Estate planning generally involves preparations for our inevitable demise, which is something people often have a difficult time facing without apprehension or flat-out denial but it’s extremely important.
Avoiding Unnecessary Probate Costs in Taylorsville Utah
Each year, millions of dollars are spent on soaring attorney and court fees associated with probate proceedings upon the death of a loved one. Avoiding probate in estate planning allows the decedent’s property to be distributed to the designated person at a designated time without substantial costs.
Probate is the process of proving the will is, in fact, the last will, and there are no challenges to it and of adjudicating any claims against the estate under court supervision. Probate usually occurs in the appropriate court in the state and county where the deceased permanently resided at the time of his or her death. If there is no valid will (called intestacy), the title to the property will pass under state intestacy laws to “heirs at law,” normally giving one half to the surviving spouse and dividing the remainder equally among the children. With or without a will, the property must go through the probate proceedings.
Even if a person dies with a will, a court generally must allow others the opportunity to contest the will.
Creditors are allowed to step forward; the validity of the will can be scrutinized, and the deceased’s mental capacity at the time the will was drafted can be questioned. These proceedings take time and money, and your heirs are the ones who will have to pay. Since probate proceedings can take up to a year or two, the assets are typically “frozen” until the courts decide on the distribution of the property. Probate can easily cost from 3% to 7% or more of the total estate value.
Simplifying or Avoiding Probate Altogether
Even though probate takes place regardless of whether you made a will, you can look to other tools that help your inheritors.
Transfer Property to a Trust
Revocable living trusts or inter-vivo trusts were invented to help people bypass the probate process. Unlike the property listed in your will, the property in a trust is not probated, so it passes directly to your inheritors. You simply create a trust document and then transfer the property title to the trust. Many people name themselves as the trustee to keep total control of the trust property. A trust also allows you to name alternate beneficiaries; it does not require a waiting period after death and is much harder to attack in court.
Set up Payable-on-Death Registrations
Also known as transfer-on-death accounts, these allow you to name one or more beneficiaries of the account to avoid the probate process. It’s simple to create and usually free, and the beneficiary can easily claim the money after the owner dies. The ability to name a beneficiary, however, is a feature that you must add to the account, but most banks, savings and loans, credit unions, and brokerage firms allow you to do so. It requires some extra paperwork and time, so you’ll need to be persistent and ask your institution for the required forms.
Make Tax-Free Gifts
Making gifts helps you avoid probate for a very simple reason: you no longer own the property when you die.
For tax years 2020 and 2021, you can give your heirs up to $15,000 per person each year without a gift tax penalty. Giving before you die helps lower your probate costs because, typically, the higher the monetary value of assets going through probate, the higher the probate costs.
Revisit the Beneficiary Designations on Your Stuff
Dust off that old life insurance policy and make sure your beneficiaries are up to date. Too many times, individuals forget to change their beneficiary after their second marriage, and then the ex-spouse gets everything. Call your custodians and update the beneficiaries on your IRAs, 401(k), life insurance policies, annuity contracts, and other retirement accounts. These types of accounts pass at your death by contractual beneficiary designation, meaning whoever you name in your will is irrelevant to these accounts; beneficiary designation will take precedence in court. Avoid naming your estate as the beneficiary, which will cause your property to go through probate.
Use Joint Ownership
Joint tenancy with right of survivorship, tenancy by the entirety, and community property with right of survivorship is the types of joint ownership that allow your property to bypass the probate process. If you hold your stocks, vehicles, home, and bank accounts in joint ownership, the title of the property automatically passes to the joint survivor upon your death. Remember, once you title your property jointly, you’ll be giving up half ownership in the property. However, you’ll want to draft a will to cover property acquired shortly before you die or anything that might have been overlooked.
A good estate plan should distribute a decedent’s property when and to whomever the person desired, and with a minimum amount of income, estate, and inheritance taxes, as well as attorney and court fees. Avoiding probate is an important part of achieving these goals.
How Does the New Tax Law Affect Your Estate Plan?
In December 2017, President Donald Trump signed a new tax bill into law. Known previously as the “Tax Cuts and Jobs Act,” the reform will have far-reaching impacts on many areas of tax and financial planning. One significant area of impact is estate planning. The tax reform legislation raised the estate tax exemption to $11.18 million per person and $22.36 million per married couple for 2018. That was a significant increase over prior limits. The estate tax exemption for an individual is $11.58 million in 2020, according to the IRS. This eliminates any federal estate taxes on amounts under those limits gifted to heirs during your lifetime or left to them upon your death. The new legislation effectively eliminates the federal estate tax for all but the wealthiest individuals. One caveat is worth noting: as with most of the provisions of the act, these rules are set to expire at the end of 2025. At that time, the exemption amounts will revert back to previous levels, adjusted for inflation.
The generation-skipping tax (GST) rate exemption also increased to the same amount as above for individuals and married couples. This increase also expires at the end of 2025.
Finally, the method used to calculate inflation on these exemptions and other related areas has been changed.
Now, instead of the traditional Consumer Price Index, which was previously used, inflation and exemptions will be calculated based on the Chained-CPI, a modified measure of inflation that adjusts for “situation bias,” or accounts for the shifting purchasing behaviors of consumers. The Chained-CPI generally yields a lower rate of inflation. The temporary increase in the exemptions for the federal estate tax and the GST means that until the end of 2025 (unless Congress repeals or extends these rules), many will be able to give away more of their estate to their heirs without paying estate taxes. For beneficiaries, the new law has obvious benefits, but its introduction doesn’t eliminate the need for estate and tax planning.
Consider These Issues
The most recent tax reform did not repeal the estate tax for those states that assess one. If you live in one of the following states, your assets will still be subject to the appropriate level of any state-imposed estate tax:
• District of Columbia
• New York
• Rhode Island
Additionally, with many states facing substantial fiscal challenges, it’s not beyond the realm of possibility that some states that currently don’t have an inheritance tax might consider enacting one in the future.
Individuals facing state-level estate taxes should consider tactics such as a disclaimer and a bypass trust, or a qualified terminable interest property (QTIP) trust, both of which allow a degree of flexibility in the allocation of the assets in your estate, in order to minimize the impact of taxes on their estate.
With the increased exemption limits, lifetime gifts of estate assets can be made without concern of triggering federal gift and estate taxes, except for those with estates in excess of the exemption amounts.
Gifting can also be done with an eye toward shifting assets likely to experience high levels of appreciation.
This can shield the appreciation of those assets from future estate taxation in your estate once the current exemption limits expire after 2025. It’s worth noting that lifetime gifts are not entitled to a step-up in cost basis as with assets transferred to heirs upon your death. This means that before gifting appreciated assets like shares of stock, be sure to consider the tax impact upon the recipient of the gift.
A Strategy to Protect a Spouse
One tactic to consider in some cases is the spousal lifetime access trust (SLAT). The SLAT is an irrevocable trust that removes the assets from an individual’s estate but transfers the assets to an irrevocable trust for the benefit of their spouse. The benefit is that those assets are out of the individual’s estate, allowing them to take advantage of the increased estate tax exemption prior to the 2025 deadline, while still retaining a degree of control over those assets via their spouse during their lifetime. SLATs do have downsides. Should the couple divorce, the grantee has no claim to the assets in the SLAT. It is also critical to ensure that, should both spouses use a SLAT, the trusts are not identical. This helps to avoid the risk that the trusts will be deemed to be substantially identical, in violation of the “reciprocal trust doctrine,” which could invalidate the trust.
One potential unintended consequence of the higher exemption limits is that some heirs may unintentionally be disinherited. Many estate plans are set up to use a bypass trust, which directs a trustee to use any remaining estate tax exemption amount to fund the bypass trust. This would be done before distributing the remaining assets in the estate to the intended heirs. The size of the bypass trust in a case like this could cause some heirs to be unintentionally disinherited. Those with this type of provision should review their estate planning documents.
The Life Insurance Option
Life insurance policies have been a popular way to help heirs cover any estate taxes that might be due in conjunction with a large estate in excess of the exemption limits. With the increase in the exemption, the prevalence of these exemptions may wane.
These policies can now serve as a backstop for the estate, allowing grantors to pass assets in a tax-efficient manner and providing liquidity in cases where some of the estate assets are illiquid, such as real estate or an interest in a business.
When Does an Estate Plan Become Necessary in Taylorsville, Utah
Many financial advisors would recommend starting an Estate Plan the moment you become a legal adult, and updating it every three to five years after that. The reason for this is because at 18, you are newly responsible for your finances, healthcare (in some states), and power of attorney; and you want to consistently make sure everything is accounted for. However, for most young adults an estate plan is the furthest thing from mind which is normal. But there are a few common life events that warrant prioritizing your Estate Plan that one should never ignore. No matter what your age, consider the following life occurrences as signs to start (or update) your Estate Plan:
• Savings Account: As soon as you start a savings account, a natural next step is to designate where those funds would go in the event of your death. This will ensure the account can be passed on to a loved one or cause of your choosing.
• Home & Additional Property Ownership: The purchase of a home or other property is a sign to start estate planning, as you most likely want to avoid lengthy probate court proceedings.
• Marriage & Remarriage: Combining assets, no matter how many, is a crucial time to start estate planning. Take time to determine what happens in the event of one spouse’s death, as well as both.
• Travel: At the very least, it is recommended to update your estate plan before big trips. Particularly if you travel for long periods of time or frequently leave the country.
• First child and each one after: One of the most obvious estate planning triggers is the birth of a child. You need to think about guardianship and financial security in case anything were to happen.
• Inheritance of money or other assets: An inheritance can kick in suddenly, and provide people with more assets to take care of in the midst of a difficult time. Update your estate plan to reflect any additional money or assets you inherit when you can.
• Divorce: If you find yourself divorced, it is critical to update any previous estate plans that were made with your former spouse.
• Grandchildren or births in the family: With new family members to consider, it is a good plan to update your Will or any Trusts to ensure they are taken care of as well.
Tax reform has resulted in many changes for taxpayers, beginning with the 2018 tax season. Estate planning is one area that has been impacted, but like most of the tax reform legislation, the impact is temporary and will largely revert to the prior rules after 2025.
Especially for those with larger estates, it is wise to review your current estate planning documents to ensure that they still do what you intended for them to do and to ensure that you are taking full advantage of any opportunities under tax reform.
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|Incorporated||July 1, 1996|
|Named for||John Taylor|
|• Mayor||Kristie Overson|
|• City Council||Ernest Burgess, Anna Barbieri, Meredith Harker, Curt Cochran & Bob Knudsen|
|• Presiding Judge||Christopher Bown|
|• Total||10.85 sq mi (28.10 km2)|
|• Land||10.85 sq mi (28.10 km2)|
|• Water||0.00 sq mi (0.00 km2)|
||4,295 ft (1,309 m)|
|• Density||5,571.24/sq mi (2,151.17/km2)|
|Time zone||UTC−7 (Mountain (MST))|
|• Summer (DST)||UTC−6 (MDT)|
|Area code(s)||385, 801|
|GNIS feature ID||1433206|
Taylorsville is a city in Salt Lake County, Utah. It is part of the Salt Lake City metropolitan area. The population was 60,448 at the time of the 2020 census. Taylorsville was incorporated from the Taylorsville–Bennion CDP and portions of the Kearns metro township on July 1, 1996. The city is located adjacent to Interstate 215 and Bangerter Highway. It is located in the middle of the Salt Lake Valley.