Nobody is especially anxious to part with any of their hard earned money and hand it over to the tax man. But in spite of the complaining, most people recognize the fact that some taxation is necessary and are perfectly willing to pay their fair share. What people don’t want to do is pay taxes multiple times on the same earnings, and this is one of many reasons there is so much support in some quarters for a permanent repeal of the estate tax.

Consider this overly simplified example that demonstrates the logically indefensible nature of the estate tax. Let’s say that Elizabeth was an avid saver throughout her life. She socked away a sizable portion of every paycheck that she ever earned in a savings account.

Since she was so frugal it always bothered her to see that she was left holding only about $60 out of every $100 she earned after paying payroll and income taxes, but she was heartened by the fact that she was doing her part as a good citizen.

After saving so diligently for so long she was able to accumulate quite a large sum of money. Every year she paid income taxes on the interest she had earned and then when she died, the estate tax kicked in and her children received just 65% of the savings that she worked so hard to accumulate after paying taxes. And then when her children died and left that money to their children, it was once again taxed at 35% and less than half of the taxable portion of Elizabeth’s original bequest was left.

A viable response to this potential scenario is the creation of a legacy trust. With these vehicles you name your grandchildren as the beneficiaries, skipping a generation as it were. Your children can still receive benefits from the trust, but they don’t own the assets so they can’t be targeted by claimants or former spouses. When your children die, your grandchildren inherit the contents of the trust, and the estate tax is levied only once though two generation enjoyed benefits from the trust. And now, in Nevada, as well as a handful of other states, the tax can be avoided for multiple generations with a properly established trust.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

When you are in a position to leave behind inheritances that can have life changing consequences for your loves ones you have a pleasant problem. You may want to make life easier on your family than they were for you, but at the same time you don’t want to adversely impact one’s motivation and work ethic.

By the time you have reached your twilight years it is likely that your children have become established in their own right. Leaving an inheritance out right to those who have already made it can be done with confidence. But you may have children with creditor problems or you may have younger children or family members that have not yet established themselves. Also, there could be someone in the family with a substance abuse problem, or an individual with a gambling problem. These factors present special planning considerations as you plan your estate.

One way that these types of concerns can be addressed is through the creation of an incentive trust. These instruments involve the naming of a beneficiary and the appointment of a trustee like other trusts, but there is one key difference. You as the grantor of the trust attach stipulations that must be met before distributions from the trust will be made.

If you have a younger heir these may be educational. You could allow for regular monthly distributions as long as the beneficiary remained a student in good standing. Perhaps you could offer an additional lump sum distribution upon attainment of an advanced degree. There are those who take it a step further and stipulate that the trust will match every dollar that the beneficiary earns on the job once he or she enters the workforce to encourage a strong work ethic.

You can include many variations of conditions that you see fit. Incentive trusts can go a long way toward alleviating concerns that you may have about your beneficiaries. It is important however to keep in mind that too many “strings attached” to an inheritance can result in resentment. Compelled behavior may not always be psychologically beneficial. Still incentive trusts are powerful tools and can be effective motivators in many circumstances.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

We have all been involved in situations at various points in our lives when we decided to try to fix something on our own. There are times when you can indeed get out your basic tool kit and get the job done, but there are other instances when you learn an important lesson. As you are engaged in the task you see what is necessary, and then you look in your kit and recognize that you don’t have the right tool. Knowing the right tools for each job and having access to them is one of the differences between a professional and a dabbler.

Estate planning is one of those jobs that requires the utilization of the proper tools for each circumstance. The one that we would like to take a look at today is the GRAT or grantor retained annuity trust. These vehicles are useful for gaining estate tax efficiency and gifting appreciating assets free of taxation.

The strategy that is employed to make this happen is called the “zeroed out” GRAT. You fund the trust with appreciable assets like securities, real property, or business interests, appoint a trustee, and name a beneficiary. You also decide on the duration of the trust term and the amount of the annuity payments that you would like to receive out of the trust for the term period.

When you fund the GRAT you remove the assets transferred to the trust from your estate for tax purposes, but the IRS does consider the donation to be a taxable gift. However, the taxable value of the gift is calculated using 120% of the federal midterm rate as it stands during the month the trust is created. So, when you set your annuity payments you want them to equal the total taxable value of the trust according to the IRS’ valuation methodology. Because your retained interest is 100% of the taxable value, you owe no gift tax on the contribution into the trust. But, any appreciation that exceeds that valuation passes to your beneficiary at the end of the trust term tax-free.

If you have any questions regarding GRATs or other advanced planning techniques, please do not hesitate to contact our firm at any time.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

The estate tax is repealed for 2010, but when it was last in effect back in 2009, the exclusion was $3.5 million. The exclusion stood at $2 million from 2006 through 2008. In 2011 the estate tax exclusion is going to be just $1 million, so a lot of estates that had been under the exclusion for years are now going to be exposed to the estate tax.

Home ownership has long been the foundational wealth building vehicle in the United Estates, and many of the people who are now going to be exposed to the estate tax would say that the worth of their homes is what is causing the overall value of their estates to exceed the $1 million estate tax exclusion. For these individuals, an instrument known as a qualified personal residence trust, or QPRT, may provide the solution.

To implement this estate planning strategy you place your home into a special trust trust and you name your children, or whoever it is that you want to leave the property to, as the beneficiaries. When you are drawing up the trust agreement you state a term during which you will continue to live in the house rent free. Upon tranfer to the trust, the value of the home is removed from your estate and your children will assume ownership of the property after the term expires, at which time you would begin paying rent to live in the home.

The funding of the trust with the house is subject to the gift tax, but the IRS does not use the fair market value of the home at that time to calculate its taxable value. They reduce the value of the home by the interest that you are retaining while you are still living in it rent free after you placed it in the trust. Assuming the value of your home appreciates at a reasonable rate moving forward (say, 3%), this techniques can provide a fair amount of gift and estate tax planning leverage.

Feel free to contact our office if you would like a consultation on how a QPRT may benefit you.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

When a Last Will and Testament or Revocable Living Trust is created, the testator or trust maker will name beneficiaries to receive his or her property. If any beneficiary receives less than her or she expected or is omitted does that person have a claim to receive a portion of the estate? The answer depends upon state law and the relationship of the beneficiary to the decedent.

Current Spouse
In community property states, a spouse may have a right to half of the marital estate upon the death of the other spouse. If the decedent chooses to completely leave his or her spouse out of the Will or to leave the spouse a portion smaller than half of the estate, the surviving spouse may have a claim against the estate.

In states where community property rules do not exist, a spouse may still have a right to a certain percentage of the estate. This percentage may depend upon how long the couple has been married and what assets were brought into the marriage versus purchased during it. If you are a spouse who feels you may have lost some of your estate to a deceased spouse’s estate you may want to seek the assistance of a qualified estate planning and probate attorney.

Former Spouse
A former spouse does not automatically have the right to inherit property from their deceased former spouse’s estate. If, however, a couple is separated but not yet divorced, the surviving spouse may have a claim against the marital estate.

Children
If your parent intentionally excluded you from his or her Will, you may not have the right to inherit unless special circumstances exist. If you were omitted from your parent’s estate you may want to speak to a qualified attorney to discuss your rights. For example, if a child is born after a Will is created and the parent never revises that Will, the child may be able to receive a share of the estate.

On the other hand, if a parent explicitly states that a certain child is to receive nothing from the estate, that child may have little or no grounds to assert a claim or interest in the estate.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

In a challenging economy we are often tempted to “DIY” (do it yourself). So, is it possible to write your own Living Trust? Yes, but you should know the disadvantages to a poorly drafted Living Trust before you begin.

There are three positions in the creation of a Revocable Living Trust Agreement: the Trustors, the Trustees and the Beneficiaries. After completing the trust agreement, it is vital that you fund all assets into the name of the Trust. If you fail to set up and fund the trust properly, you risk at least two unhappy consequences: disinheritance and probate.

The same cautions apply when choosing and changing a trustee. These are the people who will be managing the assets of the trust.

　Probate

When you hire an attorney, he or she can help you properly fund your Trust, make sure you have not left out an heir and ensure that your trust agreement meets current estate law. If your document is not properly drafted, probate may be needed for your entire estate. If you have not removed deceased beneficiaries, a court may have to determine who your beneficiaries should be. Further, if you have not properly funded your assets into your Trust, the only way to do so is through the probate process.

Your attorney can also help you create a Pour Over Will. This Will may assist if you leave any asset out of your Trust. A Pour Over Will is a safety net to transfer your assets into your Trust typically through a short version of probate.

If you create your own Trust, you will also be responsible for your own Will. If you leave property out of your Trust and you don’t properly create a Pour Over Will, a prolonged probate will be needed to determine the rightful heirs-at-law.

When you “do it yourself” to repair a leaky pipe, it may just require a plumber to do it right, if your repair fails. Writing your own living trust is a complicated process that could be many times more expensive and time consuming when it is not done right. This is no time to DIY.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

When you pass away, your estate must be settled. If you have an estate plan, such as a Trust or Will, then your assets will be distributed in accordance with your estate planning documents.

If you don’t have a Trust or Will then you will have died “intestate” and your estate will be distributed according to the laws of the state of your residence and any other state where you might own real estate.

Now, before you start thinking this might not be so bad, consider this:

When you die intestate, you have no say over how your assets are distributed or who will oversee the process. With a Will, you may designate an executor, someone you trust to ensure your estate is properly administered and that your assets are divided up the way you want. This process is overssen by a court and is known as a probate. A Trust works in a similar way allowing you to designate a Trustee to oversee the process except that a court is generally not involved maintaining the privacy of your beneficiaries.

But in the absence of a Will or Trust, the court will appoint a personal representative to oversee your estate. This person will be responsible for not only distributing your assets but also settling any outstanding debts and selling off assets if there’s not enough funds in the estate.

That means that some of your most treasured heirlooms – the baseball card collection, the antique grandfather clock or your great-grandmother’s sterling silver tea set may very well end up being sold in an auction rather than in the hands of your loved ones.

And of course, you won’t be around to stop it.

To learn more about the dangers of dying intestate and to create your own estate plan, contact our office today.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

There are several benefits to having a Living Trust as the foundation of your estate plan.

For starters, a Living Trust allows your heirs to avoid probate, an often costly and time-consuming legal process used to distribute your assets. With a Trust, the distribution is handled within the Trust documents and because the Trust technically owns the assets, no probate is required.

Another benefit is that unlike a Will, the details of your Trust are not public record. That means your estate remains private and your loved ones are protected from would-be con artists and overly aggressive sales people looking for a quick bargain.

A Trust also gives you some options that you can’t get with a Will. You can create incentives for your heirs for example, allowing them to increase the amount of their inheritance by achieving certain goals and objectives. Perhaps you set up the Trust to match whatever income they earn on their own or to encourage higher education, your heirs can receive a bonus if they graduate college.

Likewise, you can use your Trust to ensure that heirs with behavioral problems or addictions get help before inheriting a large sum of money.

A Living Trust also streamlines the entire distribution process and allows you to create a legacy that can provide for multiple generations to come.

To learn more about the benefits of a Living Trust, contact our office today.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.

Probate is a legal process wherein a court oversees the distribution of a deceased person’s estate to the heirs or beneficiaries of the estate after the payment of all debts, obligations and funeral expenses. A probate proceeding helps fulfill the wishes of the deceased as specified in a Will. In case there is no Will, the distribution of the deceased’s estate is made according to the applicable state laws.

The time required to complete the probate process depends on several factors, including:

• The complexity of the estate
• The applicable laws and the documents that must be filed
• The manner in which the deceased left assets, whether those assets were organized and easy to locate, and whether all necessary documents are available
• Locating creditors and settling debts
• Settling the lawsuits, if any, against the estate
• Lawsuits contesting the Will, if any
• Locating beneficiaries
• The tax position of the estate

With the above factors in mind, the probate process may be completed in nine to twelve months or may take years. The probate process can be delayed if the validity of the Will is contested, if there are disputes relating to the settlement of the debt of the deceased, or if there is a delay in finding beneficiaries. Tax issues can also delay a probate process.

The cost of a probate process may be set by the applicable state laws or by practice and therefore differs from state to state and case to case. The general costs included are:

• Appraisal costs
• Personal representative fees
• Court costs
• Cost of a surety bond
• Legal and accounting fees

Although some of these charges are fixed per state law, legal and accounting fees can be negotiated. However, in case of any type of disputes or litigation, the probate process may continue for months, if not years, and involve a number of additional costs.

You can receive a free report detailing the probate process by going to our website.

Anderson, Dorn & Rader, Ltd is a member of the American Academy of Estate Planning Attorneys.