Thursday, August 27, 2015

Do Not Forget State Inheritance-Estate Tax In Your Estate Planning

The primary death tax concern in most estate planning situations is the federal estate tax.  Generally speaking, federal estate tax is based on the dollar value of the trust-estate of the decedent, is due nine (9) months after the date of death, and is taxed at a forty percent (40%) tax bracket.  The good news is that the federal estate tax equivalent exemption for deaths occurring in the 2015 calendar year is Five Million Four Hundred Thirty Thousand Dollars ($5,430,000.00).  In other words, if the net taxable estate is Five Million Four Hundred Thirty Thousand Dollars ($5,430,000.00) or less, there is no federal estate tax.  Also the federal estate tax equivalent exemption is indexed for inflation, so theoretically the amount of the exemption should increase each calendar year.  Because of the large dollar amount of the exemption, federal estate tax is oftentimes not a major factor in the estate plan of many people.

However, there is a potential second death tax when a person dies.  Some U. S. states levy their own death tax called an inheritance or estate tax.  Currently six (6) states have an inheritance tax, fifteen (15) states have an estate tax, and two (2) states have both.  Most eastern states have an inheritance or estate tax, while most western states, including Nevada, have no inheritance or estate tax.  The two (2) western state exceptions are Washington and Oregon.

Unlike the federal estate tax, state inheritance tax is based on the amount a beneficiary inherits and the beneficiary’s relationship to the decedent.  Also inheritance tax is usually the personal liability of the beneficiary.  With inheritance tax, there are often different rates and different exemption amounts for spouses, children or siblings.  State inheritance or estate tax rates are lower than the federal estate tax rate of forty percent (40%).  The state with the highest maximum estate tax rate is Washington at twenty percent (20%) followed by eleven (11) states with a maximum rate of sixteen percent (16%).  Nebraska has the highest maximum inheritance tax rate of eighteen percent (18%) followed by Kentucky and New Jersey at sixteen percent (16%).

What happens if the decedent dies a resident of the state of Nevada where there is no inheritance or estate tax, but the beneficiary is a resident of New York where there is estate tax?  Which state law controls, Nevada or New York?  With one exception, the state law of the residence of the decedent at the time of death, not the state law of the residence of the beneficiary, controls as to the applicability of state inheritance or estate tax.  In the above example, Nevada law controls since it was the residence of the decedent at the time of death so there would be no state inheritance or estate tax.  The one exception is real estate located in another state.  In the above example if the decedent owned real estate in New York or some other state that has an inheritance or estate tax, the state law where the real estate is located would control at least as to that real estate.
John R. Mugan, Esq.

In summary, although federal estate tax is oftentimes not a major estate planning consideration due to the amount of the federal estate tax exemption under current federal law, one must not overlook possible state inheritance or estate tax.  This is particularly true if one owns real estate outside the state of Nevada.  

Thursday, August 6, 2015

Do I Really Need An Attorney To Prepare My Estate Plan?

Friends and family often ask me if they really need an attorney to prepare the estate planning documents.  There are many forms on the Internet or online services that offer do-it-yourself planning.  I admit, these forms are services are much cheaper than paying for an attorney…at least on the front end.
The problem with doing your own estate planning documents is that you lack the legal advice that comes with estate planning documents.  This legal advice is an important part of your estate plan; it ties all the legal documents and assets together into an integral, working plan.  If you make a mistake in your estate planning documents or in how your assets are held, those mistakes cannot be fixed once you are deceased. 
I will admit that, as an attorney, I am biased in writing this post; however, as the attorney in the office that handles most of the probate cases, this year I have seen an increase in awful estate planning documents.  Its only August and I have already seen a large number of invalid or incorrect wills, incorrect deeds and invalid trusts.  I may be biased, but when mistakes are made, I end up fixing them on the back-end.  These errors lead to very expensive probates and often times assets passing to unintended beneficiaries. 

Here is a list of the top mistakes I have seen this year:
  • Improper witnessing of the will (missing language the Nevada law requires to admit the will to probate)
  • Improper titling of real property between spouses
  • Failure to designate beneficiaries in the will or trust
  • Beneficiaries acting as the witnesses the will
  • Failure to fund a trust
When a person has a serious illness, they go to a doctor.  Everyone accepts that fact that you need medical advice (not from google) to make sure you get the proper medical treatment.  Estate planning is similar, if you choose to do-it-yourself you may end up doing more harm than good.  You need an attorney to draft proper documents, integrate assets into those documents and to make sure all the pieces fit together properly.   Make sure your documents can speak for you when you can no longer speak for yourself.

Attorney – Corey J. Schmutz