Category: Probate

Avoiding Probate: The Revocable Living Trust

4/25/2016

Revocable living trusts have been a hotly debated estate planning tool. Some estate planners refuse to consider revocable living trusts for their clients’ estate plans, while others consider it essential to a complete estate plan. This brief article will look at both sides, and explain the advantages and disadvantages of revocable living trusts.

Why are revocable living trusts used?
A revocable trust allows you to avoid probate. This saves both the three to nine month wait for completion of the probate process and the following cash savings:

Probate fees of $200 per every $100,000 of property you own.
Attorney fees of approximately $1500 to $4000 for handling an uncontested probate.
Double the above costs in the event that you have property in more than one state. Approximately an additional $1500 to $5000

A revocable trust allows you to choose a person to manage your finances.

In the event that you are unable to manage your finances, a revocable trust sets up a method for you to pass control to a person you choose.

A revocable trust has no tax impact while you manage the trust.

The revocable trust is set up as what is called a grantor trust. This means that you do not have to concern yourself with any additional tax documentation. You can take your tax credits or deductions just as you always have. In this way, the trust is simple to manage.

After you die, your revocable trust can be used to shelter your children’s inheritance from their creditors and spouse.

Often revocable trusts are set up to distribute all of your property and terminate after you die. However, you may also set up the trust to continue to hold money for your children under a spendthrift provision, which protects your child’s inheritance against his or her creditors.

What is a Revocable Living Trust?
What is a Trust?--A trust is a written agreement that names one person, the trustee, to be responsible for managing property for the benefit of others (the beneficiaries.) In general, a revocable living trust allows you to manage your money as trustee, and receive income and principal (those assets that you placed in the trust) for life. The remainder then passes to your beneficiaries.

What is a “revocable” Trust?--A revocable trust allows the creator (the grantor) to change or end the trust at any time and for any reason.

What is a “living” Trust?--A living trust is a trust created and funded during your lifetime. You may also create a trust in your will, to be funded after your death. This is known as a testamentary trust.

What differs between “living” and “testamentary” trusts?--The main difference between a living trust and a testamentary trust is whether the assets go through probate. The primary purpose of a living trust is probate avoidance.

Probate:
What is probate?--Probate is a court-supervised process transferring ownership of a deceased individual’s (decedent’s) assets.

What are the advantages of probate?--Probate has two main advantages:

Probate ends creditors’ claims. If a creditor fails to make a claim against the property within the allotted three to four months after receiving notice, they waive the right to any claim against the property. (This result may also be achieved by providing notice with the trust, but you will not be forced to do so.)
Probate creates proof of the value of property at date of death. Inherited property has a tax basis equal to the value of the property the day the decedent died. Therefore, when inherited property is sold, taxes are only due on the sales price above the value that the property had on the date of death. Probate serves as a means to prove the value of the property as of the date of death for this tax purpose.

What are the disadvantages of probate?--Probate has two main disadvantages:

Cost— Probate costs include a filing fee of 0.2% of the value of the total probate property, attorney fees (which can run in the $4000 range,) and personal representative fees (if your personal representative chooses to ask for a fee.)
Time—Distributions may only be made from the probate estate after the three to four month waiting period for creditor claims has elapsed. The family may only receive money before this time by court order.

Revocable Trust Disadvantages:
Are there any disadvantages to a revocable trust?—A revocable trust has several disadvantages:

If you ever appoint someone other than yourself or your spouse as trustee of the trust, the trust will be required to file a yearly informational report to the IRS.
A revocable trust needs maintenance. If you receive assets at a future date, you will have to be sure to put the assets in the revocable trust, otherwise you will not avoid probate. This can be accomplished on your own, or with simple guidance from an attorney. It may include assuring that any deeds for property are properly assigned to the trust and not to yourselves.

Should I have a revocable trust?--To determine whether you should have a revocable trust, you should consider both the advantages and disadvantages as they apply to your own scenario. For assistance with determining whether a revocable living trust is right for you, contact Attorney Derrick Heller-Neal via phone at (262)902-0595 or by email [email protected] to schedule a consultation.

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How can an estate plan help me avoid probate?

3/2/2016

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Please see the articles: "Basics of the Probate Process" and "The Advantages and Disadvantages of the Probate Process" for information about what costs and procedures are involved in the probate process.

An estate plan uses the following methods to help avoid probate: Beneficiary Designations, Transfer on Death and Pay on Death designations, Revocable trusts, and Marital Property Agreements

Beneficiary Designations- Many different types of assets allow for nonprobate transfer through designating whom should receive the asset when you die, otherwise known as a beneficiary. As estate planning begins, it is important to review all assets where you can pick a beneficiary to be certain that the beneficiary chosen matches with your estate planning goal. This is doubly important with retirement accounts, which can have significant tax implications if beneficiary designations are not chosen appropriately.

Types of assets that commonly have beneficiary designations:.
1. Life Insurance
2. Retirement Plans
3. Stocks, Bonds, Mutual Funds, and Brokerage Accounts
4. Bank Accounts and Certificates of Deposit

Transfer on Death and Pay on Death- Transfer on Death (TOD) and Pay on Death (POD) are designations that may be placed on Bank accounts, Certificates of Deposit, Stocks, Bonds, Mutual Funds, Brokerage Accounts, and Real Estate to pass those assets outside of probate by designating a beneficiary for the asset. The asset remains yours to control and use, but passes to the chosen beneficiary when you die. To this end it is not subject to the beneficiary’s creditors during your lifetime, unlike when joint tenancy or joint accounts are used.

Joint Tenancy and Joint Accounts- Joint tenancy and Joint accounts are both types of property ownership in which both individuals have complete control of the property. This type of property ownership also allows the asset or account to pass outside of probate at the death of one of the joint owners to the other owner. However, unlike with transfer on death or pay on death designations, your co-owner has the full ability to use the property for himself or herself, and the property is subject to any creditors your co-owner may have.

Revocable Trusts- A revocable trust is a written agreement naming an individual (trustee) who will be responsible for managing the property in the trust for the benefit of others (beneficiaries.) Generally, you maintain control over the assets you place in the revocable trust. You may use the assets in any way you choose at whatever time you choose. In the event that you pass away, a person you choose in advance will become trustee and will have responsibility for managing and distributing the property from the trust to the remaining beneficiaries. This allows a seamless transition that has the added benefit of avoiding probate.

Marital Property Agreement- A marital property agreement allows a couple to opt-in or opt-out of Wisconsin’s marital property laws by specifically designating what assets are considered to be marital and what assets are individual. The marital property agreement has the added benefit of allowing transfers of marital property between spouses at the death of one spouse outside of probate through what is called a “Washington Will provision.” However, as is true with much of estate planning, a marital property agreement should be reexamined if either spouse may soon require long-term care.

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The Advantages and Disadvantages of Probate

2/28/2016

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While I generally suggest that clients seek to avoid probate, it is important that they understand that probate avoidance is not always the right strategy. The following is a brief overview of the advantages and disadvantages to probate, to help you determine what is best in your situation.

Advantages:

Probate gives a court-accepted valuation of all of the decedent’s property.
1. Placing a value on property at the time of the death of an individual can be extremely important for tax reasons. When an individual dies and passes property on to a beneficiary, the tax basis in that property is raised to whatever the property’s value would be on the day the decedent died. This is important for calculating taxes when the property is sold. In general, tax is collected on income, or in this case, ‘gains.’ That is to say, on the difference between the tax basis and the sales price. A higher basis means less gain, which means less tax. By creating a court-accepted valuation, probate gives the beneficiaries a clear number to use for basis when they go to sell the asset years in the future. Without this valuation, the beneficiaries must somehow show what the value was on the decedent’s date of death. This can be challenging if the beneficiary does not get the property valued.
2. Examples of property that may need valuation: Real estate, if the assessed value seems too low; closely held businesses; collectibles; and other hard to value assets.
Probate sets a timer on all claims against the estate.
1. Most claimants have a limit of three months to bring a claim against the estate. However, it is the personal representative’s (the person who you pick to handle your probate) duty to make sure that all creditors are informed about your probate. This is not a process designed to dodge claims. The probate process is an upfront way to make sure that all claims have been paid before distributing property.
2. Due to changes in the Wisconsin Estate Recovery procedures, it is currently best to go through probate in order to deal with claims from the state, rather than to deal with the state outside of probate. The state has failed to put any procedures in place for contesting their claim outside of probate. The revocable trusts set up by Heller-Neal Law Offices, LLC, take this into account, and allow distribution to the estate in the event of any claims by the Estate Recovery program.

Disadvantages:

Probate takes time.
1. Probate takes a minimum of approximately four months to complete. Often, probate can take from four to nine months to complete, due to time spent getting the signatures of heirs and beneficiaries, having hearings, dealing with creditors, inventorying and accounting for the estate, and distributing assets. During the initial three to four months, the assets are not able to be distributed, so as to give creditors an opportunity to assert their claims. Therefore, not only will someone need to manage your estate for four to nine months, but your beneficiaries do not even get to see any money from your estate during much of that time.
Probate can be costly.
1. Probate filing fees of $200 per every $100,000 of property you own.
2. Attorney fees of approximately $1500 to $4000 for handling an uncontested probate.
3. Double the above costs in the event that you have property in more than one state, as each state will require its own probate. Approximately an additional $1500 to $5000
Probate is not private.
1. Any assets that pass through probate are a part of the public record. Further, all heirs and beneficiaries of your estate are given notice of the estate and the assets in the estate. This includes exactly how much is given to whom. Passing assets through a trust or other form of nonprobate transfer avoids the need to give this information to everyone. This results in greater privacy.

Heller-Neal Law Offices can help you with your probate avoidance and asset protection needs. Contact Heller-Neal Law Offices today for a free consultation. Attorney Heller-Neal can be contacted via phone at (262)902-0595 or via email at [email protected] .

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Avoiding Probate: The Revocable Living Trust

How can an estate plan help me avoid probate?

The Advantages and Disadvantages of Probate

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