Estate Planning

The Revocable Living Trust and Estate Taxes

We have already discussed the advantages of the Revocable Living Trust including probate avoidance, guardianship avoidance, and privacy.  Now lets talk about tax avoidance.

Many people share confusion regarding estate taxes.  Some clients seem to believe that the state or federal government will talke money from their estate by virtue of a probate proceeding alone.  Please understand that probate has nothing to do with taxes.  Rather, the expense associated with probate is mainly attorney fees.

Under present federal law only larger estates are subject to the estate tax.  In 2006 individual estates may exclude up to $2 Million to pass to their heirs tax free.  The estate tax is set to be eliminated in 2010 and revert back to a $1 Million exemption in 2011.  Frankly, I anticipate some legislation to change this schedule before 2010.

Couples whose combined estate is between $2 to $4 Million may not sit by believing they can full shield $2 Million each.  Rather, on the first to die, there is no real consequence by virtue of an unlimited marital deduction.  However, after that first to die we have a single individual with an estate exceeding $2 Million which will likely be subject to some estate tax.  Consequently, couples who have estates exceeding $2 Million should properly plan their estate for tax avoidance purposes.

The Revocable Living Trust is a good vehicle to avoid or lessen estate taxes.  A properly drafted trust may separate the estate into to two trusts upon the first to die.  This strategy will allow a couple to fully utilize each of their $2 Million exemptions, thus, passing up to $4 Million tax free.

Parties who possess estates exceeding $4 Million may find it beneficial to participate in more sophisticated estate planning procedures to lower their taxable estate at death.

Contact an estate planning attorney for more information.

Check Your Deeds

If you have previously had an estate planning trust prepared, check your deeds to make sure all of your real estate is deed into the name of your trust.  The number one pitfall of the revocable living trust is failing to deed your property to it.  Your trust only governs the property it owns.

If you do not have a trust, you should check the status of your deed.  In nevada, I have seen many deeds prepared for a married couple as “husband and wife.”  In other words, no “right of survivorship.”  In nevada, even married couples, must hold property as “joint tenants with right of survivorship” or it is presumed that you hold the property as tenants in common.  Therein lies the problem.

I get about one new probate case a month where a widowed spouse is seeking  to sell their home only to find out that their deceased spouse is a tenant in common.  Ths means that we must go through the hassle of a Nevada probate simply because a deed did not say “with right of survivorship.”

Although I will often suggest a revocable living trust, it is also important to be sure your real estate is properly titled.

How Will My Kids Get My Real Estate?

This is a great question I have recently recived.  It is a very common concern.

“My questions deals with a husband and wife living in Utah with 4 children - all over the age of 18.  I understand that the interest in real property that is owned in “joint tenancy with rights of survivorship” transfers to the survivor when one person dies.  So if the wife dies first then her interest in the property would be transferred to her husband.  What happens to the property when the husband dies if there has been no will or estate planning done?  Does the property get split equally between the surviving children?  Does the state take possession of the property?”

Thank you for your question.  This is a very common question that I have addressed to some extent in other entries.  However, it is such a good example of the necessity of estate planning that it is well worth discussion. 

You are correct that when husband and wife own property as joint tenants with right of survivorship the property passes to the surviving spouse without probate.  Generally, you must simply record an affidavit to remove your deceased spouse from title.

Does the property get spit evenly between the children?  It depends.  First, as long as you have some surviving kin the state will have no claim to your real estate after death.  Assuming you have no estate plan, your property will pass to heirs via a probate process.  If you have a will, the probate court will distribute it to whoever you designate.  Generally, if you have children, and no estate plan, the laws of intestate succession will provide that your property be evenly divided between your children.

The process of getting the property to your proper heirs will generally be easier with proper estate planning.  Contact an estate planner.

Dealing With Tangible Personal Property

Most states, including Utah and Nevada, provide that personal property may be disposed of by use of a handwritten list left at death.  My will and trust documents will generally refer to such a list.  If the handwritten list is found at your death it is effective to pass items of personal property to specific people by way of probate or specific instruction to a successor trustee.

The handwritten list allows people to devise certain items of sentimental value to particular persons even though their estate may be otherwise divided in equal shares.  So, if you want your prize hunting rifle to go to your hunting buddy, it is easy to do.  The real beauty of the handwritten list is that it can be changed without a complete revision of your will or trust documents.  If your hunting buddy makes you mad you simply destroy the hand written list and replace it with a new one.

I find that many clients can reduce conflict by leaving a handwritten list to dispose of personal property.

Who will care for my minor children if I pass away?

This is one of the major reasons that it is vital for even young couples to have a will.  Utah law allows a parent to name a guardian for their minor children by a provision in their will.  A person named by will has priority of appointment as the minor child’s guardian.  Otherwise, the guardianship of the children could be a matter of litigation between family members as well as the State Department of Child and Family Services.  Young families should safeguard their children through a properly drafted will provision.

Did You Know That You Can Deed Property Effective At Death In Nevada?

If you have followed my blog you will see that I have often discussed the proper use of a Revocable Living Trust to avoid probate at death.  The trust is a perfect vehicle to transfer real estate to heirs without the hassle and expense of probate.

You may also know that real estate held with right of survivorship transfers to the survivor without need of probate. This aspect has often caused parties to set up deeds transfering their real estate to their children outright, or naming their children as joint tenants with right of survivorship  prior to death.  While this tactic avoids probate there exists too many pitfalls to make it a viable planning alterntive.  I have regularly discussed those pitfalls in prior posts.

However, Nevada law carves out an interesting alternative method to transfer property at death free of probate.  Nevada Revised statutes Section 111.109 provides that a person may execute a deed that is effective only upon that persons death.  So, for example, a parent could execute a deed, effective upon death, transferring property to his children.  Such deed would cause the property to transfer to the children in a similar fashion as a right of survivorship without giving outright ownership to the children prior to the parents death.  The statute contains certain language required in the deed.  Furthermore, the deed must be properly executed and recorded prior to death.  Such a deed is revocable during the lifetime of the person making it.  Indeed, the parent may execute a new deed, and record it, cancelling the prior deed and naming new transferees.  At death, the named parties, must merely sign an affidavit of death and record it together with a death certificate to properly tranfer title.

The revocable living trust is a very useful tool providing many benefits to an overall estate plan.  Consequently, the deed transferring property at death is not a substitute for a revocable living trust and other proper estate planning.  However, in some circumstances, such a deed may be a viable alternative estate planning tool.  It is important that you contact legal counsel for proper drafting of such a deed.

Life Insurance and Divorce

Husband and wife, happily married, often procure life insurance with their spouse as a beneficiary.  Often when the union unfortunately ends in divorce the now unmarried, or remarried, party neglects to change the beneficiary on their life insurance policy.  What happens when a divorced party forgets to change their beneficiary after the divorce?

Both Utah and Nevada have enacted statutes providing a presumption that the former spouse is no longer the intended beneficiary and the designation is not valid.  “Whew,” you might say.  Well, not really.

This provides one more complication making proper estate planning vital.  Suppose the former spouse intended for the divorced spouse to remain as a beneficiary to care for the former couple’s minor children?  Also, if no contigent beneficiary is named, the policy will often pay out to your estate requiring a probate.

Failing to properly designate beneficiaries can easily invite familial strife and litigation between former spouses and current spouses.   See an estate planning attorney if you have become divorced with a life insurance policy.

Cremation and Burial Instructions

Upon a person’s death, loved ones often disagree as to the proper disposition of the remains.  I have had more than one panic phone call stating “My brother is having my mother cremated and I don’t want him to.”

It is vital to a proper estate plan to make appropriate arrangements for your remains.  I find that a failure to properly plan these issue can lead to family strife and, at times, litigation.

Both Utah and Nevada law give preference to the properly expressed wishes of a decedent.  In Utah, burial instructions may be made in a will or separate legal directive (often executed when making advace funeral arrangments), stating the name and address of the decedent, the decedent’s wishes, the decedent’s signature, the signature of two unrelated witnesses, and the date the document was executed.  Similarly, in Nevada, a person may execute a will or other directive to establish burial instructions.

If no instructions are left by a decedent, the law generally provides a plan of priority as to who may order the burial or cremation.  In Utah, absent a written instruction, the following order of priority applies: (1) Surviving Spouse, (2)majority vote of surviving children over 18, (3)unanimous consent of surviving parents, (4) next of kin, (5) public official charged with disposition of deceased persons.  You can see the obvious flaws in this imperfect system.  What if the kids do not agree and are evenly divided?  What if only one surviving parent consents to cremation?  Does it then fall to a next of kin to make the decision?

Nevada law follows a similar system of priority, absent a writing, as follows: (1) The surviving spouse, (2) An adult son or daughter (former law required a joint decision), (3) either parent (former law required parents jointly), (4) Adult brother or sister, (5) a grandparent, (6) a guardian, (7) a person who held the primary domicile with the decedent as a joint tenant (i.e. unmarried partner.)  The Nevada system went away from a majority vote of children to “an adult child.”  This seems to invite panic among siblings.

This is a situation where the legislators have done the best they can with a difficult situation.  Many familial problems can be solved by properly designating your burial instructions in your estate plan and/or making advance arrangements with a funeral home.