Starting the New Year with a Well-Planned Estate

 

Starting the New Year with a well-planned estate

By Dara J. Goldsmith, Esq., Special to bizNEVADA

The catchphrase “it is all good” summarizes the advantages of estate planning.  There is no downside to setting up an estate plan. Estate plans generally consist of a will, powers of attorney for health care and financial matters, and a living will. Basic estate planning allows an individual to decide who will make decisions when the individual can no longer make decisions, the types of decisions to be made, who will handle the burial/cremation, manage the settlement of the estate (garnering assets, paying creditors and getting the estate ready to be distributed), and ultimately who will receive the assets.

A misconception that many people have is that ‘if I make a will, I will avoid probate.’ Actually,nothing is further from the truth, ‘If all you have is a will, you will go through probate.’ Now probate is not as awful as it is made out to be, and for some,it is a simple and relatively painless process. However, for others, more advanced estate planning would have eased the financial or emotional burden on the family.

Oftentimes a client will come into our office and state emphatically that a trust is needed. The first question we ask is “why?” Why does the client believe that a trust is needed.Sometimes the client is correct, while other times the trust is not necessary, and a will may be sufficient to transfer the assets upon passing.

There are a number of will substitutes; these include holding assets in a joint tenancy, designating a pay on death beneficiary on an investment or bank account, or naming a deed upon death beneficiary for real property. Each of these designations has advantages and disadvantages which should be considered or discussed with legal counsel before using one of these alternatives. The advantages of these substitutes are that they are low cost and relatively simple to set up. The disadvantages include, but are not limited to the risk of loss, loss of a stepped-up basis (tax issue), and loss of control. Often, the disadvantages outweigh the advantages.

The use of wills and/or will substitutes to craft an estate plan is akin to buying a paint-by-number painting, the creativity options are somewhat limited. Whereas, trusts offer infinite solutions to the client’s objectives. A trust is like a blank canvas waiting for the artist’s brush and paints to awaken the canvas. The attorney/artist is able to craft a trust that is individualized to the client’s wants and needs and is not limited to “staying between the lines.” Moreover, unlike a will which is public record, a trust is a private document. Many clients like the idea that the public will not know what their beneficiaries receive.

Some trusts are complex, and others are relatively simple. In basic terms,there are two types of trusts, inter-vivos trusts, and testamentary trusts. Testamentary trusts are created by a will.  The biggest disadvantage of a testamentary trust is that the estate assets go through probate and then the trust is created. Probate avoidance is the main reason many select a trust, so 99% of trusts drafted are inter-vivos trusts. An inter-vivos trust is created during the lifetime of the individual[s] and should be funded during life so as to avoid probate. If the assets are not properly transferred to the trust, then a probate proceeding will be necessary to fund the trust.

Inter-vivos trusts may be revocable or irrevocable. Revocable inter-vivos trusts are the most commonly created trust and serve as the cornerstone when creating an estate plan. Revocable inter-vivos trusts provide the trustor (the person or persons making the trust) the ultimate flexibility. The Trustor retains the right to modify, amend, or revoke the trust during his or her lifetime. This type of trust provides maximum flexibility, but it does not provide any asset protection since the trustor retains control of the assets. It also provides a mechanism to avoid guardianship by naming a successor Trustee in the event the Trustor can no longer act as Trustee. Upon the Trustor’s death, the assets may remain in trust for the beneficiaries’ use, providing the beneficiaries with asset protection. Alternatively,the Trustor may want some or all of the assets distributed outright to the beneficiaries upon the Trustor’s death or upon reaching certain ages or other life milestones. The options are endless.

Sometimes clients need asset protection and cannot be adequately insured to cover the risk in their chosen career field or otherwise. Imagine the multi-millionaire obstetrician who is worth far more than her malpractice insurance will cover. She may be a candidate for an irrevocable trust for asset protection reasons. Nevada allows the self-settling of such trusts, not all states allow for the same. Due to her wealth, she may be willing to give up control of certain assets to ensure  that the assets are still there for her benefit in the future.

Other clients may be disabled or have disabled children. Planning for a disabled child or beneficiary is more complicated and requires the use of first party or third-party special needs trusts to ensure that the disabled person retains benefits without losing the assets to pay medical bills during life.

The most important piece of creating an effective estate plan is for the client to assess what the planning objectives are and then to work with an attorney to create a solution that achieves those objectives.  Once the estate plan is in place, the most important part of maintaining an effective estate plan is to review and assess the plan on an annual basis or when a life-changing event occurs. Don’t just file your estate plan away. Things change. People change. Mark your calendar for an annual review. Your loved ones will be glad that you did.

 

Dara Goldsmith has been practicing law in Nevada for more than 27 years.  Her law practice is primarily focused in the areas of trusts and estates.  She drafts estate plans, serves as legal counsel to personal representatives and beneficiaries in administrations, and handles litigation in those areas.  To learn more information about Dara and her law firm, Goldsmith & Guymon, P.C., please visit www.goldguylaw.com and www.goldguytrusts.com.

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