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.
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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.
I am unsure how this mistaken belief ever came about since a Will is almost synonymous with probate.
By way of background, using a Will as your primary estate planning document, your estate may be probated. Without a Will, your estate will still go through the probate process, but the state laws of intestacy, discussed before in this blog, are applied to your estate and possibly overcome your wishes.
Probate is a court supervised proceeding, where your Will is “proven” in court. If the Will is proven to be valid, then title on your assets, after payment of your debts and expenses, can be legally transferred to your heirs according to your wishes. Since this is a court supervised process, it is also a public process, meaning the full details of your Will are public and available to anyone wishing to view the court records. This includes the information about who your heirs are, where they live, and often the assets of the estate.
As if the public airing of your final wishes and disposition of your assets is not bad enough, notices must be sent out to all parties with an interest in your Will, usually to all family members, to your creditors, and public notices of your death must be posted. This is to notify and allow anyone who may have a claim against your estate the time to file that claim and have it included in the probate process.
Further, for those individuals with property in more than one state, upon death there will not only be a probate process in the state of residence, but also the need for what is known as an “ancillary probate” in each of the other states where property is owned.
Because of this, most people would choose to avoid probate if they could. Why would anyone voluntarily choose to allow their estate to be probated? There are other methods to use, such as using a living trust as your primary estate planning document instead of a Will, which can avoid most of the time, expense and publicity associated with the probating of a Will.
In short, using a Will as your primary estate planning tool will not keep you, or rather your heirs, out of probate. It does mean however, that your probate will likely be more organized than it otherwise would have been had you died without a Will.
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 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.
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.
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.
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.