During a person’s lifetime, assets are generally owned in a person’s individual name. After a death, title must be transferred from the decedent to his or her beneficiaries. Probate is the legal process of paying all debts and taxes and transferring title from a decedent’s estate to the beneficiaries. This legal process includes:
Although probate sounds simple, it can be a long and difficult process. There are several steps in the probate process and each step is supervised by the court. These steps make probate both time-consuming and costly. Beneficiaries can generally expect that the probate process take from 6 months to over a year. Extremely complex cases may take even longer. Should you or anyone you know need help with the probate process, or if you are interested in discussing how you can avoid probate, feel free to contact our office.
There has been a lot of discussion regarding the advantages of having a living trust, especially in terms of avoiding probate. Probate can be a long costly process involving delays in gaining access to funds to pay bills and expenses, as well as making distributions of money and property to the heirs. Another topic that has been a recent focal point of discussion is the impending reduction in the estate tax exemption amount, coupled with an increase in the estate tax rate. Beginning January 1, 2013, the estate tax exemption will be reduced from $5.12 million to $1 million, while the estate tax rate on the excess (over the exempt amount of $1 million) will increase from 35% to 55%. The result is going to be a very large estate tax unless the law is changed in the near future.
Among its other advantages, setting up a living trust can provide a variety of opportunities to minimize overall estate taxes. One technique available to married couples involves the use of a credit shelter or bypass trust. Since husband and wife are two individuals, each spouse is entitled to receive the benefit of the exemption amount in place at the time of his or her death. Under a living trust, the exemption amount of the first spouse to die may be directed into a credit shelter or bypass trust that will pass free of tax upon the death of the second spouse. When the second spouse dies, his or her estate can not only exclude from taxes the exemption amount in effect at such time, but also the entire value of the credit shelter or bypass trust that was funded with the first-to-die spouse’s exemption amount.
Another advantage worth mentioning is that the credit shelter or bypass trust can still be a financial resource for the support of the surviving spouse, yet it is not included in the surviving spouse’s estate. Additionally, the assets in the credit shelter or bypass trust can increase in value and all of the appreciation will likewise avoid inclusion in the estate of the surviving spouse. Thus, setting up a living trust in this manner might end up shielding more than just the exemption amount of the first spouse to die assuming those assets have appreciated in value by the time the second spouse passes away.
When faced with the potential of a large estate tax, the above approach may be preferable to simply leaving everything to the survivor at the death of the first spouse. This is true even though one spouse can leave everything to the other spouse free of estate taxes due to the unlimited marital deduction. The downside of relying entirely upon the marital deduction to avoid taxes is that the exemption of the first spouse is entirely wasted and all of the couple’s money and property is taxed at the death of second spouse when only one spouse’s estate tax exemption remains available for use. Thus, planning with a living trust allows the couple to shield the maximum amount of money and property from estate taxes based upon the respective exemption amounts available to each spouse in his or her year of death.
Attorney Kari L. Stephens
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.
Typically, estate planning attorneys use trusts and other instruments to help their clients avoid probate court. Clients often ask, why it is important to avoid probate court? The two best reasons for avoiding probate court are (1) time and (2) cost.
Probating a deceased person’s estate is a long process. For a normal probate estate beneficiaries can expect to wait six months to a year before the process is completed and the assets are distributed. The reason the process is sluggish is because probate requires several steps and a large amount of court involvement. Several of the steps require mandatory time-waiting periods giving creditors and other parties time to become involved in the proceedings. For example, before assets can be distributed to beneficiaries, a notice to creditors must be filed. All creditors are given a 90-day time period in which they can file creditor claims against the estate. Extra steps are also required if the real property must be sold or the interested parties object at any time during the probate proceedings. The end result is that from start to finish probate takes a significant amount of time.
The second reason to avoid probate is its cost. Because probate requires court involvement, attorneys, executors, and other parties are almost always involved. The usual attorney fees are set out in the Nevada Revised Statutes Chapter 150. Generally, attorney fees are calculated based on the size of the estate at 4% of the first $100,000, 3% of the next $100,000 2% of the next $800,000, and 1% for the next $9,000,000. Thus an estate worth $1,000,000 would have attorney fees of approximately $23,000. Executors and administrators are also entitled to a similar, but slightly smaller fee. Beneficiaries will also be required to pay court filing and other fees. Overall probate ends up being an expensive process.
As probate is both time-consuming and expensive, many people successfully avoid probate altogether. This can be done by setting up a proper estate plan. If you have any questions about avoiding probate and setting up your estate plan, feel free to contact one of our attorneys.
Attorney – Corey J. Schmutz
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
Although not as successful as other literary series such as Harry Potter, Twilight, or The Hunger Games, our blog series has been fun to produce. I am up again for exciting installment number Six!
6. FAILURE TO TAKE ADVANTAGE OF THE ESTATE TAX EXEMPTION IN 2012
We will be holding free seminars for clients and potential clients on this exact topic at 7:00 p.m. on June 26 at our Las Vegas office and at the same time on June 27 at our Henderson office. If you have an interest in attending, please call us at 433-4455 to RSVP.
As we have stated before in earlier blog posts, 2012 is the perfect storm for gifting opportunities. The gift tax exemption amount is currently reunified with the estate tax exemption and since the exemption amount is set to greatly reduce next year, and most people commenting on this issue feel that the likelihood of the gift tax exemption amount again being unified with the estate tax exemption amount is low. In plain words, there is only 6 months guaranteed to be remaining where it will be legal to gift up to $5.12 Million without having to pay gift tax. The amount will be $1 Million next year and the future is uncertain beyond that because Congress is likely to make a change to this element of the tax code, but not likely until after the Presidential election. The ability to gift over $5 Million out of one’s estate can result in a great estate tax reduction opportunity for clients in the right wealth category.
A few techniques for accomplishing gifting (that will also be discussed at our upcoming seminar) include the following:
We could have a whole spin-off blog series on this topic alone to discuss these gifting opportunities. (Think “A Different World” as a spin-off to “The Cosby Show”).
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
As we continue to discuss each of the 7 major errors in estate planning, I am up again for number 5.
5. Maximizing Annual Gifts
Under current tax laws, the annual gift tax exclusion allows each individual to gift $13,000 per year to an unlimited number of persons without any estate or gift tax consequences. As a result, the utilization/use of the annual gift tax exclusion is a way to transfer assets to the next generation without being subject to any gift or estate tax. For example, a married couple with 5 children can gift $26,000 per year ($13,000 per parent) to each child free of estate or gift taxes. The result is that each year the married couple has transferred $130,000 out of their estate to the next generation. Over a period of 10 years, the couple will have transferred $1,300,000 tax free.
Many clients express concern about gifting thousands of dollars each year to their minor (or adult) children as the funds could be squandered. Fortunately, there are several planning tools that can be implemented to protect the beneficiaries while allowing the parent to retain some control.
The annual gift tax exclusion can also be used to purchase life insurance policies. If structured properly, the policy’s premiums can be paid with the annual exclusion amount and the proceeds pass to beneficiaries free of estate and gift taxes.
We have seen a decrease in the use of the annual gift tax exclusion over the past few years as a result of the increased estate and gift tax exemption in recent years. However, if Congress fails to intervene, the estate and gift tax exemption will return to $1 million dollars as of January 1, 2013. This pending change in tax law may result in new appreciation for annual gifting techniques.
Overall, the annual gift tax exclusion is a great way to transfer wealth to the next generation without paying any estate or gift taxes. Should you have any questions regarding the proper use of the annual gift tax exclusion, feel free to contact our office with your questions.
Continuing the discussion of the 7 Major Errors in Estate Planning, a recent article written for Forbes, leads me to the fourth error – failure to consider the estate and gift tax consequences of life insurance.
An asset class commonly found to be a part of a person’s portfolio, life insurance should draw the attention of the knowledgeable estate planning attorney. When owned by the insured at his or her death, life insurance proceeds are included in the decedent’s estate which may lead to estate tax liability. Although, for many of us, the issue of estate tax liability is often a distant concern with the current Federal estate tax exemption being just greater than $5 million for the year of 2012, the tax year of 2013 and beyond may require the estate planning attorney to resolve the issues surrounding life insurance due to the scheduled $1 million Federal estate tax exemption. The resolution for many clients will require the insured to transfer all incidence of ownership during his or her lifetime. This is most often accomplished with a trust which is often referred to as an irrevocable life insurance trust (ILIT)). There are significant complexities surrounding the use of ILITs, especially if there are ongoing insurance premiums to be paid in future years. The estate planning attorneys of Jeffrey Burr are experienced in providing resolutions to the potential adverse estate and gift tax consequences of life insurance.
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
My colleagues Jason Walker and Collins Hunsaker have discussed the first two errors and how to remedy those problems. I will discuss the third major error.
Failure to Review Beneficiary Designations or Titling of Assets
I spend a significant amount of time in probate and guardianship court. Unfortunately, I see first-hand the problems that can be created by failing to review the titling of assets or beneficiary designations. Generally, when a person creates an estate plan involving a trust, title on the assets must be changed and beneficiary designations should be modified or removed. Oftentimes, deeds are required for real property and assignments are necessary to transfer interests in corporations, LLCs, and partnerships. As a general statement, all assets with the exception of qualified retirement plans (such as an IRA or 401K) can and should be owned by a trust. Sadly, in some cases, these changes are never made. In other cases, new assets are purchased and not titled properly in the trust. These oversights can be very costly as correcting the error may require an expensive probate or guardianship proceeding.
This costly error is a simple fix. Each year, you should review all your assets to make sure each asset is titled correctly and has the correct beneficiary named. Statements from your financial institution will usually indicate how title is held. Real property can be checked online through the county assessor’s webpage. If you are unsure how an asset should be titled in your estate plan, contact your attorney for help. A good attorney will be able to help make sure that your estate planning goals are not frustrated because of an error in the titling of assets or beneficiary designations.
In its most recent session, the Nevada Legislature passed the “Independent Administration of Estates Act.” The new act is intended to expedite the probate process in Nevada and reduce the administrative costs of probate by allowing the personal representative of the probate estate to act more independently. Although the Independent Administration of Estates Act still requires the court to supervise the probate process, the act reduces the amount of court involvement in the probate process by allowing the personal representative to accomplish more tasks without the court’s involvement.
Even though the court’s involvement is reduced under the new act, the act still provides for checks and balances to protect the probate estate and beneficiaries. The personal representative is required to send notice to interested parties before taking certain actions. A party receiving notice may object to the personal representative’s action and can involve the court if necessary. In addition, major actions taken by the personal representative still require the court’s approval.
The Independent Administration of Estates Act has been enacted in others states. We are excited to see the new act in Nevada. We anticipate that the act will lower administration costs and help expedite the probate process in Nevada. Even though the new act will help lower probate costs, we still generally advise our clients to engage in estate planning and avoid probate in most cases. If you have any questions about the new Nevada probate laws or any estate planning needs, feel free to contact our office for a free consultation.
An often asked question regarding the administration of Trust or Estate after a death occurs is:
1. What happens if the beneficiary predeceased the decedent?
In this age of longevity, it is not uncommon for a beneficiary named under the terms of a Trust or a Last Will and Testament to predecease the inpidual creating the Trust (the “Trustor”) or the inpidual creating the Last Will and Testament (the “Testator”). When this occurs, what happens to the bequest? For example, a Trustor provides that a specific bequest of $50,000.00 be given to her son, Joseph. However, Joseph predeceases the Trustor. When the Trustor dies, what happens to the bequest? Does it lapse and become null and void? Or is it still legal effective? The answer is it depends on the terms of the Trust or Will and the facts of the situation. Nevada has an anti-lapse statute which provides that a bequest is saved and does not lapse if the predeceased named beneficiary is a child or other relation of the Trustor-Testator and the beneficiary left lineal descendants who survived the Trustor-Testator, unless the Trust or Will provides otherwise. NRS 133.200 provides as follows:
“When any estate is devised to any child or other relation of the testator, and the devisee dies before the testator, leaving lineal descendants, those descendants, in the absence of a provision in the will to the contrary, take the estate so given by the will in the same manner as the devisee would have done if the devisee had survived the testator.”
In our example above, the predeceased beneficiary, Joseph is a child of the Trustor-Testator. If Joseph left lineal descendants (child, grandchild, et cetera) and the Trust or Will does not provide otherwise, the $50,000.00 bequest will not lapse but will pass to Joseph’s lineal descendants. This may or may not be what the Trustor desires. When one creates a Trust or Will, one should always discuss and consider the possibility of a beneficiary predeceasing. If one does not want the bequest to pass to Joseph’s lineal descendants, the Trust or Will should specifically state that in the event Joseph predeceases, the bequest shall lapse or shall pass to some other beneficiary.
At the Jeffrey Burr law office, we have many years of experience in assisting clients in their estate plans through the drafting and execution of their Trusts/Wills. As part of this service, we go to great lengths to determine exactly what the client desires, including the client’s wishes in the event a named beneficiary predeceases the client.
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