AZ Estate Planning News

AZ Estate Planning News

Knollmiller and Arenofsky Trust and Estate Planning

Posts filed under Trustee

“I thought a trust avoided probate!”

Judge Michael Evans

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Call me with any questions, 480-345-0444

Kevin P. McFadden, Knollmiller & Arenofsky, LLP

 

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Advantages vs. Disadvantages of a Revocable Trust

New Grandchild

Advantages of a Revocable Living 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

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How Much Does the Government Take When you Die?

Arizona State Capitol Museum

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.

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Recent Trends Part III

Another trend in living trust and estate planning is less concern about probate and more concern about possible incapacity.

18/365 Probate

The “typical” client 20 years ago was very concerned about ending up in probate after their passing.  I am not sure if this came from all the advertised estate planning seminars that used this to scare people into living trusts, or more accurately stated, buying their financial products.   Probate is certainly still a concern for many clients, which in this writer’s opinion isn’t the terrible process it is made out to be.  The bigger concern now is a client’s possible dementia or incapacity in later years.

This is certainly an advantage of a trust over a will.  The assets held in trust and an excellent power of attorney for the day to day financial matters are a great way to take care of each individual in later years.  If one happens to be unable to care for their own self, their successor trustee and agent under the power of attorney can almost always take care of all their financial matters without court action, conservatorship or governmental involvement.

 

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If I have a Will does it means I will avoid Probate?

Courtroom in in . The Classical Revival courth...

No, a Will by its very nature implies Probate. Probate is a procedure to administer the estate of a decedent. Even if you do not have a Will, your estate will be administered according to the laws of your home state. This procedure for estates that do not have a Will is called Intestate. To avoid probate, a Trust is the recommended estate planning tool.

 

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Is A Trust Really Necessary?

This question gets asked a lot.

Everyone should have an estate plan, meaning a Will, powers of attorney, and similar. But when should you have a trust? The benefit of revocable trust include a tool to assist us in the event of our incapacity. Instead of going to court to seek a conservatorship, your chosen one can manage your assets and take care of your financial needs acting as your trustee. No court involvement, much easier transition. Upon your passing, you also will avoid probate. Another public, court procedure, entirely avoided with a trust. The administration of your estate is private, easily administered, and can almost always done outside of the lawyers and court system.

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