Building a Future with Your Legacy in Mind

What problems are we trying to avoid?
Living Probate (Disability)
Death Probate
Death Taxes

What are the methods used to plan an estate?
Do Nothing
Hold Title in Joint Tenancy
Create a Will
Establish a Living Trust

Believe it or not, most people do nothing. It has been reported that 70 percent of the American population have no written estate plan at all. Unfortunately, the majority or the remaining 30 percent have planned their estates with either a simple will of joint tenancy ownership of their assets.

Everyone agrees that doing nothing can lead to disastrous results: taxes, probate costs and attorney’s fees, but most people are not aware of the huge problems created by a simple will or joint tenancy ownership. This web page will examine each of the estate planning problems and discuss what happens if you have a simple will, joint tenancy or if you have planned with a Living Trust.

What is Joint Tenancy?

Joint tenancy is where two or more people own an asset jointly. Joint tenancy does not mean that you and your other joint tenants each own a part of your joint property. In joint tenancy, each person owns the entire asset. This, of course, sounds impossible, but this legal fiction of two or more people owning 100 percent of the same asset is derived from the full name given to joint tenancy. It is formally known as Joint Tenancy With Right of Survivorship. “Right of Survivorship” means that whoever dies last owns the property. All the other joint tenants merely have use of the property while they are alive.

Joint Tenancy property does not pass by will or trust. On the death of a joint tenant, the property passes to the other owners. It doesn’t matter if the deceased joint tenant has a will, or a trust, or intended that his or her share pass to other loved ones. Property that is owned in joint tenancy automatically passes to its surviving owners by operation of law. As you will discover, because of its unique qualities, joint tenancy causes many unforeseen problems for families both during life and after death.

How does a will work?

Generally, a will is a set of written instructions drawn under legal formalities directing how a person’s property will be disposed of on death. Wills are not effective until the maker is dead. At that time, the will becomes a public document. It is filed with the probate court and made a part of the public record. Your will is much like a letter to the probate judge laying out how you want your assets distributed. Your will does not control all of your property. Joint tenancy property and life insurance proceeds both pass to others on your death completely outside of the provisions of your will. That means if you have a will, but all your property is owned in joint tenancy, your will controls nothing on your death. Because wills guarantee probate on your death or disability, they are very poor estate planning documents.

What happens to you, your spouse, and your children if you become disabled?
Does Joint Tenancy avoid a Living Probate?
Does a Will avoid a Living Probate?
Does a Living Trust avoid a Living Probate?

What happens to you, your spouse, and your children if you become disabled?

Many people think of “disability” as the loss of an arm or leg and ignore the very real possibility of a complete breakdown of their mental or physical well-being. When we speak of a disability, we mean the kind of problems where you can no longer care for yourself, where because of accident or illness, you do not have either the mental or physical capacity to manage your own affairs.

If you can no longer take care of yourself, you will not be able to endorse your disability checks or manage any of your personal finances. You will be incapable of being a good and loving spouse or parent. You will not be able to decide with which relative, or in which rest home, you would like to live. Someone will have to care and act for you. It is highly unlikely that that “someone” will be a loved one. The odds are great that it will be your local probate court the will manage most details of your life.

This probate court procedure has often been referred to as a Living Probate. It is technically called a Conservatorship or Guardianship proceeding. In most states during your disability, the court appoints someone to manage all your affairs. These Conservators or Guardians must file strict annual accountings with the court. The entire procedure is time consuming, expensive and, many think, a humiliating legal proceeding.

Does Joint Tenancy avoid a Living Probate?

No. Since there are two names of the title to the property, you would think that your other joint tenant should be able to conduct “business as usual.” However, this is not the case. Joint accounts can be absolutely frozen – by law – if one of the owners is declared legally incapacitated. Your signature is required to transact business, and since you are unable to sign, the law says that everyone will have to wait until the probate court acts on your behalf.

Does a Will avoid a Living Probate?

No. A will is a legal document which only takes effect upon your death. Up until that time, it is a piece of paper which has no legal significance.

Does a Living Trust avoid a Living Probate?

Yes. The first and most important part of a Living Trust is that it is designed to take care of you. It is designed to take care of you the way you want, without any interference or “help” from the probate courts. A Living Trust allows you to plan in advance for sickness, disability, or old age. Your Living Trust is created so that it will eliminate the need for guardians, conservators, probate lawyers, probate fees and the humiliating publicity surrounding a Living Probate.

What is a Death Probate?
What is the cost of Probate?
How long does Probate take?
Will the details of my estate be private?
What about real estate I own in other states?
Does Joint Tenancy avoid a Death Probate?
Does a Will avoid a Death Probate?
Does a Living Trust avoid a Death Probate?

What is a Death Probate?

Conceptually, probate is not difficult to understand. When you die, your property needs to be distributed to your heirs. You cannot sign deeds, write checks, pay bills or transact any business. The probate court assumes these responsibilities.

Probate is the process of transferring property to one’s heirs. Property passing through the probate process acts like water traveling through a leaky pipe. Every few feet some of the water escapes, and at those spots there is always someone to collect the leakage. When it reached the other end of the pipe – where the heirs collects – there is not always a whole lot left.

Step one: Appoint the executor and probate lawyer

The first order of probate business is for the judge to approve or appoint an agent to handle the affairs of the estate. The name for this agent is “executor” or “administrator” or “personal representative,” depending on the state and the circumstances. We use the term executor, as it seems familiar to most people. An executor is named in the will of the person who dies. If a person dies without either a will or a bona fide will substitute, the probate judge will pick the executor.

The executor hires a lawyer to interact with the judge. Sometimes the executor is a lawyer who hires himself as the estate’s lawyer. Two different jobs, and in some states, two different fees. All part of the same leaky pipe.

Step two: Notify the creditors

The second order of probate business is to notify the creditors of the deceased. This entails the often time-consuming task of determining all of the dead person’s liabilities. Creditors are notified either directly by the executor or by advertisements in the local newspaper. The creditors are given a period of time to make claims against the estate. Depending on state law, this can be as short as two or three months or as long as nine months or more. The estate – by law – is required to stay open during this period of time.

Step three: Appraise all the assets

All the property in the estate must be appraised. The executor hires an appraiser or appraisers to determine the value of the estate assets, from real estate to cars to furniture to knick-knacks. Everything must be assigned a value. This process is especially important to the lawyer, who often bases his or her fee on the value of the estate.

Step four: Pay federal estate taxes/ will contests

Estates that have federal estate tax liability have to stay open until the taxes are paid which is normally nine months. If there is any dispute as to the amount of tax, the estate has to be kept open until the IRS either audits or determines the proper amount. Anyone who disagrees with the will can bring a lawsuit in the probate court. This is called a will contest. Will contests come in infinite varieties. In many cases, lawsuits seem to be started to intimidate the heirs into staving off unwanted litigation by setting out of court. This is an effective way for the unscrupulous to collect under a will without having much of a case.

Step five: Distribute the estate

After the dust has settled and everybody associated with the probate estate is either paid or paid off, the heirs can receive their shares of whatever is left.

What is the cost of Probate?

The people who get paid under the probate process itself are the executor, the lawyer, the appraiser, and the court in terms of court fees and costs. It is these costs that some probate critics say run from 5 percent to 60 percent or more of the value of the estate, before creditors are paid. They average, according to Barbara R. Stock author of the book It’s Easy to Avoid Probate and Guardianships, over 7 percent of the value of the estate, with 60 percent of the total cost going to lawyers and 40 percent going to executors and others.

Probate is expensive and most critics emphasize that the smaller your estate is, the more probate takes away from your loved ones.

How long does Probate take?

The average probate takes nine months to two years.

Will the details of my estate be private?

No. Probate is public. Anyone can go to the probate court and look up an estate. Would you like to know about a deceased famous man in your town? Go to the probate court. If he didn’t take steps to avoid probate, you will be able to find out a great deal about him.

What about real estate I own in other states?

When you die your estate will have to go through probate not only in your state of residence, but in every state where you owned real estate. Each state has probate jurisdiction over the real estate within its borders. In each state your family will have to file with the probate court and hire a local attorney to supervise the process. This, of course, increases the costs and prolongs the final settlement of the estate.

Does Joint Tenancy avoid a Death Probate?

Yes and no. Joint tenancy avoids the probate when the first spouse dies, but does not avoid probate when the second spouse dies. It does not avoid probate if there is a simultaneous death.

The fact that joint tenancy avoids probate on the first spouse’s death is small consolation for the many problems created by its use. In fact, joint tenancy may be the worst possible probate-avoidance method. It leads to loss of control. It creates the real possibility of unintended heirs. It creates gift taxes among non-spouses. It is great for creditors, and it creates death tax problems.

Does a Will avoid a Death Probate?

No. A will guarantees probate. All property that passes under your will must go through the probate court. This subjects your estate to all the attorney’s fees, court costs, appraiser’s fees, time to delay and publicity associated with that legal proceeding.

Does a Living Trust avoid a Death Probate?

Yes. A Living Trust is a complete will substitute. In its most basic form the Living Trust is techniqually known as an intervivos revocable trust or more commonly, a living trust. Living trusts have been around for hundreds of years; assets placed in a living trust have always avoided the probate process. They were created, in part, to do just that.

Using a living trust as a will substitute has certainly come of age. Traditionally, living trusts were only used by nobility. In modern times, they have been used mostly by the wealthy. Today, the successor to the barebones living trust, the Living Trust is being used, and should be used, by just about everybody. Property placed in a Living Trust is instantly available for the use and benefit of the trustmaker’s beneficiaries. No matter how vast and diversified your holdings may be, the property drafted Living Trust can accommodate all of them in avoiding the probate process.

Every probate-avoidance technique other than the Living Trust has potential planning disadvantages. This does not mean that those other techniques cannot or should not be used. It does mean that the Living Trust can be used to avoid probate for all your property and that as a technique it has few, if any, disadvantages compared to the other methods we have discussed.

What are death taxes?
What are the Federal Estate Tax Rates?
Is there a tax on all transfers at death?
Does Joint Tenancy avoid Federal Estate Taxes?
Does a Will avoid Federal Estate Taxes?
Does a Living Trust avoid Federal Estate Taxes?

What are death taxes?

Everyone has heard of income taxes, property taxes, sales taxes and excise taxes, but few people are aware that there is a huge tax the awaits us at out death. It is called the federal estate tax. Many have said it is the government’s final chance to insult us. It gets its big hand into our estate and pulls out a substantial part of our life’s possessions to finance its budget. The federal estate tax is a serious business. It has two distinct features. First, it can be described as an “everything tax.” Yes, Uncle Sam taxes everything, including the proverbial kitchen sink. Second, this tax is a “top tax.” Uncle Sam receives his share before your beneficiaries receive anything.

The federal estate tax is not a tax levied against a deceased person or his or her property. It is not a people or property tax at all. It is a tax levied against the “right to transfer” property on death.

What are the Federal Estate Tax Rates?

The federal estate tax is levied on all assets owned by you on the date of death at their fair market value. The highest tax rate is currently 45% for estates over $1,500,000. It is payable in cash nine months after death.

Is there a tax on all transfers at death?

No. The federal estate tax only applies to estates valued in excess of $5,000,000. If your entire estate including life insurance proceeds is less than $2,000,000, there will be no federal estate tax. This does not mean, however, that you will avoid probate. Remember probate and taxes are two separate issues.

In addition to exempting estates under 52,000,000 from federal taxes, Congress in 1981 passed a law that allowed all transfers of wealth between spouses to pass tax free. This is called the Unlimited Marital Deduction and it means that regardless of the size of the estate, there will be no federal estate tax levied when a husband or a wife dies and leaves his or her estate to the surviving spouse. Keep in mind, however, that this is merely a postponement of tax. There will be a tax on the estate of the surviving spouse when it passes to the children or other beneficiaries. Since in all probability the estates will continue to appreciate in value, taxes may be paid at a higher rate.

Does Joint Tenancy avoid Federal Estate Taxes?

No. Joint tenancy ownership exposes you and your family to the full range of federal estate taxes at death.

Does a Will avoid Federal Estate Taxes?

Sometimes. If you have a complex will which has trusts written into it, federal estate taxes can be avoided. The problem is that even complex wills must go through probate and they provide no protection from disability. However, the fact is that most wills written by attorneys are simple wills which pass the entire estate from one spouse to the other and then on to the children. Under such an arrangement, there is absolutely no protection from federal estate taxes.

Does a Living Trust avoid Federal Estate Taxes?

Yes. Your Living Trust will be written so that maximum advantage will be taken of each spouse’s federal estate tax exemption. By structuring your Living Trust in this way, a married couple can pass a total of $10,000,000 completely free of federal estate taxes. A single person can pass $5,000,000 federal estate tax free.

Please note that the exemption amount changes every few years and that it returns to the $1,000,000 exemption at a flat tax rate of 55% on the excess as of the year 2011 unless the law changes prior to that time. Also note that there is a state estate tax in the state of Oregon which is currently a $1,000,000 exemption per person. With proper planning, a married couple can pass a total of $2,000,000 completely free of state estate taxes. A single person can pass $1,000,000 state estate tax free.

What is a Living Trust?
What will a Living Trust do for me and my family?
How can I get started on the creation of a Living Trust for my family?
How much will it cost to create a Living Trust for my family?
If I transfer real estate into my Living Trust, will my property taxes go up?
If I am only a part owner of property, can I transfer my share into a Living Trust?
Can I name Trustees and Beneficiaries who live out of state?
Will I have to consult an attorney every time I buy new assets?
Does my Living Trust need to be registered or recorded anywhere?
Can I sell assets owned by my Living Trust without complications?
Can I change the terms of my Living Trust?
Do I need to apply for a tax identification number for my Living Trust?
Do I need to file a separate tax return for my Living Trust?
Can I transfer real estate into my Living Trust?
Is the Living Trust just a tax loophole that the government will close down?
Is it difficult to transfer assets to my Living Trust?
Can I transfer my separate property as well as my community property into my Living Trust?
Can any attorney create a Living Trust?
What if I move to another state, is my Living Trust still valid?
Is a Living Trust only for the rich?
Is a Living Trust a good idea for a single person?
Are there any major disadvantages to a Living Trust?

What is a Living Trust?

A Living Trust is a legal document that allows you to make instructions about the management and control of your property while you are alive and the distribution of your estate after your death. The people or persons who carry out these instructions are called trustees. The people who benefit from your Living Trust are called beneficiaries. However, these positions are not filled by strangers. In all probability, you and your family will be names as the trustee and the beneficiaries of your Living Trust.

Once your Living Trust is created, title to all your assets must be transferred to it. You will transfer all your real estate, your stocks, bonds, and mutual funds. You will transfer your limited partnership and business interests. You will transfer your bank accounts, Certificates of Deposit (CD’s) and even your furniture and personal effects will have the title changes into the name of your Living Trust. When this process is complete, you, as an individual, will no longer technically own any property. Your Living Trust will be the legal owner.

Naming your primary Trustees
While you are living, you will probably want to name yourself as your primary trustee. That means that all your Living Trust property will be under your direct control. There will be absolutely no constraints on your management of your financial affairs. You will continue – just as you always have – paying your bills, collecting your income, buying and selling things, filing your tax returns, and performing all of the innumerable functions that are part of living in our society.

Naming your Successor Trustees
Upon your death or disability, someone has to take over all these tasks. If you do not have a Living Trust, the probate court will assume them. If you have a Living Trust, your successor trustees will do so according to your instructions. They will perform all the tasks that are required to care for you, your loved ones and your property.

Ability to amend or revoke your Living Trust
Your Living Trust instructions can be modified whenever you wish. At any time while you are alive and competent, you may alter, amend or even revoke your Living Trust.

What will a Living Trust do for me and my family?

The following discussion will summarize the extraordinary benefits available under a Living Trust:

* A Living Trust avoids a Living Probate
If you become disabled or are unable to manage your financial affairs, your Living Trust will eliminate the need for a Living Probate. A set of detailed instructions will guide your successor trustee as to how you wish your property to be handled during this time.

* A Living Trust avoids a Death Probate
With a Living Trust your assets will go directly to your beneficiaries after your death. There will be no court interference. There will be no attorneys’ fees or court costs. There will be no delay in distributing your assets, and all of your estate planning goals will be completely private.

* A Living Trust can reduce or eliminate Federal Estate Taxes
With a Living Trust a married couple can transfer $4,000,000 absolutely free of federal estate tax. A single person can pass $2,000,000 federal estate tax free.

* A Living Trust allows you to distribute assets in the way you want.
After your death, all property in your Living Trust will be distributed by your named trustee according to your precise written instructions. Assets can be left to your beneficiaries outright on your death or they can remain in trust and be distributed over time. Each beneficiary can be treated individually by including any number of separate trusts with different provisions to spell out the terms of each beneficiary’s share.

* A Living Trust is easy to create and maintain
A trained Living Trust professional can easily create your trust document to fit your needs. Once created, your Living Trust does not need annual reviews or regular maintenance. If you want to change a particular provision, it can be accomplished with a simple amendment.

* A Living Trust creates no adverse lifetime income tax consequences
There are no averse income tax consequences associated with the use of your Living Trust during your life. Because your Living Trust is revocable, the income generated by the assets in your trust is taxed to you as an individual and is reported on your personal income tax returns. This means that your personal income tax situation is exactly the same after the creation of your Living Trust as it was before. You have the same exemptions, deductions, credits and liabilities. You will even continue to file your income tax returns using the same Social Security number you have always used.

* A Living Trust is valid in every state
Every state’s laws recognize the validity of a Living Trust. A truly beneficial feature is that your Living Trust can freely cross state lines without any need to redraft its terms to comply with local law.

* A Living Trust is difficult for disgruntled heirs to attack
You have probably heard the stories about bitter contest over the validity of a will after it is submitted for probate. A Living Trust is much more difficult to attack than a will. Unlike a will, a Living Trust is not part of the public probate process which invites and encourages disputes. It is also not governed by the archaic and complex rules surrounding a valid will, and this makes a Living Trust less prone to attack.

* A Living Trust gives you and your family peace of mind
When your Living Trust is completed, you and your family will relax knowing you have taken every step to protect them in the event of disability or death.

How can I get started on the creation of a Living Trust for my family?

The first step is to make a free, no-obligation appointment with a trained Living Trust advisor. In your initial consultation, you should be prepared to discuss the following issues:

* Who will receive your assets after your death?
* Who will manage and distribute your assets after your death or disability?

How much will it cost to create a Living Trust for my family?

The cost to set up your completed Living Trust portfolio depends upon the complexity of the planning and the funding of your trust. You will, of course, be quoted an exact fee, in advance, after consultation and evaluation of your individual estate planning needs.

If I transfer real estate into my Living Trust, will my property taxes go up?

No. Transfers into a Living Trust have no effect on your property taxes.

If I am only a part owner of property, can I transfer my share into a Living Trust?

Yes. Your share can go into your Living Trust without changing the shares owned by others.

Can I name Trustees and Beneficiaries who live out of state?

Yes. There is no limitation on where your Trustees or Beneficiaries must reside.

Will I have to consult an attorney every time I buy new assets?

No. Once your current assets are transferred to your Living Trust, you take title to all new assets in the name of your Living Trust and they will automatically be owned by your trust.

Does my Living Trust need to be registered or recorded anywhere?

No. The Living Trust is a private document which is not recorded. However, if you own any interest in real estate, the new deeds showing Living Trust ownership will be recorded.

Can I sell assets owned by my Living Trust without complications?

Yes. You sell in the same way you currently do. You will, however, add the word “Trustee” after your signature.

Can I change the terms of my Living Trust?

Yes. While you are alive and competent, you can alter your Living Trust or even revoke it without penalty at any time.

Do I need to apply for a tax identification number for my Living Trust?

No. During your life, your social security number will be the tax identification number (on trusts for married persons, the husband’s social security number will be the tax identification number).

Do I need to file a separate tax return for my Living Trust?

No. During your lifetime, you will need only to file your normal tax return.

Can I transfer real estate into my Living Trust?

Yes. In fact all real estate should be transferred into your Living Trust. Otherwise, upon your death, there will be a probate in every state where you own real property. When it is owned by your Living Trust, there is no probate anywhere.

Is the Living Trust just a tax loophole that the government will close down?

No. The principles of the Living Trust have been authorized by the law for centuries. The government has no interest in making you go through probate or a conservatorship. Those proceedings only clog up the court system. In addition, there is no movement in Congress to reduce the federal estate tax benefits available to a Living Trust.

Is it difficult to transfer assets to my Living Trust?

No. All your assets except IRA and pension benefits can actually be owned by your Living Trust. Each type of asset needs a special transfer document to change title into the name of your Living Trust. Your Living Trust advisor is trained to convert the title to assets into trust ownership.

Can I transfer my separate property as well as my community property into my Living Trust?

Yes. If you live in a community property state, all your assets both separate and community are transferred into your Living Trust, but they are not commingled. Separate property assets retain their separate property character while in your Living Trust. If there is a divorce or dissolution of marriage, all assets come out of your Living Trust in the same way they went in: Community property is divided between the parties and separate property is returned to the party who originally owned it.

Can any attorney create a Living Trust?

No. The drafting of your Living Trust should only be done by one who is trained as a Living Trust Attorney. It is important that you seek out a law firm which has a certified Living Trust lawyer. After all, your Living Trust will be the document which manages and disposes of all your hard earned wealth. Make certain you choose an attorney who is both qualified and experienced as a Living Trust professional.

What if I move to another state, is my Living Trust still valid?

Yes. The Living Trust is valid in all 50 states, regardless of the state where it was originally created.

Is a Living Trust only for the rich?

No. A Living Trust can help anyone who wants to protect his or her family from unnecessary probate fees, attorney’s fees and federal estate taxes. In fact, probate costs ravage smaller estates more than larger ones.

Is a Living Trust a good idea for a single person?

Yes. If you are widowed, divorced, or unmarried, a Living Trust offers protection for your estate as well. It completely eliminates probate, conservatorship, and you can pass $2,000,000 federal estate tax free.

Are there any major disadvantages to a Living Trust?

No. Because you have complete control of all assets in your Living Trust, you are free to manage your Trust in any way you want. Also, because your Living Trust is revocable, you have the right to make any changes in it while you are alive and competent.

What started out as a personal hobby interest developed into advising friends, and now into a focused part of Mr. Whitmire's law practice. Many clients possess firearms, and some have quite a substantial value wrapped up in their collection. Even with modest collections, it can be an onerous process to transfer ownership of firearms after a client dies. Firearms trusts are specifically drafted trusts for dealing with this potentially catastrophic transfer. These transfers oftentimes need additional expertise and attention due to the legalities of firearms ownership. If you have questions regarding this issue, please contact Mr. Whitmire for a consultation.