for higher education tuition, fees, books, supplies, required equipment, and room and board (subject to certain rules). If the beneficiary does not use all the funds, the beneficiary can be changed to another child or grandchild. If any of the money is used from the 529 Plan account for nonqualified expenses, such funds will be subject to income tax and a 10% penalty on the earnings of the account. For this cause, it is important not to overfund the 529 Plan in the event that there is significant excess beyond that needed for qualified educational expenses held in the account which would be potentially subject to penalty.
The alternative to the 529 Plan is the creation of an irrevocable gifting trust. The gifting trust would be created by a parent or grandparent for the benefit of a child or grandchild. A trust could be funded with any form of property (i.e. cash and cash equivalents, real property, LLC membership interests, etc.). The funds in the trust do not grow federal income tax free. The trust will be required to pay income tax on its earnings to the extent income is not distributed. However, the gifting trust allows for greater flexibility in its use allowing the trustee to make discretionary distributions to the beneficiary not only for education but additionally for health, maintenance, and support or other legitimate reasons. The gifting trust could exist for a term of years, for the beneficiary’s life, or until the beneficiary finishes his or her education at which time the trustee could distribute all remaining trust property free of any penalties. Thus, a person could fund the gifting trust with more than may be necessary to assist with educational costs without fear of being subject to penalties.
If flexibility and control are more important than potential income tax benefits afforded by a 529 Plan, a gifting trust may be more appropriate.
For more information regarding gifting trust, please call our Henderson or Las Vegas office to schedule a free consultation with any of our attorneys.