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Wills, Probate and Trusts
The following should not be construed as legal advice. Consult with an attorney regarding your trust and estate planning needs.
There is a tremendous amount of confusion regarding the distribution of one's property upon death. Let's review your options with regard to how to plan for the efficient distribution of your property and assets upon death:
1) Real property (for example) may be titled so that upon death, ownership transfers without probate. Most commonly, a husband and wife hold property jointly and the property passes to the survivor upon death of the spouse. Minnesota now has a "Transfer on death" provision allowing for a similar transfer of real property to the designated party upon death of the real property's owner(s). It's important to note that a beneficiary on a "T.O.D" form is not a current owner of the property and has no control or ownership interest.
2) Bank accounts, IRAs, brokerage accounts, U.S. Savings Bonds may be transferred by contract upon death. This simply means that you have designated beneficiaries when setting up the accounts. Most institutions will ask you if you wish to do this when you establish the account. Beneficiaries can easily be added later after opening an account. Provide the financial institution with the individual's information including their name, birth date, social security number, and address, and relationship if any. Keep a copy of the forms designating such beneficiaries with your important papers.
3) Have an attorney assist you with preparing a will. Your "Last Will and Testament" will dictate how property not transferred using the techniques discussed above will be distributed. Depending on the assets involved, your estate may or may not be subject to probate. Probate is simply the court supervised process of paying your final expenses and distributing any remaining assets to your designated heirs. Assets distributed under 1 + 2 above will not be part of the probate process since those assets will be transferred independently of the probate process (much quicker).
4) Attach a codicil to your will listing personal property (furniture, cars etc) and who you want it to go to. You probably don't need to give your attorney this detailed information when you have your will prepared and executed, allowing you to do it "on your own time".
5) Put in writing what your final wishes are. Do you want to be cremated? Do you want a fancy funeral?
WRITE IT DOWN and sign and date it.
In some limited circumstances, a trust may need to be established to accomplish goals beyond the simple distribution of assets upon death. Parents with minor children, for example, may wish to provide for the creation of a trust in the event of the parent's untimely death. Situations of this nature need to be addressed with a competent attorney.
There are no tax advantages to creating a living trust and in my opinion, most clients are better served by using the simple techniques discussed in Part 1 to address their estate planning concerns. This information should be verified with a competent estate planning attorney, preferably not one touting the benefits of having a trust, often for an up front fee in excess of $3,000.
Seniors should address other concerns with their family and attorney regarding handling of their affairs in the event of incapacity or severe disability. At a minimum, it may be advisable to add a trusted adult child or other person to a bill paying checking account to allow for the easy handling of day to day financial affairs in the event that help is needed.
No plan is 100% foolproof and we cannot plan for every possible contingency when planning our affairs.
Estate taxes are not an issue for the vast number of taxpayers, however, tax planning is critical with regard to efficient distribution of tax deferred accounts including IRAs, annuities, and other retirement accounts. In general, by designating beneficiaries on these accounts, heirs will have more latitude with regard to efficient tax planning upon distribution of these assets.
The estate tax kicked in at $600,000 many years ago but that threshold was increased and has bounced around from $1,000,000 to what is now (2016) a $5,450,000+ exclusion. When the threshold was lower, it was more common for attorneys to recommend something called a "bypass trust" which kicked in upon the death of one spouse and essentially split the couple's assets so more $ could pass free of estate tax to their heirs. With the higher thresholds this would appear to be much less of a concern for the average American.
In Minnesota, the estate tax at the state level kicks in on estates valued at more than $1,800,000 (2017).
Wisconsin has eliminated the estate tax.
The simple way to reduce your potential estate tax is to make gifts while you are alive. Be aware, however, that gifts can affect eligibility for medicaid. Also, Minnesota has a lookback on gifts made 5 years prior to death.
Sadly, the majority of seniors die "intestate" without a valid will on file with their attorney and family members.
We don't live forever.
Todd's Tax Service LLC