Estate Planning

One common way to avoid probate of real estate after the owner dies is to hold the title to the property in joint names with rights of survivorship with children or other beneficiaries. This is accomplished by adding the names of the children and certain legal terms to a new deed for the property and then recording it in the applicable public land records.
 
Many people believe that they do not need to consult an attorney to help them prepare and record the new deed. Instead, they think that a deed form can simply be downloaded from the internet or obtained from a book that can then be easily filled out and recorded. But deeds are in fact legal documents that must comply with state law in order to be valid. In addition, in most states, property will not pass to the other owners listed in a deed without probate unless certain specific legal terms are used in the deed.
 
How is a Defective Deed or an Invalid Deed Corrected?
 
If the problems with a defective deed or an invalid deed are discovered before the owner dies, then the problems can be addressed by preparing and recording a “corrective deed” in the applicable public land records. This should only be done with the assistance of an attorney.
 
Unfortunately, many times the problems with a defective deed or an invalid deed are not discovered until after the owner dies. If this is the case, then the problems cannot be fixed with a corrective deed since the deceased owner is unable to sign the corrective deed. Instead, the property will most likely need to be probated in order to fix the problems with the title. Aside from probate taking time and costing money for legal fees and court expenses, until the problems with the title are sorted out in probate court, heirs will not be able to sell the property. Or, worse yet, the property may be inherited by someone the owner had intended to disinherit when they prepared and recorded their own deed.
 
If you want your home or other real estate to pass to your children or other beneficiaries without probate, then seek the advice of an attorney who is familiar with the probate and real estate laws of the state where your property is located. This will insure that the deed will be valid and your property will in fact avoid probate and pass to your intended heirs.
 

Identical bills have been introduced in the U.S. House and Senate that would permanently repeal the federal estate tax and generation-skipping transfer (“GST”) tax.
 
Overview of Current Federal Estate, Gift, and GST Tax Laws
 
Under current law, the exemptions from federal estate taxes, lifetime gift taxes, and GST taxes are indexed for inflation on annual basis. In 2015, the exemption from each tax is $5,430,000. In addition, the top tax rate for each type of tax has been holding steady at 40 percent since 2013 and will remain at this rate in future years (barring any legislative changes).
 
Summary of Death Tax Repeal Act of 2015
 
On February 26, 2015, Rep. Kevin Brady (R – TX) introduced a bill “To amend the Internal Revenue Code of 1986 to repeal the estate and generation-skipping transfer taxes, and for other purposes,” to be known as the “Death Tax Repeal Act of 2015” (H.R. 1105).
 
This bill currently has 135 Co-Sponsors (134 Republicans and one Democrat – Rep. Sanford D. Bishop, Jr. (GA)) and provides for the following:
 
• Repeals the federal estate tax and the GST tax for estates of decedents dying, and generation-skipping transfers made, after the date of enactment;
• Includes special rules for assets held in a qualified domestic trust before the date of enactment;
• Retains the federal gift tax with a top rate of 35 percent;
• Retains the current law regarding the lifetime gift tax exemption;
• Retains the gift tax annual exclusion ($10,000 as adjusted for inflation at a minimum of $1,000 increments; the exclusion is $14,000 for 2015);
• Provides that transfers in trust will be treated as taxable gifts, unless the trust is treated as a grantor trust; and
• Retains the carryover basis rules for lifetime gifts and stepped-up basis for property transferred after death.
 
On March 25, 2015, Sen. John Thune (R – SD) introduced an identical bill in the Senate (S.860) (the Senate bill was introduced with 26 Co-Sponsors, all Republicans). On that same date, the House Ways and Means Committee (the chief tax-writing committee of the House) voted to favorably report the bill (as amended) by a roll call vote along party lines of 22 yeas to 10 nays.
 
What is the Future of the Death Tax Repeal Act of 2015?
 
President Obama has already expressed his disapproval of the proposal and would likely veto the bill if it ever came across his desk for signature. Nonetheless, our firm will continue to monitor both state and federal bills that will affect your estate plan and your estate tax bill. You should be aware of these proposed changes because legislative changes can have a significant impact on your estate plan.

When you establish a trust, you name someone to be the trustee. A trustee basically does what you do right now with your financial affairs—collect income, pay bills and taxes, save and invest for the future, buy and sell assets, provide for your loved ones, keep accurate records and generally keep things organized and in good order.
 
The Key Takeaways

• You can be trustee of your revocable living trust. If you are married, your spouse can be co-trustee.
• Most irrevocable trusts do not allow you to be trustee.
• You can also choose an adult child, trusted friend or a professional or corporate trustee.
• Naming someone else to be co-trustee with you helps them become familiar with your trust, allows them to learn firsthand how you want the trust to operate, and lets you evaluate the co-trustee’s abilities.

Who Can Be Your Trustee
 
If you have a revocable living trust, you can be your own trustee. If you are married, your spouse can be trustee with you. This way, if either of you become incapacitated or die, the other can continue to handle your financial affairs without interruption. Most married couples who own assets together, especially those who have been married for some time, are usually co-trustees.
 
You don’t have to be your own trustee. Some people choose an adult son or daughter, a trusted friend or another relative. Some like having the experience and investment skills of a professional or corporate trustee (e.g., a bank trust department or trust company). Naming someone else as trustee or co-trustee with you does not mean you lose control. The trustee you name must follow the instructions in your trust and report to you. You can even replace your trustee should you change your mind.
 
When to Consider a Professional or Corporate Trustee
 
You may be elderly, widowed, and/or in declining health and have no children or other trusted relatives living nearby. Or your candidates may not have the time or ability to manage your trust. You may simply not have the time, desire or experience to manage your investments by yourself. Also, certain irrevocable trusts will not allow you to be trustee. In these situations, a professional or corporate trustee may be exactly what you need: they have the experience, time and resources to manage your trust and help you meet your investment goals.
 
Professional or corporate trustees will charge a fee to manage your trust, but generally the fee it is quite reasonable, especially when you consider their experience, services provided and investment returns.
 
If you are considering a professional or corporate trustee, talk to several. Compare their services, investment returns, and fees.

Unfortunately, in our litigious society, business owners, board members, real estate investors, and retirees need to protect themselves from a variety of liabilities. Below are three liability planning tips:
 
Tip #1 – Insurance is the First Line of Defense Against Liability
 
Liability insurance is the first line of defense against a claim. Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance you should have in place include (as applicable):

• Homeowner’s insurance
• Property and casualty insurance
• Excess liability insurance (also known as “umbrella” insurance)
• Automobile and other vehicle (motorcycle, boat, airplane) insurance
• General business insurance
• Professional liability insurance
• Directors and officers insurance
 
Tip #2 – State Exemptions Protect a Variety of Personal Assets From Lawsuits
 
Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors. While these laws vary widely from state to state, in general you may be able to protect the following types of assets from a judgment entered against you under applicable state law:
 
• Primary residence (referred to as “homestead” protection in some states)
• Qualified retirement plans (401Ks, profit sharing plans, money purchase plans, IRAs)
• Life insurance (cash value)
• Annuities
• Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)
• Wages
• Prepaid college plans
• Section 529 plans
• Disability insurance payments
• Social Security benefits
 
Tip #3 – Business Entities Protect Business and Personal Assets From Lawsuits
 
Business entities include partnerships, limited liability companies, and corporations. Business owners need to mitigate the risks and liabilities associated with owning a business, and real estate investors need to mitigate the risks and liabilities associated with owning real estate, through the use of one or more entities. The right structure for your enterprise should take into consideration asset protection, income taxes, estate planning, retirement funding, and business succession goals.
 
Business entities can also be an effective tool for protecting your personal assets from lawsuits. In many states, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner. In many cases, the personal creditors of an owner cannot step into the owner’s shoes and take over the business. Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee. In general this limits the creditor to receiving distributions from the entity if and when they are made.

Revocable Living Trusts have become the basic building block of estate plans for people of all ages, personal backgrounds, and financial situations. But for some, a Revocable Living Trust may not be necessary to achieve their estate planning goals or may even be detrimental to achieving those goals.
 
What Are the Advantages of a Revocable Living Trust Over a Will?
 
Revocable Living Trusts have become popular because when compared with a Last Will and Testament, a Revocable Living Trust offers the following advantages:

1. A Revocable Living Trust protects your privacy by keeping your final wishes a private family matter, since only your beneficiaries and Trustees are entitled to read the trust agreement after your death. On the other hand, a Last Will and Testament that is filed with the probate court becomes a public court record which is available for the whole world to read.
2. A Revocable Living Trust provides instructions for your care and the management of your property if you become mentally incapacitated. Since a Last Will and Testament only goes into effect after you die, it cannot be used for incapacity planning.
3. If you fund all of your assets into a Revocable Living Trust prior to your death, then those assets will avoid probate. On the other hand, property that passes under the terms of a Last Will and Testament usually has to be probated. A probate could add thousands of dollars of costs at your death.

Although Revocable Living Trusts offer privacy protection, incapacity planning, and probate avoidance, they are not for everyone.
 
If you have a Revocable Living Trust and it has been a few years since it has been reviewed, then we can help you determine if a Revocable Living Trust is still the right choice for you and your family.

Payable on death accounts, or “POD accounts” for short, have become popular for avoiding probate in the last decade or so.
 
What is a POD Account?
 
A POD account is a type of bank account authorized by state law which allows the account owner to designate one or more beneficiaries to receive the funds left in the account when the owner dies.
 
A POD account allows the owner to do what he or she pleases with the funds held in the account during the owner’s lifetime, including spending it all and changing the beneficiaries of the account. After the owner dies, if anything is left in the POD account, the beneficiaries chosen by the owner will be able to withdraw the remaining funds without the need for probating the account by presenting an original death certificate of the owner.
 
What Can Go Wrong With a POD Account?
 
In general, POD accounts are easy to set up and make sense for many people. A handful of states now even recognize POD deeds for real estate and POD designations for automobiles.
 
Nonetheless, POD accounts may lead those who create them to believe that they have an “estate plan” and no additional steps will need to be taken. This may or may not be true. Below are a few examples of what can, and often does, go wrong with POD accounts:
 
1. POD accounts can be set up as joint accounts that become payable on death after all of the owners die. This means that if a husband and wife in a second marriage set up a POD account that will go to their six children from their first marriages after both die and the husband dies first, then the wife can simply change the POD beneficiaries to her own three children and disinherit the husband’s three children.
 
2. Same facts as above, except that the wife remarries for a third time. She could change the beneficiary of the POD account to her new husband, thereby disinheriting her children and her deceased husband’s children.
 
3. If there is only one POD account owner and he or she becomes mentally incapacitated, then a valid power of attorney or court-supervised guardianship or conservatorship might be needed to access the POD account to help pay for care for a sick loved one.
 
4. If a POD beneficiary is a minor under the age of 18 or 21 (this depends on state law), then a court-supervised guardianship or conservatorship may need to be established to manage the minor’s inheritance.
 
5. If all of the named POD beneficiaries predecease the account owner, then the account may have to be probated.
 
These are just a few examples of why POD accounts should not be a primary asset transfer mechanism in your estate plan. You need to have a will, a revocable living trust, a power of attorney, and a health care directive in place to insure that you and your property are protected in case you become mentally incapacitated and to make sure that your property goes where you want it to go after you die.