Estate Planning Q & A

 

The law firm of Frank A. Kreifels & Associates, Omaha, Nebraska, enjoys a Better Business Bureau  (BBB) Accredited Member Rating of A+ as an Honor Roll Member for many years, exemplifying excellence in customer service.

 

Q:  Should My Estate Plan Be Centered Around a Revocable Living
       Trust or a Last Will & Testament?

A:  Families are best served when proper estate planning is done, and in
     many situations, a Living Trust is the preferred vehicle.  

At KRP's affiliated law firm, Frank A. Kreifels & Associates, we know Living Trusts can control, coordinate, and distribute your property while you are alive and upon your death.  This is all done while avoiding the time, considerable expense and lack of privacy of a pre-death (Guardianship and Conservatorship) and post-death (Probate) Court-supervised estate.  

Last Will & Testaments do have a purpose and are better than no estate planning at all; however, Last Will & Testaments also have drawbacks not associated with Living Trusts.  Last Will & Testaments are not effective until death, thus they provide no current benefits.  What if you get sick and for a period of time lose your ability to reason or conduct your affairs?  Your Last Will & Testament cannot help you.  On the other hand, a Living Trust can help you the day it is signed; if the Trustor (trust-maker) becomes sick or incapacitated, the Succesor Trustee, typically a family member, can care for the Trustor without the use of a Court-ordered Guardianship and Conservatorship.  Living Trusts enable people to pass title to their property to others during lifetime or at death; in addition, you can spell out all your distribution terms and requirements as to how your property passes before and after your death.  Living Trusts also enable their maker(s) to make gifts to beneficiaries, and otherwise allow them to exercise significant control, on a prearranged basis, over the disposition of  Living Trust property.


Q: Does a Last Will & Testament Avoid Probate?

A: NO.

Many people have the notion that Last Will & Testaments avoid Probate Court; this is definitely not the case.  If property valued in excess of the statutory limit (a mere $50,000 in Nebraska) passes under your Last Will & Testament, it must go through the court-supervised process known as probate. Probate has been frequently and harshly criticized by both professional and lay commentators who feel that it is an antiquated remnant from a bygone era that serves few, if any, useful purposes.   They rightly believe that probate is not necessary and that it creates horrendous aggravations, delays, and undue expense to the estate in legal fees.  In Nebraska, the Probate Court will not discharge a Personal Representative from liability in probate proceedings until a minimum of one year and five months has passed.  By contrast, post-death administration of a Living Trust is not Court-supervised and the deceased’s estate can routinely be finalized within a matter of months after date of death.

Living Trusts can play a role for a wide variety of people, including people needing management assistance for assets worth as little as $100,000.  However, anyone with an estate in excess of $50,000 titled solely in the deceased’s name will go through probate in Nebraska.  Clients with smaller estates need Living Trust-centered estate planning every bit as much as affluent clients do.


Q:  Why Would I Want My Estate to Avoid Probate?

A:  To conserve time, preserve privacy and minimize expenses to your Estate

Time:  At the law firm of Frank A. Kreifels & Associates, our Living Trust clients routinely avoid probate in its entirety.  Upon the client’s death we have a courtesy meeting with the Successor Trustee of the Trust and explain what is required to settle the Living Trust estate.  The Successor Trustee is pleased that the costly, prolonged, and privacy-lacking probate process has been eliminated.  In our office, it is rarely necessary for the Successor Trustee to need  professional post-death administration of a Living Trust; rather the Successor Trustee typically “self-settles” the Living Trust estate.  

Think about it, does the Successor Trustee really need the attorney involved to present the Living Trust document and death certificate to the bank, stock broker, mutual fund company, life insurance company, real estate agent, etc,  in order to close out the accounts and transfer title to the home? Further, does the Successor Trustee really need the attorney involved to deposit proceeds checks to the checking account the deceased already owned at death, write checks to pay the bills, go to a bookkeeper or an accountant to have a typically simple final State and Federal income tax return prepared?  Contrast this “self-settled” Living Trust process with the probate process, where the Personal Representative is required to do all of these duties, and yet has to pay an attorney to account to the Probate Court.

Lack of Privacy: The probate process lacks privacy because all provisions of the Last Will & Testament, the name and address of the Personal Representative, and the names and addresses of the heirs become public record.  Further,  notice must be mailed to all heirs and known creditors of the deceased, and notice of the pending probate proceedings must be published for three (3) consecutive weeks in a legal newspaper.  In addition, all assets of the deceased and to whom they are distributed and under what circumstances by way of the probate proceedings has also become public record for anyone to view.

In Nebraska, the Inheritance Tax Return typically is required to be prepared and filed with the County Court whether the estate goes through probate or not.  In our experience, Successor Trustees retain an attorney to prepare the Inheritance Tax Return, present it to the County Attorney’s office for audit and approval, and file the Inheritance Tax Return and related pleadings in County Court (at a small fraction of the legal fee that would have been charged had the estate gone through probate).  The Successor Trustee and beneficiaries of the Living Trust take comfort in knowing that through the Inheritance Tax preparation, audit, approval and filing process all of the deceased’s assets have been accounted for, bills paid, and correct amounts distributed to the intended beneficiaries.  

Naysayers may say the amount of privacy offered by a Living Trust is affected by the filing of a Nebraska Inheritance Tax Return. However, Living Trusts do offer meaningful privacy even though Nebraska’s Inheritance Tax Return requires that decedant’s assets be listed with a Court in settling an estate. Living Trusts offer more privacy than probate proceedings because not all provisions in the Living Trust are made public. Under the Nebraska Inheritance Tax Return requirements, only the beneficiaries names and final amounts received are listed, not the type of property received, when and under what circumstances.  For many people, this is the privacy they desire; as the amount of information made public is much more limited. As a result, the extent of privacy intrusion suffered is far less with the use of a Living Trust.   

Cost: In Nebraska, attorneys may charge probate fees based on an agreed-upon hourly rate, based upon such factors as size of estate, type of assets involved and anticipated difficulties with assets and heirs. However, this can be costly, causing may clients to choose having the attorney charge a probate legal fee capped as a percentage figure.  The legitimate question that should be asked is, “A percentage of what?”  This question demonstrates one of the most-often ignored probate inequities.  When a percentage is used to establish the amount of an estate’s probate legal fee, it applies to the gross estate.  The gross estate is the appraised value of all assets in a probate estate regardless of liabilities.
    
There has not been a comprehensive study of probate legal fees in the United States in a long time; it appears that the last nationwide study of probate legal fees was conducted in 1983.  An AARP study concluded that attorneys’ fees, no matter how they are determined, are usually 3 percent or more of the estate’s gross value. In addition, a California Probate Attorney Fees Study shows that state death taxes have little, if any, effect on probate legal fees; and that these fees are the same regardless of the type of probate statute under which they were calculated.  However, evidence does shows that fully funded Living Trusts cost significantly less than an estate plan with only a Last Will & Testament and the resulting probate!

In many situations the Living Trust should be viewed as the foundation document of an estate plan instead of a Last Will & Testament because it can accomplish the vast majority of the clients’ estate-planning goals.  Perhaps the problem is that attorneys do not want to be accused by their clients of estate-planning overkill, or do not want to take the time necessary to educate the client on why the Living Trust-centered approach is better and will save the estate significant future dollars.  It is best to remember that Last Will & Testaments are cheap for one reason: there’s a great deal of money to be paid at the end of the line - probate legal fees paid out of the pockets of the heirs.


Q:  Won’t My Assets Avoid Probate if Held in Joint Tenancy?

A:  Clients should not ignore the hazards of avoiding probate through the
      use of joint tenancy with someone who is not your spouse
.

Owning assets in joint tenancy is the preferred method of titling marital assets. However clients should not ignore the hazards of avoiding probate through the use of joint tenancy with someone who is not your spouse, and the resulting potential loss of the jointly-held asset(s) due to divorce, bankruptcy, tax liens, creditor and other liability claims.  Even property owned in joint tenancy by spouses robs the surviving spouse of the tax advantage of receiving a 100 percent step-up in basis; this means that only one-half of joint tenancy property is included in the estate of the first spouse to die and a capital gains tax may have to be paid. A  Living Trust offers the greatest opportunity to reduce or eliminate these taxes, because step-up in tax basis planning is addressed during the Living Trust funding process.


Q:  How Do Trust Assets Avoid Probate?

A:  By properly re-titling your assets prior to death

At KRP's affiliated law firm, Frank A. Kreifels & Associates, we know estate planning is a process that requires careful consideration and thorough discussion with a trusted, experienced and skilled estate planning attorney.  It is true that a Living Trust will undergo probate if not properly funded and maintained.  There are estate-planning attorneys who do not include in their service the all-important step of re-titling assets to the Living Trust, and thereafter maintenance of the Living Trust to avoid probate.  However, if the re-titling process is viewed as cumbersome while the client is able and alive, how can one possibly think it will be less cumbersome after that client becomes incapacitated or dies?

The law firm of Frank A. Kreifels & Associates has thousands of estate planning clients.  In preparing their Living Trusts, we assist the client in re-titling their assets to the Living Trust.  Our office includes this work in the initial fee charged to the client, which is a small fraction of what their likely legal fee for probate would otherwise be.  In addition, every few years or so, as a courtesy we call our clients to remind them that any new accounts they have opened or real estate they have recently acquired must be titled to their Living Trust in order to avoid probate.   Most of our clients routinely title any newly acquired assets to their Living Trust on their own, without the need for a reminder or our professional assistance.  We have found our re-titling and maintenance process to be very successful in avoiding probate for our Living Trust clients.

 Copyright © 2008, Frank A. Kreifels, All Rights Reserved

 

Comments on Living Trusts

"Roman Emperor Augustus set up a Living Trust in 63 B.C. to provide financial security for his younger sons after his death. Thomas Jefferson used a Living Trust to prevent his bankrupt son-in-law from inheriting his property. These days, trusts aren't just for emperors and presidents. All kinds of people are using them to protect their estates from probate court and the IRS."

                                                             -- USA Today


"Trusts are the most versatile tools in estate planning."

                                                            -- Money Magazine


"Measured against the long struggle to build wealth, the time it takes to safeguard chunks of it for your heirs is a comparative instant, with a payback too sensational to ignore."

                                                            -- Fortune Magazine


"For those who have already set up a Living Trust, peace of mind seems to be the primary benefit."

                                                            -- Trusts and Estate Magazine


"Living Trusts have become the preeminent modern estate planning tool."

                                                            -- The Wall Street Journal