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Trusts Vs. Wills In Estate Planning
Trusts to Avoid Probate
In general if property has a title and the owner dies it will take a Probate to transfer title to the person who inherits UNLESS there is already in place a will substitute, as for example, if the property is held in joint tenancy or in a Payable on Death account. See Will or Trust Substitutes and
Probate is the process in which a will is taken to court and the property distributed according to the will. There are three problems with probate:
- Probate is usually expensive. Probate fees have come down from the "old days" in which lawyers charged the greater of an hourly rate or six or seven percent of the probate estate. Clients are free to bargain with attorneys over probate fees. Even so, probate is usually time consuming and hugely expensive compared to a trust, especially for estates over $200,000. Few people can handle a probate proceeding without hiring an a lawyer. (By the way, an executor is under no obligation to use the attorney who drafted the will to help with probate. We welcome calls asking how much we will charge to do a probate and have listed our fees below. If you compare our probate prices to those of other attorneys I believe you will find we are more than affordable, we are the low cost, high quality probate lawyers in town.)
- Probate is time consuming. Even for uncontested probates it take months for the process to be completed if the estate is worth more than $100,000, and even if your lawyer moves as fast as possible. In addition, the sale of real estate through the probate process is very time-consuming, expensive and cumbersome through the probate process. (If you hire us to do a probate and there is real estate in the estate we will talk to you about the possibility of having the probate court transfer the real estate directly to one or more heirs--a much simpler process.)
- Probate is public. Probate records are open to the public. Leave your 19 year old daughter $300,000 in your will and that is a public record.
In contrast, a trust provides for the transfer of property outside the court system. Many people can handle the distribution of property in a trust without an attorney. But, if an attorney were required the attorney could help out with much less work and should charge a lot less. Trust transfers can proceed quickly and privately after death.
Our law firm drafts these trusts for a flat fee of $800 which is much lower than what many other attorneys and even paralegal places will charge for the same document. Note that each piece of real estate transferred to the trust must be recorded in the county recorder's office in the county the real estate is located in. In Las Vegas in Clark County, Nevada, the recorder's office charges a fee of about $40 to record a deed in proper format. Our fee of $800 for a trust includes our firm preparing one deed for one item of Nevada real estate. The $40 recording fee is extra. If there is additional real estate we charge $75 for each additional Clark County real estate deed plus the recording fee. Our fee of $800 also includes a Pourover Will and Health Care Power of Attorney Clark County includes Las Vegas, Boulder City, Henderson, North Las Vegas and Mesquite.
Exception to Our $800 flat fee Rate: Most elderly parents want to leave their estate equally to their adult children. Some do not. If the parent contacts us and want to make an equal distribution we are usually comfortable writing the trust the way the parent wants. BUT if the adult child contacts us to get a trust for their parent which favors the adult child who has contacted us, we are not comfortable doing the work . For example, Dad is not healthy and daughter is taking care of Dad. Nevada law carefully scrutinizes a situation in which a caretaker is favored in a trust or will. There may be valid reasons why Dad favors the caretaker daughter. Perhaps, the other two children have not helped the old man with his problems as he aged and Dad could reasonably want to leave everything to the caretaker daughter. But if this trust is not done right, the two left out children might be able to successfully challenge the Trust after Dad dies. Doing the trust right may involve having a psychologist examine Dad to attest to his mental competence and freedom from coercion of the daughter arranging to inherit all of Dad's money. Doing the trust right may also involve hiring a second lawyer to provide independent counsel to Dad, with the original lawyer drafting the trust as directed by the daughter. We are not interested in writing those kinds of trusts but will be glad to refer you good attorneys who are.
It is important to note that some attorneys work with a financial investment firm and that the chief interest of this team is to steer you into investing with them. Our firm does not offer investment advice or sell investment products. If we draft your trust we are only interested in helping you avoid probate and plan who gets your money and property when you die. How you invest your money is your business.
Probate can be effectively avoided with such a trust if the client(s) keep in mind certain rules, the most important of which are:
- All property with a title such as real estate and financial accounts must be titled in the name of the trust.
- At the time the trust is set up assets with a title such as real estate and financial accounts must be re-titled in the name of the trust.
- When assets with a title are later acquired they must be titled in the name of the trust.
Trusts to Handle Minor's Money
People under 18 years of age are not considered legally competent to make contracts. Wills that anticipate minors may inherit money usually incorporate a provision providing that a specific person will hold the minor's money in trust until the minor reaches 18 or an older age. The provision may also contain guidelines as to what the money can be spent on for the minor's benefit until the minor is given the money. In the situation just mentioned these are trust provisions within a will. In other situations a trust document, not a will, controls the minor's money.
Likewise, if there is an adult but financially irresponsible child, a trust can provide for a subsequent trustee to handle that person's money. Also, as discussed below, the trust can protect the financially irresponsible adult child from creditors with respect to the money from the parents.
Trusts can Specify What Happens if you Start to Lose your Mental Sharpness or Become Unable to Manage your Own Affairs.
With modern medical care, more and more people are living long enough to suffer from considerable decline in their mental ability or to incur substantial mental disability. According to one study 12% of people over 65 and 50% of people over 80 have Alzheimer's Disease. Or, if a person's mind is still working 100%, the person still might be unable to manage his or her own affairs if he or she has physical problems with vision, hearing or being exhausted from medical treatment, for example, "chemo-brain" from undergoing chemotherapy.
Estate Planning Trusts (will substitutes) almost always start off with the person setting up the trust being the trustee (manager of the trust assets). The trust always names a successor trustee (and alternative successor trustees if the first choice successor trustee can not or will not serve.) The hope when we set up the trust is that the person setting up the trust who is the original trustee will remain trustee until he or she dies and only then will the successor trustee take over. This hopes assumes that the person setting up the trust will remain in good physical and mental health right up until the time of death. (Most of us hope to live to a ripe old age in great health and then suddenly die, say while playing tennis at age 90.)
Unfortunately, short of suicide, we don't have a choice as to how we die. We don't know if we will say a long goodbye as Ronald Reagan did with Alzheimer's or die suddenly of a heart attack.
Whenever we draft a trust we ask our client to specify the trigger that will allow the successor trustee to take over management of the trust assets. Our clients choose a variety of options:
- A tiny small minority of clients don't allow for themselves to be replaced as trustee during their lifetime. In that case, the only mechanism for their heirs to take away control of the assets of such a person is the traditional route of going into Guardianship Court and proving that "dad" is incompetent to handle his own affairs and asking the court to set up a guardianship over the estate.
- But, the vast majority of our clients use the trust document as a way to enable trusted children or other relatives to take over the management of their finances if there is a fear that the assets will be lost or stolen due to mental or physical decline. Some typical conditions for involuntary removing "mom" as the trustee of her own estate are:
a) One trusted younger relative, or a majority of named trusted relatives can replace "mom" as the trustee of her property simply be delivering a letter to "mom" stating that they are doing so.
b) Same as above but, in addition, a medical doctor must give a letter or affidavit stating that the person is incapable of managing his or her own affairs.
c) Other varieties are possible.
In conclusion, most of our clients recognize the possibility that they may live long enough to experience mental and physical decline that could cause them to lose their property to scam artists or through neglect. Most of our clients want a simple, out of court mechanism to allow their children or other younger relatives to take over managing their property when the time is right. This is one big advantage of a trust over a will.
Note: The above discussion concerns management of property, not management of medical care. All of us should have a "Health Care Power of Attorney" which specifies our care choices when the diagnosis is bad and which says who should make health care decisions for us when we are unconscious or not mentally able to. We write Health Care Powers of Attorney for all of our trust and will clients w/o additional charge. In addition, you can write your own. See Health Care Power of Attorney
Trusts to Protect the Beneficiary Against Spending all the Money
Nevada law allows a "spendthrift trust" to be set up for the benefit of another person and allows for this money to be protected against present or future creditors of the person being given the money.
(However, if creditors already have a claim to the money being transferred, this transfer may be attacked.)
Nevada law also allows a "spendthrift trust" to be set up for your own benefit. But if you are setting up the "spendthrift trust" for your own benefit, there are additional limitations. These are:
- The trust is not intended to defraud, delay or hinder known creditors. (So, if you cause a terrible car accident and the victims have claims far in excess of your insurance coverage it is probably too late for you to set up a spendthrift trust for your own benefit as you would be intending to defeat the claims of the car wreck victims because they are potential creditors you know about.)
- You have to irrevocably give up control of the money or property put into the trust. We believe that this limitation will be looked at very critically by a court if you are later sued and we believe it is hard to predict precisely how much control has to be given up to make sure that a court will allow this trust to protect you in a future lawsuit.
For these reasons our law firm will set up a spendthrift trust for the benefit of someone other than the person giving property and money to the trust. However, we are not comfortable attempting to set up a spendthrift trust for the benefit of the person funding the trust. But, many reputable attorneys do set up trusts designed to protect your own money from future unknown creditors; these attorneys will advise you that while they can't predict for sure how these trust will hold up in court, they will likely be held up in court and may well provide significant protection. We will be glad to refer you to attorneys we respect if you want to set up a spendthrift trust to protect you against future creditors.
The Nevada laws regarding these types of trusts can be found in the Nevada Revised Statutes ("NRS") sections 166.010-166.170, et. seq. These statutes are collectively referred to as: "The Spendthrift Trust Act of Nevada". Interestingly, this is an evolving area of law as evidenced by the fact the Nevada Supreme Court came out with a decision on March 2, 2017 which held that an "irrevocable" spendthrift trust could have its spendthrift provisions be invalidated, and the "irrevocable" trust could be modified under the facts present in the case of In the Matter of Frei Irrevocable Trust Dated 10/29/1996, 133 Nev. Adv. Op 8, Case # 68029.
Insurance & Protection Against Creditors
You should always consider buying insurance to protect against liability. But insurance companies may be able to get out of paying if what you state in your application is no longer true. For example, you insure the house you live in, then you move into a better house and rent out the old house. If the insurance on the house says owner occupied and the house isn't owner occupied, maybe the insurance company gets out of paying a claim.
Protecting Trust Assets Against the IRS
Unfortunately, there is no legal way to place your assets offshore out of reach of the IRS (Internal Revenue Service). If you are a U.S. citizen you owe taxes on your income even if earned abroad. If anyone offers you a plan to keep money safe from the IRS (when you owe the IRS money) they are scamming you and/or inviting you to break the law. (You will be amazed at how much money and time federal prosecutors have when they decide to go after someone.)
In contrast to trying to hide your money from the I.R.S., tax lawyers and I.R.S. "enrolled agents" can negotiate with the I.R.S. over past due money or advise you how to minimize future taxes. We will be glad to refer you to a good "enrolled agent" authorized to negotiate with the I.R.S.
Trusts to Minimize Estate Taxes
Until and unless estate taxes are permanently abolished, there will always be a demand among the wealthy for lawyers to devise inheritance plans that minimize estate taxes. Such estate planning is expensive and needs to be updated frequently as the laws concerning estate taxes are constantly changing.
Our firm does not draft trusts to minimize estate taxes but we will be happy to refer you to competent attorneys who do. For 2015, the federal estate tax does not kick in until and unless the estate is worth more than $5,430,000. Therefore, most middle-class people do not currently need to be concerned with avoiding the estate tax.
Special Needs Trusts
The idea of a special needs trust is existing federal law which requires Medicaid recipients to "spend down" to be eligible for Medicaid. Federal law allows a special needs trust in some circumstances to be set up so that the beneficiary can tap into this trust for a large variety of needs, but the money in this trust doesn't have to be spent down for continued Medicaid eligibility. A special needs trust should be written to take into account the new "Obamacare" and previously written special needs trusts should be reviewed in light of the new "Obamacare laws." We do not write special needs trusts but will be happy to refer you to competent attorneys who do.
When is a Will (& Probate) Better Than a Trust?
If a death leads to intra-family fighting over assets, the Court supervised probate process can sometimes be advantageous. For example, suppose Dad, who is single, has five adult children and leaves his estate in equal shares to the five children, or worse, makes some sort of unequal division. Suppose also that Dad knows that Child No. 3 is the best of the five to handle financial matters so Dad names that child Executor if he does a Will, or Successor Trustee if he does a Trust. Now, suppose Children No. 1 and No. 5 are very suspicious of Child No. 3. If Child No. 3 is the Executor and there is a probate process, Child No. 3 will have to give certain detailed accountings to the Court. But if Child No. 3 is the Successor Trustee, Child No. 3 is supposed to give estate accountings to the siblings, but no one is going to make Child No. 3 unless that person wants to start a lawsuit. So, where there may be suspicion and mistrust among family members the public record aspect of the probate process can sometimes be useful.
Do You Even Need a Will or a Trust?
Some people think that getting a will written takes care of their estate plan and some people even think that if they don't have a will, the State of Nevada will take all of their assets. Mom Dies, Nevada Inherits
In reality, Nevada like every other state has laws of intestate succession who says who gets what if someone dies without a will. In some cases the law of intestate succession provide for the property to go exactly where the decedent wanted it to go. For example, Mom, unmarried, dies and her three adult children survive her. Under the laws of intestate succession the three adult children share equally. So what does a will accomplish? A will can name an executor or name which child settles the estate. If that child lives outside Nevada but Mom lived in Nevada the named child is called an Executor and serve without having to post bond (if the will says so) and won't need a Nevada resident Co-Executor. But if Mom dies without a will and the children all live outside of Nevada, whichever child applies to be Administrator (a personal representative not appointed by a will) will have to hire a Nevada resident co-Administrator. And the adult child will have to post a bond or work with an attorney who can run the estate money through their trust account. Even with the will, though, a probate process will be necessary that could have been avoided with a trust.
What we Charge for Trusts
Our standard fee is $950 for a trust, pour over will, declaration of trust, health care power of attorney, and deed transferring one item of Nevada real estate into the trust. The recording fee for the deed is extra. In Clark County the Recorder charges $40 per item recorded. This $800 price is the same for one person or a couple if the husband and wife estate plans are the same. If we do a trust for you, the first Nevada deed (transferring property into the trust) is free except for the recording fee and each additional Nevada deed transferring property into the trust is $100 plus the recording fee. (As stated the recording fee in Clark County is $40; this varies by county)
(Occasionally, we have a situation in which it makes sense to do more than one trust. For example, suppose a Husband and Wife married late in life and had no children together but each has adult kids by a prior marriage and each came to the marriage with their own property. They might in this situation have three sets of property or wealth: What the wife brought into the marriage and has kept separate, what the husband brought into the marriage and has kept separate, and their community property consisting of earnings during the marriage. In this situation we might do three trusts, one for the wife's separate property to go to her children, one for the husband's separate property to go to his children, and one for their common property. In this situation we would charge $500 for each trust after the first one.