Wills/Trusts/Estate Planning

Many people avoid proper estate planning because they do not like thinking about death. Estate Planning is generally considered the process by which people develop a plan that ensures that the assets they have worked so hard accumulating during their lifetime are protected and distributed to those they love. Without proper estate planning, the Internal Revenue Service (IRS) stands to inherit a large portion of your assets. Fortunately, it's not too late to write the IRS out of your will. We can help you implement a variety of advanced tax strategies to keep your assets out of the hands of the IRS. Our firm handles a variety of estate planning matters and advises our clients so as to gain the maximum benefit of all laws while, at the same time, carrying out the person's wishes.

• Wills-The most widely known and accepted form of estate planning is the "Will". Wills afford a person the opportunity to dispose of his or her estate upon their death in a prescribed, predetermined manner. To properly execute a Will in Nevada, the person making the Will must be at least eighteen years of age and competent. The Will itself must be in writing, signed by the person making the Will, witnessed by at least two disinterested persons, and signed by those persons as witnesses to the Will, in the presence of the person making the will. Nevada does recognize the use of "Holographic Wills," which are wills handwritten by the testator, dated and signed by him or her. Nevada is also the only state to recognize the use of "electronic Wills." The failure of one to make a Will does not necessarily negate the distribution of the decedent's estate to his or her heirs. If a person dies without a Will, the remaining estate must be probated "intestate." This means that upon conclusion of the estate's probate administration, the remaining assets will be distributed according to Nevada's laws for intestate succession. In other words, the decedent's assets may be distributed in part to a surviving spouse, children, grandchildren, or perhaps next of kin. Very rarely will a decedent's estate escheat to the State of Nevada; i.e. the State of Nevada succeeds to any remaining property. Regardless, if a person dies testate (with a Will) or intestate (without a Will), the estate must be probated to transfer those assets to the decedent's heirs.

• Living Trusts-One of the most common and popular tools used in Estate Planning is the use of what is commonly known as a "Living Trust" or "Revocable Trust." This type of trust has several advantages over a Will and can be used to address your Estate Planning needs efficiently and effectively. Living Trusts will keep your assets from being subject to Probate. Probate is only necessary when a person dies owning assets titled solely in his or her own name. When that occurs, the only way to transfer title in that asset to another person is by court order. The person who obtains such an order is known as the executor or administrator for the Probate estate.

  With a Living Trust that has been properly drafted and funded, the assets will escape Probate and can be transferred to your beneficiaries without the assistance of an executor or administrator. However, someone still must transfer title in the assets to the beneficiaries. That someone is called a "successor trustee." The successor trustee is very similar to an executor or administrator for a Probate estate, except that the successor trustee is not required to administer the trust with court supervision. Rather, the successor trustee is provided with authority and broad powers to distribute the assets of the trust after your death. During your lifetime, you and your spouse may act as the sole trustees. Following your deaths, you can choose an individual or corporate trustee to serve in your stead and carry out your dispositive wishes.

  In a Living Trust you and your spouse never lose control over the assets you place in the trust. You, as the grantor or creator of the trust, can amend, revoke, or alter your trust at anytime during your lifetime. This type of control allows you to freely use the assets of your trust free of interference from anyone. Once you have decided to use a Living Trust in your estate plan, you should likely transfer all of your assets (with few exceptions) into the name of the trust so as to ensure that none of the assets would be subject to Probate upon your death. As mentioned above, the successor trustee will carry out the duties and responsibilities of the executor or administrator, such as filing tax returns, disbursing assets to the beneficiaries, paying creditor claims, inventorying assets, etc.

• Tax Considerations-Living Trusts do not eliminate or reduce income taxes. This is so because you maintain complete dominion and control over the assets in your Living Trust and thus, you are still considered the owner of the assets for income tax purposes. The income you earn on your Living Trust assets must be reported by you on your individual income tax return during your lifetime. The savings you realize by using a Living Trust include the avoidance of Probate expenses and fees, the avoidance of guardianship expenses and fees, and the reduction or elimination of federal estate taxes.

  In 2001, estates valued at $675,000 were not subject to federal estate taxes. This exemption amount increased to $1,000,000 in 2002, $1,500,000 in 2004, $2,000,000 in 2006, and $3,500,000 in 2009, according to the Economic Growth and tax Relief Reconciliation Act of 2001 ("Act") passed by Congress. In 2010, the Act provides that the federal estate tax will be repealed. The repeal, however, is only effective for estates of decedents dying in 2010. Estates of decedents dying thereafter will be subject to The Internal Revenue Code of 1986 as if the repeal had never occurred, absent Congressional action to extend the repeal period of the 2001 Act.

  Regardless of what the future holds, the existence of the federal estate tax means there are significant estate tax planning opportunities. With a properly drafted Living Trust, a husband and wife may effectively preserve from the federal estate tax up to $2 million by combing their individual exemption amounts of $1,000,000. This means that spouses may pass on to their heirs, $2 million of property free of federal estate tax. Without the use of a Living Trust, a spouse's exemption may be lost upon his or her death. There are some post-mortem tax planning strategies to minimize the federal estate tax burden to be realized upon the death of the second spouse, however, careful planning today will allow those strategies to be even more effective for those with taxable estates larger than the exemption amount. For single persons, other planning strategies can be utilized to enhance the exemption amount and maximize tax savings.

• Probate Consequences of Living Trusts-Regardless of the size of your estate, one of the primary advantages to using a Living Trust is avoiding Probate. The costs of administration and time to complete an estate administration in Probate is considerably longer than that of a Living Trust. Probate on an average can take four to nine months to complete, thus freezing the assets over this period which your family may need at this most desperate time. With respect to persons who own real property in different states, they will have to endure multiple probates of that real property if they fail to implement a Living Trust. This occurs because real property can only be probated in the jurisdiction in which the land is located. By using a Living Trust, no Probate in any jurisdiction would be necessary since the property would be owned by a trustee at the time of your death, not you individually.
• Post Mortem Asset Management-Successor trustees in a Living Trust generally have more powers and latitude in managing your estate than do personal representatives. In most cases, a personal representative will have to seek court approval to carry out some act he or she believes is in the best interests of the Probate estate. This process can be time consuming and costly to the probate estate.
• Living Trusts and Guardianships-Living Trusts are excellent tools to eliminate the need to establish a guardianship or conservatorship over your estate. Living Trusts can provide standards for determining competency and appoint a person or corporate fiduciary to manage your estate while you are incompetent. Court supervision and continued hearings regarding the accountings of your estate are eliminated since the assets are in your trust and not part of a guardianship or conservatorship estate.
• Pour-Over Wills-Many people think that if you have a Living Trust you don't need a Will. This is partly true, and partly false. It is true that you don't need a Will if you have a Living Trust because your successor trustee will distribute your assets without the need for Probate and in accordance with your wishes, which are set forth in your trust agreement. However, a Will is still necessary. If there is any property subject to probate, your Will can direct your executor to probate the property and put it into the Living Trust for proper management and distribution. This type of Will is known as a "Pour-Over Will." Your Pour-Over Will is also important in that you can set forth your wishes concerning your burial arrangements, designation of a guardian for your minor children, and nomination of a guardian over your person if you became incapacitated. Finally, a Pour-Over Will can be an effective tool in addressing creditor claims for a particular asset that may not be advantageous to placing in your Living Trust.
• Disadvantages of a Living Trust-You may incur more costs in implementing a Living Trust than you would if you decided to just use a Will. The main costs are in transferring your assets into the Living Trust. You can accomplish most of these transfers fairly easily with the assistance of your broker, real estate agent, banker, or investment advisor. The cost in preparing your trust and the drafting of the supporting documents is more costly than preparing a simple Will. However, with careful estate planning and a thorough analysis of your estate planning goals, thousands of dollars can be saved by using the Living Trust, thus, making a sound investment in your future as well as your family's future.

For estate planning assistance in the state of Montana, please contact us at Abrams & Tanko, LLLP. We provide a free initial consultation, flexible office hours and prompt, attentive service to meet your needs.

Find answers to any estate planning questions at our Probate and Estate FAQ page.