On June 12th the Supreme Court of the United States handed down a decision stating that Inherited IRA’s are subject to the claims of creditors. For anyone who inherits an IRA, creditors or a spouse in a divorce can attach that inheritance if not properly planned. Even a surviving spouse can have a problem if he or she does not roll the IRA over into his or her own IRA.
One way to protect the IRA inheritance of any beneficiary is to use a qualified trust as beneficiary. Our office for example has a qualified trust that solves this problem.
“The biggest estate-planning mistake is that people think it’s only about the money,” said Marlene Stum, a professor at the University of Minnesota and author of the “Who Gets Grandma’s Yellow Pie Plate?” workbook and website. “When it comes to their personal possessions, they say, ‘It’s just stuff.’ ”
In my opinion, the personal items in a home is often the biggest source of unhappiness among families when a loved one dies. Without taking the time on how to resolve the distribution of personal possessions, you can unwittingly leave a legacy of rancor and resentment.
Baby boomers surveyed by Allianz Life Insurance Company selected personal possessions six times more often than financial inheritance as important in legacy planning.
Okay, where do we start? How about asking your heirs what items mean something to them? Then keep a list and resolve any overlapping interests.
Next, on a sheet of paper, titled Personal Property Distributions, and upon completion attached to the back of your Will, list who gets what and sign, date and number the sheet(s) 0f paper. While writing the names on the pieces themselves seems like a great idea, it is unlikely supported in the law if there is a dispute on who gets which items.
If you have a lot of sentimental items, and you do not want to list who receives them, perhaps a third party executor or successor trustee that will distribute the personal items will work better since their decisions will not be treated as biased or personal.
Starting the process early leaves time to work out ground rules and deal with different assumptions and opinions. And it can be a chance to see the pleasure your treasures can bring to their new owners if you choose to give them the items you do not need now.
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It isn’t a surprise to anyone that those typically motivated to do estate planning are those that have their mortality staring back at them. Examples include clients preparing for travel, life challenging illnesses or individuals in advancing years.
I don’t need to remind anyone that life can be cut short since all of us have been affected by a passing that came too soon and too fast. In my practice, I’ve had parents pass without making their choice be known for a guardian of their children and recently an individual passed and because she didn’t have a will, it passed to an individual that the rest of the family kept shaking their heads saying “she must be turning in her grave that so-and-so inherited her estate.”
Sure, very few of us like planning for our passing. But often, it is the things we least want to face that end up giving us the greatest peace once faced, tackled and then resolved.
Give us a call and we will be happy to assist you with the process, make the planning and implementation of your estate plan as simple as possible and will guarantee that the burden that gets lifted off your shoulders will give you great satisfaction.
While this is a common misconception, I believe it mixes up two ideas, estate planning and estate tax planning. Estate tax planing is actually a small, but important, part of the overall estate planning process.
Estate planning is about making sure your estate is in order and passes as you wish. Estate tax planning is making sure the government gets as little of your estate as you can.
Estate planning uses a trust, or a will, to organize your affairs and distribute it to who you care about when you die. Estate planning is for tax and non-tax reasons. Of course no one is required to have an estate plan. Many would be unhappy to know that our legislature in Arizona has written an estate plan for everyone that hasn’t written an estate plan themselves.
Question: Does Having a Will Mean You Avoid Probate? Answer: No, almost by definition, a Last Will & Testament implies that a probate will be needed to administer the estate. The best way to avoid probate is using a revocable trust.
Another way to avoid probate, but sometimes causing more problems than the probate itself, is to have all your assets in joint tenancy with right of survivorship or pass by beneficiary designation. The issues this cause is that the beneficiaries tend to get unequal distributions from the decedent, die before expected or assets don’t pass upon death as expected and probate ends up being required in spite of efforts to avoid it. Therefore, revocable trusts are still your best tools to avoid probate if this is your goal.
This was a column in a local paper that got me thinking that this is actually a very commonly asked question. First, it doesn’t all go the State. It may but this is very unlikely.
Basically, the State of Arizona has written a Will for you if you fail to do one yourself. If your wishes are not the same as the one written into statute, you will need to do a Will, or a Revocable Trust, to spell out your own wishes.
The State’s “intestacy” statute basically states your estate will go to your spouse if you have children that are also the children of your spouse. Otherwise, it is divided between your spouse and children from a prior marriage. If you are unmarried and without children, to your parents, and so on.
If you have remarried, a blended family, have a significant other or have other heirs you want to leave part of your estate to, you need to overcome this statute by creating your own Will or Revocable Trust. It is actually quite simple to do.
Kevin P. McFadden
Knollmiller & Arenofsky, LLP
This question usually gets asked by the family after a loved one has died and they are told they have to go through probate. How did this happen?
Yes, one of the benefits of a revocable trust is avoiding probate. The explanation everyone has heard is because the assets are held in trust there isn’t an estate to be probated. Instead, the successor trustee can access, get under control, liquidate and ultimately distribute the estate to the trust beneficiaries. So, if this is what is suppose to work, what went wrong? These are the most common cases of probates in spite of a revocable trust being in place:
Refinance. Very often when a client has a house in a trust decides to refinance the mortgage, the house gets transferred out of trust in order to make the financing go through. Too often the title company will transfer the property out but never takes any steps to transfer the house back in or even remind the owner that the house needs transferred back.
IRA or Insurance Beneficiary dies. If you have named a beneficiary of your IRA or life insurance and they die, often the contract states it will be paid to your “Estate.” This often means probate.
Leaving checking or investment accounts and vehicles out of trust. While you can have up to $75,000 outside of trust and not go through probate, sometimes accounts do not get titled in the name of the trust. If the total non-trust assets exceed $75,000, you may be in probate.
Mortgages. While a house may be in the trust, and therefore avoid probate, if you have to work with a lender, you will need to have an executor appointed to represent the decedent in all dealings with the lender. The same may apply to other debts or the IRS.
Of course most of these can be avoided with just being mindful that most assets need to be titled in the name of the trust.
Avoidance of probate. In particular, a revocable living trust can avoid expensive multiple probate proceedings when you own real estate in several different states, as well as the publication of the otherwise private financial details of your estate.
Avoidance of conservatorship. A revocable trust can avoid the additional cost of a conservatorship in the event of your incapacity.
Efficient distribution. A revocable trust can reduce delays in t istributing your property after you die, although delays caused by filing an estate tax return cannot be avoided.
Confidentiality. Generally the terms of your living trust are confidential, with only your named beneficiaries and trustee having access to that information.
Continuity. A trust can provide continuity of management of your property after your death or incapacity.
Disadvantages of a Revocable Living Trust
Expenses of planning. A revocable living trust can be a little more complicated than a will to draft, and asset transfers can take time and can result in additional costs.
Expenses of administration. If you appoint a bank or trust company as trustee, you will have fees to pay (though these may take the place of investment advisory fees and other fees you are already paying). Of course if you do not use these services, this additional expense will not apply. Setting up a revocable living trust will not eliminate the need for professional services of attorneys and accountants in the future.
Inconvenience. Once the trust is established, you must be sure that trust books are maintained and that all assets continue to be registered to the trustee. Again, this is not a large issue but certainly is something to consider.
Unforeseen problems. Revocable living trusts can raise a variety of new problems regarding the ability to borrow against property, title insurance coverage, real estate in other countries, Subchapter-S stock, certain pension distributions, and many other issues. Only a skilled attorney familiar with estate planning can tell you whether, on the whole, a revocable living trust is right for you, your family and your assets.
In this author’s opinion, the advantages far out weight the disadvantages
This is based on an posting by the Oregon State Bar
This question gets asked a lot. Sometimes it is asked if the Feds or Arizona tax you when you die? Sometimes it is asked if the State gets part of your estate when you die? Mostly it is thought of in terms of probate whether you have a Last Will & Testament or not.
The short and simple answer for almost everyone is zero, the Feds and Arizona gets absolutely nothing when you die. Of course there are exceptions, but they are very limited.
One exception is if your total estate is over $5,250,000 at least for year 2013. If a married couple have done proper estate planning they can pass $10,500,000 this year estate tax free. And no, the State of Arizona does not have an inheritance or death tax. Some states do but Arizona does not.
Another exception is if you do not have a Will or Trust and you have no heirs. This means no parents, children, spouse, nieces and nephews, cousins, etc. Very rare, but possible. If this is the case, the State of Arizona takes the entire estate.
Another exception, but I don’t really think this should be thought of as an exception but basic taxation, is that if you have any assets that are pre-tax, for example an IRA, then when the funds are distributed, they are subject to income tax as they would have been if the person was still alive.
So in answer to the question, no, the Feds and the State of Arizona will very unlikely get a piece of your Estate. Of course this doesn’t mean your Estate will go where you want it to without careful estate planning. That is a subject of another post.