FAQ

What happens if I die without a will?

The truth is that everyone currently has a default will. It is one that the state legislature has written for you. The statutes have been adopted from common law developed over many centuries and typically work well for a standard family structure, i.e. husband and wife, kids, etc. If there is anything out of the ordinary with your family structure, your property could be distributed in some very weird, unexpected ways. At Chandler and Brown, Ltd., we believe it is important for every individual to have a will to ensure their property is distributed as desired and to alleviate confusion and heartache for those left behind to handle the estate.

Once I have a will, where should I put it for safekeeping?

It is very important to keep your will and estate planning documents in a secure location-but it can't be so secure that your family and loved ones cannot access it when the time arises. A signed will that cannot be located is assumed to be revoked, and will not be effective. Chandler and Brown, Ltd. recommend that you keep your will in a safety deposit box and allow a select family member or two the ability to access it. In some counties, the county registrar will record your will and keep it on file. Finally, you could keep it in your house in a fireproof safe-once again, as long as a family member or two knows how to access the safe.

What is Probate?

Probate is the court process to distribute a decedent's property when the decedent either did not have a will (intestate) or had a will (testate). In the world of estate planning, there are two broad types of property: probate assets and non-probate assets.

A non-probate asset is an asset that will pass on to others by operation of law at your death. Some common forms of non-probate assets are:

  1. Real estate owned in joint tenancy, and
  2. A bank or investment account with a transfer on death (TOD) or payable on death (POD) clause where the account holder has designated a beneficiary. Assets held by a trust are also non-probate assets. Non-probate assets do not have to go through the court process to be distributed.

Probate assets are assets owned in only the decedent's name, such as real estate titled to a single individual, or a bank account with only one account holder and no beneficiary designations. Probate assets must go through the court process before they can be distributed to the decedent's heirs, either through the statutes of the state in the case of an intestate decedent, or in accordance with the provisions of the will for a testate decedent.

Can I pass my real estate to my children by making them joint tenants?

Yes, you can. Taking this approach would turn your house from a probate asset to a non-probate asset. However, it is not necessarily advisable. First, there could be gift tax implications by placing your children's names on the title to your house. Second, if you have more than one child, then after your death, they become joint owners in the property. Ownership like this in and of itself can lead to difficulties if the two children have different ideas about the proper use of the land. An additional layer of unpredictability is added if your children are married. Before the property can be sold, each spouse must agree to sign at the closing of the sale. As you can see, the number of cooks in the kitchen can multiply quickly.

Which funds are the best for leaving charitable gifts?

Qualified retirement accounts, such as a traditional IRA or a 401(k) are the best funds to leave gifts to charity. At your death, any funds left in these types of accounts become "income in respect of a decedent" and will be subject to, not only any applicable estate taxes, but also income tax. These distributions will be taxed at the recipient's tax bracket. However, if you leave these funds to a charity, then they are not subject to income tax. If you are charitably inclined, you can maximize the gifts made out of your estate plan by leaving your qualified retirement account funds to the charities of your choice, and your other assets to your family, thus reducing the amount of taxes paid out of the estate.

Do life insurance benefits increase the estate's exposure to taxes?

Yes, if the life insurance policy is owned by the decedent or the estate is the beneficiary. The best way to ensure that life insurance death benefits do not increase the decedent's taxable estate is to create an Irrevocable Life Insurance Trust that can purchase and own the policy, naming the ILIT as the beneficiary with the proceeds distributed in accordance with the grantor's wishes.

What is a trust? Why should I use one?

A trust is an agreement where a grantor places assets in "trust" to be managed by the trustee for the benefit of the beneficiaries. The origin of the trust goes back to the Crusades. When a soldier was heading off to battle, he would walk over to a neighbor's house and ask the neighbor to manage his estate for the benefit of his family. The soldier was trusting the neighbor to take care of his estate with his family's best interests in mind.

In many states, the grantor, trustee and beneficiary can all be the same individual. This arrangement is typically called a revocable living trust. By placing your assets into a living revocable trust, you maintain control of your assets while you are living, make those assets in the trust non-probate assets so they can pass through your estate according to the terms of the trust after your death, without court intervention, and will provide your descendants asset protection from creditors, divorce and lawsuits.

The trust is an ideal tool to deal with incapacity and estate planning and can accomplish just about any goal you can imagine.

What is the advantage of leaving gifts to your children in trust rather than giving to them outright?

The first is that an outright gift to your children becomes susceptible to that child's creditors, divorced spouse, and any lawsuits your child may encounter. Fifty percent (50%) of all marriages end in divorce. Your gift may come in to play when determining your child's marital property payments or spousal support payments. Additionally, if you leave a gift to your child, that child is married but has no kids, the gift you provided your child will end up with your child's surviving spouse; it will no longer benefit the members of your family.

What are some of the tricks of estate planning to help minimize estate tax exposure?

Everyone has a lifetime Federal tax credit of $5,499,000 that can be used to pass assets on at death free of federal estate tax. Proper planning can ensure that tax credits are preserved to pass on up to $10,680,000 free of tax. Some states, such as Minnesota, also have state estate taxes. In those states, it is important to take the same planning steps with respect to the state tax credit. Minnesota's credit is $1,800,000 dollars, allowing a couple to pass on $2,400,000 dollars free of estate tax, but only with proper planning.

Are there other ways to minimize my estate before I die?

Yes. Each individual may gift $14,000 to as many individuals as they wish, on an annual basis, with no tax consequences. For a married couple, this means you could give $28,000 to each of your children (or anyone you want) without facing any tax consequences. Any gifts made to an individual above those limits ($14,000/individual; 28,000/couple) will begin to eat in to your Federal lifetime gift tax credit. At the Federal level, the gift tax credit and the estate tax credit are one in the same, a combined $5,499,000. Any taxable gifts during your lifetime reduce the estate tax credit available at your death.

In Minnesota, gifts made within three years of death are pulled back into the decedent's estate to determine any applicable estate tax. Any gift that the decedent outlives by three years, regardless of size, is not considered for Minnesota estate tax purposes. Wisconsin does not presently have any state level gift tax laws.

What happens to my estate plan as my life changes?

As your life changes, your estate plan must change to keep up with it. As you add family members, your children leave the nest, or your nest egg grows, your plan needs to keep pace. Chandler and Brown, Ltd. offers a free consultation every three years to assess how your life has changed and what changes need to be made to your estate plan to ensure the proper plan is in place

What tools are available to deal with incapacity?

No estate plan is complete without a Power of Attorney for legal and financial matters and a Health Care Directive naming your health care agent to make medical decisions for you when you cannot. Failure to have these documents ready means the courts will become involved in your most intimate decisions, will take longer than necessary, and will cause your family heartache if you ever become incapacitated.