An Estate Planning & Business Law Firm

FAQ


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ESTATE PLAN
PROBATE
TRUSTS
NEVADA ASSET PROTECTION TRUST


ESTATE PLAN


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WHY DO I NEED AN ESTATE PLAN?

Many people spend a lot of time and effort accumulating wealth but little or no time preserving it.  Effective estate planning ensures that wealth is preserved and passes to your intended beneficiaries. A good estate plan not only plans for the events of your death, but also for the possibility of incapacity during your life and should ideally avoid the associated attorney fees, costs, and delays created by both probate court and guardianship court.

WHAT HAPPENS IF I DON’T HAVE AN ESTATE PLAN?

The government has an estate plan for you.  The government plan is called “intestate succession” or “guardianship”.  Nevada statutes govern who will inherit your assets, as well as who will have the ability to make medical and financial decision for you should you become incapacitated (unable to adequately make financial and medical decision for yourself).  Furthermore, your assets will be subject to probate or guardianship court.  Probate and Guardianships through Nevada courts are expensive, time-consuming and a nuisance.  Your estate and/or care can be contested, and all records are open to public scrutiny. 

WHAT IS THE DIFFERENCE BETWEEN A WILL AND A LIVING WILL?

A will is a document that describes how your assets should be distributed in the event of your death.  The distribution is controlled by the probate court.  For the most part, probate is controlled by the court and attorneys – not your family.

The main advantage of a trust, as more fully discussed below, is that it avoids probate.  At death your assets held in your trust pass to your beneficiaries free of the probate process.  A “successor trustee” you name controls your assets and distributes the property according to your instructions. Your living trust helps you preserve and increase your estate while alive and then avoids costly delays at death.

Despite the foregoing, unfortunately some people tend to believe and tell themselves “I will be dead- so why would I care about probate or a will or trust?” They misunderstand that the probate process if fraught with problems and the potential that a problem will arise having a significant effect on their family, their assets, and their possible legacy. Even a little understanding of probate can help highlight these issues.

 


PROBATE


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WHAT IS PROBATE?

Essentially, probate is the process of going to court to clear the title to a decedent’s assets and to distribute them to the decedent’s beneficiaries or heirs, after all debts, expenses and taxes are paid.  Probate requires a person to:

(1) file a petition to admit the will to probate (when the decedent had a will), prove the will and be appointed as personal representative of the estate; (2) determine the identity and location of the decedent’s beneficiaries or heirs; (3) publish a notice to creditors; (4) prepare and file an inventory of the decedent’s assets; (5) obtain appraisals for all of the decedent’s properties; (6) liquidate assets which should be sold; (7) settle all of the decedent’s debts; (8) pay any estate or income taxes which may be due; (9) account to the court for all monies spent during the probate; (10) distribute the remaining assets to the beneficiaries or heirs; (11) obtain and file receipts from the beneficiaries and file them with the court; and (12) prepare and file an accounting and order of discharge.

HOW LONG DOES PROBATE TAKE?

If the estate is relatively uncomplicated and is uncontested, probates typically take no less than six months to one year to complete.

HOW MUCH DOES PROBATE COST?

Probates in Nevada generally cost around 5% of the value of the estate. This cost typically consists of the personal representative’s fee, attorney fees, court costs, publication fees, appraisals and accounting expenses. In addition, there are creditor claims and the resulting costs of satisfying and/or contesting those claims.

WHEN IS PROBATE REQUIRED?

Probate is required in all cases where a person dies owning an aggregate of $20,000 or more of assets which are titled in the decedent’s name, and no beneficiary was designated (on a bank account for example) regardless of whether the decedent had a will.  If a person dies owning assets totaling $20,000 or more which are titled in his name, a probate is

DOESN’T A WILL AVOID PROBATE?

No.  It facilitates the probate process but does not avoid probate.

WONT JOINT TENANCY AVOID PROBATE?

No.  It merely defers probate until the death of the second person.  Additionally, joint tenancy has these disadvantages:

  1. Married couples can possibly lose income tax and possibly estate tax benefits by holding property in joint tenancy.
  2. For property held between a parent and a child, property can be lost or encumbered if the child has creditors, gets divorced or files bankruptcy.

WON’T COMMUNITY PROPERTY AVOID PROBATE?

No.  The fact that property is held as community property does not avoid probate.  The same rules apply to all property, whether community or separate.

WHERE SHOULD AN ESTATE BE PROBATED?

A probate must be done in the county where the decedent lived at the time of his or her death.  If the decedent owned real estate in any other state, an additional or ancillary probate is required in that state also.

In order to avoid the problems that arise due to probate, it is necessary to plan for avoidance of the same through the use of a living trust (also known as a Revocable Trust or a Family Trust) or other estate planning vehicle such as an Asset Protection Trust.

ISNT HAVING A WILL GOOD ENOUGH FOR ME?

A will is a perfectly sound way of planning your estate if:

  •  You can guarantee that you or your spouse will never become incapacitated during your life
  • You don’t care if your children or other beneficiaries are required to go through probate if your estate is over $20,000
  • It doesn’t bother you that all of your assets and financial affairs will be open to public scrutiny
  • You don’t want to protect children from a prior marriage
  • You don’t mind paying capital gains taxes on appreciated assets sold after the death of you or your spouse

*If any of the above may be a problem, you should seriously consider creating a revocable living trust to protect you, your family and your assets from unnecessary expenses and taxes. 

 


TRUSTS


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WHAT IS A LIVING TRUST?

A living trust is an entity which you create to hold title to your assets.  You serve as the trustee and maintain control of your assets throughout your life.  You can amend or revoke your trust at any time.  If you become incapacitated, trust assets are held for your benefit without having a court-appointed guardian.

Your trust also acts as a will substitute.  It contains directions on how you want your assets distributed upon your death.  You appoint a successor trustee to settle your affairs upon your demise.  The successor trustee’s responsibilities are similar to those of an executor of a will.  If you have minor children or beneficiaries with special needs, your trust can continue for their benefit under the terms and conditions you designate.

ADVANTAGES OF A LIVING TRUST

  1. Keeps you in control of your assets
  2. Can be changed or revoked at any time
  3. Avoids probate
  4. Ensures the privacy of your affairs
  5. Protects children from prior marriages
  6. Avoids guardianships
  7. Eliminates capital gain on all assets after the death of one spouse
  8. Eliminates the need for an additional probate in each state where you own real property
  9. Provides faster and easier administration of your estate

HOW LARGE MUST MY ESTATE BE FOR ME TO NEED A TRUST?

Every estate over $20,000 must be probated.  With probate costs of 5% an estate of only $100,000 can cost close to $5,000 to probate and is significantly more than a trust initially costs.  The beneficiaries can be tied up in court for a year or more before receiving any assets from the estate.  Having a trust can avoid probate for a fraction of the cost.

IS A TRUST EXPENSIVE?

No.  Not having a trust is.  Creating a living trust is a one-time expense.  There are no annual administration costs or maintenance fees.

While a living trust is an excellent vehicle to avoid probate and to address some of the issues outlined above, it cannot protect your assets from the claims of your creditors, however there are certain trusts and other vehicles that can protect your assets from creditors as more fully set forth below.

WONT MY LIVING TRUST PROTECT MY ASSETS FROM CREDITORS?

No.  Living trusts are revocable.  By law, your creditor has the same right of access to your assets that you do.

WHAT CAN I DO TO PROTECT MY ASSETS? 

Fortunately, there are several steps you can take to secure your property.  Family limited partnerships (FLPs) and limited-liability companies (LLCs) can protect your cash investments, business or real estate interests.  A qualified personal residence trust (QPRTs) can protect your primary or secondary home.  The Nevada Asset Protection Trusts (NAPTs) can also protect your assets and is one of the best vehicles to protect assets from creditor claims, as more fully set forth below. 

HOW CAN AN FLP OR LLC PROTECT MY ASSETS?

When you create an FLP or LLC, you transfer your assets into the entity and receive a partnership interest or membership interest in return.  Your assets are titled in the name of the entity rather than in your name.  You as the general partner of your FLP or as the manager of your LLC remain in complete control over your assets.  A creditor of yours can only attach what you own, namely your interest in the entity.  He cannot attach the assets held in the entity.

WHAT CAN A CREDITOR DO?

Not much.  By law, a creditor’s only remedy is to receive a “charging order”.  Essentially, this means that he is forced to wait until you as the general partner or manager decide to distribute assets from your FLP or LLC.  If you choose not to distribute assets, your creditor gets nothing from the entity.

Worse yet, by attaching your interest in the entity, your creditor steps into your shoes for tax purposes. You can send him a K-1, requiring him to pay taxes on your share of the entity’s earnings which were retained in the entity!

 


NEVADA ASSET PROTECTION TRUST


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HOW DOES A NEVADA ASSET PROTECTION TRUST WORK?

Generally, you would create the trust and serve as the primary trustee, often referred to as the “Investment Trustee”.  As the Investment Trustee, you maintain control over all trust assets.  You can buy, sell, trade or reinvest assets at any time.  The trust is not recorded or filed.  No one knows what provisions the trust contains.

Additionally, you must select a secondary “independent” trustee, often referred to as the “Distribution Trustee” who must be a Nevada Trust Company or a Nevada resident whose main purpose is to approve or disapprove distributions back to you as the grantor or creator of the trust. They do not have any other management authority or ability to write checks or make distributions. Their main purpose is to approve or disapprove distributions back to you.

This distribution trustee frequently is a trusted professional (such as an attorney or accountant) or friend.  It could also be a bank or trust company.  The distribution trustee does not have the right to distribute assets. You have the ability to remove the distribution trustee at any time and appoint a new independent trustee. 

As a further protection, if you are being sued or if your assets are in jeopardy, the trust forbids the distribution trustee from distributing assets until the threat ceases. Additionally, the trust assets are exempt from execution. Therefore, even if a court awards a judgement against the trust, any sheriff or other party levying, seizing, collecting or attaching any trust asset or interest cannot do so because any assets in the trust are considered exempt from execution under state law.

WHAT ASSETS CAN BE PLACED IN THE NAPT TRUST?

The trust can hold real estate, investments, cash, securities and virtually any type of asset whether located in Nevada or elsewhere.  Nevada law does not permit stock in a professional corporation to be held in the trust.  If the trust is properly drafted, it can hold stock in an S corporation. Keep in mind however that any assets outside of the State of Nevada may not be exempt from execution like those within Nevada so its best to assume that assets outside of Nevada may not be protected to the same extent as those within Nevada- therefore it is preferable to open Nevada accounts.

HOW DOES THE NAPT TRUST WORK? 

Generally, you would create the trust and serve as the primary trustee, often referred to as the “Investment Trustee”.  As the Investment Trustee, you maintain control over all trust assets.  You can buy, sell, trade or reinvest assets at any time.  The trust is not recorded or filed.  No one knows what provisions the trust contains.

Additionally, you must select a secondary “independent” trustee, often referred to as the “Distribution Trustee” who must be a Nevada Trust Company or a Nevada resident whose main purpose is to approve or disapprove distributions back to you as the grantor or creator of the trust. They do not have any other management authority or ability to write checks or make distributions. Their main purpose is to approve or disapprove distributions back to you.

This distribution trustee frequently is a trusted professional (such as an attorney or accountant) or friend.  It could also be a bank or trust company.  The distribution trustee does not have the right to distribute assets. You have the ability to remove the distribution trustee at any time and appoint a new independent trustee. 

As a further protection, if you are being sued or if your assets are in jeopardy, the trust forbids the distribution trustee from distributing assets until the threat ceases. Additionally, the trust assets are exempt from execution. Therefore, even if a court awards a judgement against the trust, any sheriff or other party levying, seizing, collecting or attaching any trust asset or interest cannot do so because any assets in the trust are considered exempt from execution under state law.

WHEN IS THE NAPT TRUST EFFECTIVE?

Asset protection does not begin until after the assets have been in the trust for two years. A creditor must file a lawsuit within this time period. After that, the trust is “bulletproof.”  No creditor can penetrate and attach any assets in the trust.  Similarly, you cannot be forced to distribute assets.  Because the trust is effective only after two years, it is best to establish it immediately.

WHAT IF I MOVE OUT OF NEVADA?

You do not have to be a Nevada resident to have a NAPT.  The only requirement is that at least one of your trustees be a Nevada resident.  This person can be a friend or relative residing in Nevada or a Nevada bank or trust company.