Estate planning is for everyone - not just the rich!

Do it now to save hassle and grief for your loved ones

Estate planning is something none of us likes to think about because it reminds us of our mortality. When it comes to wills and trusts and the like, the tendency is to think

"Heck, there's no sense in rushing into these things! I don't have to worry about this stuff now because I'm not going to die for a long time. . . .besides, I don't have enough to worry about."

If you care about your family and what happens to them, now is the time to think about these things.

Besides, from a contrarian's view, if you plan your estate now, that's good insurance that you won't need it soon - right?

Why do we need estate planning?

Boiled down to its simplest form, we need estate planning for 2 reasons:

1. To get our property out of our name and into our beneficiaries' names when we die.

2. To reduce taxes. To learn more about this aspect of estate planning, click here to see the discussion of Bypass Trusts.

So how do I get the assets to my loved ones when I die?

For those types of assets which have a registered title, such as land, bank and stock accounts, and vehicles, there are three main ways to transfer title for estate planning purposes:

1. Method of holding title.

When two or more people are registered owners of property, they can usually specify how they are going to hold title to that property, for example, as tenants in common, joint tenants with right of survivorship, community property or community property with right of survivorship.

Tenants in common: Two people who hold title as tenants in common have an undivided one-half interest in the property during their lifetimes. Generally both have to sign to transfer or sell their interest in the property. When one tenant in common dies, his or her half interest becomes a part of his or her estate, and it comes under the jurisdiction of the probate court.

Joint tenants with right of survivorship: Two people who hold title as joint tenants have an undivided one-half interest in the property during their lifetimes. Generally both have to sign to transfer or sell their interest in the property. When one joint tenant dies, his or her interest is automatically transferred to the surviving joint tenant by operation of law. The property interest goes directly to the survivor; it does not go through probate. The use of joint tenancy is a common and cheap method of estate planning. It works fine for a husband and wife when both are still living, but it loses its effectiveness after the first one dies. There are also some tax advantages which may be lost through joint tenancy. See below.

In Nevada the right of survivorship is implied by statute when the words "joint tenant" are used, but that is not necessarily so in other states. We had a client who prepared his own deed to transfer real estate in Florida to himself and his child as "joint tenants." He didn't use the words "with right of survivorship." Under Florida law the words "right of survivorship" had to be used explicitly, so the property ended up in probate after the client died. This is a great example of why it's important to consult a local attorney about real estate issues in other states. The laws of each state are different.

Community property: In Nevada and other community property states, a husband and wife can hold title as community property. All property acquired by the husband and wife after they are married is presumed to be community property. Each spouse has an undivided present one-half interest in community property. Both spouses are required to sign to transfer or sell community property. When one spouse dies, half of the community property continues to belong to the surviving spouse, and the other half is subject to disposition by the deceased spouse's will. In the absence of a will, the other half of the community property goes to the surviving spouse, but it has to go through probate.

There are income tax advantages to holding property as community property. When a surviving spouse inherits community property, he or she gets a stepped up income tax basis for both halves of the community property. If the couple held title to the property as joint tenants, the surviving spouse would get a stepped up basis as to only one half interest in the property. For a more complete discussion of the concept of a stepped up basis, click here.

Community property with right of survivorship: In order to take advantage of the best of both worlds, the Nevada legislature passed a law to allow married couples to hold title to property as "Community Property with Right of Survivorship." Using this method of holding title Nevada married couples can take advantage of a stepped up basis for income tax purposes and still avoid probate by reason of the right of survivorship. This is another cheap method of estate planning so long as both spouses are alive.

2. Last Will and Testament

We can specify how we want our property distributed after our death by signing a Last Will and Testament which spells out our desires and intentions. This may be the most common method of estate planning. There are advantages and disadvantages to using a will.

Advantages: A Will is a document you can prepare today and put in your safe deposit box. It doesn't require any particular administration during your lifetime - other than to make sure it's current - and it doesn't require you to transfer title to any assets at the time you prepare it. It's often cheaper to prepare than a trust. It can be done quickly. For more information about wills, click here.

Disadvantages: The Will doesn't transfer your assets to your beneficiaries. What transfers the assets is the Court Order at the end of the Court Probate Proceeding.

A will must go through probate - a court supervised administration - before the assets can be transferred. A probate is not necessarily the big bugaboo that some have painted it to be, but it does have its drawbacks. All documents in the probate proceeding become public records which can be reviewed by anyone who asks to see the file at the courthouse. (More and more records are being made available online, but at the moment those are only available to the attorneys who are involved in the case.) Probate has some administrative costs including court filing fees, publications costs, and appraisal fees. Probate generally requires the assistance of an attorney (which isn't necessarily bad). Probate requires the supervision of the court (which again isn't necessarily bad). For most estates the probate can be completed in less than 6 months. For more information about probate, click here.

3. Living Trust (also known as Inter Vivos Trust)

A more sophisticated method of estate planning is to create a trust. A Trust is a separate legal entity in which property is entrusted to one person (the Trustee) for the benefit of another (the Beneficiary).

A Trust can be created by an agreement during your lifetime (a Living Trust) or by your Will which becomes effective after your death (a Testamentary Trust).

A Trust is an estate planning method often used by parents as a way to hold on to the purse strings after they're gone to prevent their children from blowing their inheritance before the children are old enough to manage it properly. The Trust can direct the Trustee to manage the property for the children and provide them income and support - including for educational purposes - until the children reach a specified age such as 25 or 30. Without a Trust, the children can receive their entire inheritance at age 18.

Testamentary trusts are often used for estate planning for the children when the parents don't want to go through the entire process of creating and funding a Living Trust.

When a Living Trust is created during your lifetime, it must be funded, i.e. title to assets must be transferred to it. If an asset is not owned by the Trust, it cannot be distributed by the Trust.

A properly created and funded Living Trust eliminates the need for probate because the titles to the assets are transferred out of your name and into the Trust when you create the Trust. There's nothing to transfer out of your name when you die because it was already done.

When a Living Trust is created, it is good estate planning practice also to prepare and sign a Will - called a "Pour Over Will" which acts as a safety net. The Pour Over Will provides "I give everything to my Trust to be distributed according to the terms of the Trust." That way, if you forget to transfer an asset into the Trust at first, you can use the Pour Over Will to get it into the Trust. The downside is that you have to probate the Pour Over Will.

For a more detailed discussion about Trusts, click here.

For a more detailed discussion about Wills, click here.

What happens if I don't do anything?

If you don't plan your estate, the courts will do it for you after you're dead . . . and you may not like the result!

If you have assets in your estate when you die and you haven't done any estate planning, your estate will pass according to the laws of Intestate Succession which are found in Chapter 134 of Nevada Revised Statutes.

This is a very complicated statutory scheme which depends on who your relatives are when you die and whether your property is community property or separate property. In most cases it will go to your spouse and/or your children, but maybe not the way you would think.

Another trap for the unwary or uninformed is when a person gets married or divorced after he or she makes a Will.

Under the laws of many states, if a person marries after making a will, the old Will is considered VOID as to his or her new spouse. Under the law you are presumed to want to provide for your new spouse in your Will. That may be the case, but it can lead to unintended results if the old will provides for children from a former marriage.

Our firm is well experienced in estate planning. For a 1/2 hour no-charge consultation with Dave Guinan, please click here.

For more information, see the following links:

Probate - The court process of administering a decedent's estate.

Wills- Everybody Needs One - Even If They're Not Planning to Die"

Living Trusts- "How do they work, and who needs them?"

Joint tenancy - A way to avoid probate? Maybe . . .Maybe not!

Return to the home page from the Estate Planning Page