Death Transfer Fees:
Federal Estate Taxes:
The federal government has traditionally imposed federal estate taxes (called death taxes by opponents) above a million dollar or multi-million dollar threshhold on all of the property owned by a person when they die. Most people don't die leaving a million or millions of dollars so are not effected by this tax. Traditionally, this tax did not apply if a person died and left property to a spouse, but did apply if a person died and left property to children. Traditionally, lawyers with special tax training have written complicated, super-expensive trusts for these wealthy clients to minimize the amount of federal estate taxes their children or grandchildren would have to pay when they die.
As we write this in January, 2011, for people dying in 2011 and 2012 there is no federal estate tax for estates under $5,000,000. However, this law expires for people dying in 2013 and later and unless Congress does something before 2013, for people dying in 2013 and later there will be a federal estate tax on estates over $1,000,000. Most people expect that Congress will act before 2013 but, as always in politics, there is no certainty.
Taxes on IRAs:
Money in a traditional IRA (not a Roth IRA) is earned income that has escaped being taxed at the time it was earned. Also, interest, dividends, and capital gains earned within the IRA escape taxation until the money is taken out of the IRA. In a sense money in a traditional IRA comes with a built in tax lien. If a person takes this money out during their lifetime, they pay tax on the withdrawals as if the withdrawals were regular income. If a person dies with money in a traditional IRA and the IRA is paid out upon the person's death, tax is due on the IRA money as if though it were earned income.
Typically, IRAs are set up with a primary and a secondary beneficiary. These beneficiaries (the primary one if alive, otherwise the secondary beneficiary) may be able to roll over the IRA money of the dead person into their own IRA and thereby avoid immediately paying taxes on the IRA money.
However, if a trust is the beneficiary of the IRA the tax on the IRA money may become due at distribution to the trust. On the other hand, there can be valid reasons for making the trust either the primary or secondary beneficiary. These include:
1) If a minor is the beneficiary, a trust allows for control of the minor's money past the minor turning 18 and many clients desire this.
2) If the primary and secondary beneficiaries die before the owner of the traditional IRA, the money in the traditional IRA will have to be probated at some expense and time delay.
In addition, the tax benefits of being able to roll over an IRA may or may not exist. The beneficiary may need the money immediately in which case there is no roll over. But, also, when the IRA money comes out it is taxed as ordinary income (unless there is an additional penalty for early withdrawal). The potentially lower tax rates on dividend and capital gain income is lost for a traditional IRA.
In conclusion, whether to put a traditional IRA into a trust is a very complicated matter that depends in part upon future events that cannot be predicted.
Nevada Taxes:
Nevada does not impose inheritance or estate taxes.
However, when real estate is transferred from one person to another there may be a real estate transfer tax. If the tax applies in Clark County, Nevada's most populous county that includes Las Vegas, Henderson, North Las Vegas and Boulder City, it is currently about 1/2% of the value. More precisely, the rate is $2.55 for each $500 in value or fraction thereof.
In an inheritance situation there will not be a transfer tax imposed if the inheritance is by will, according to our most recent experience with the Clark County Recorder's Office. (This exemption, based on Section 3 of the above referenced statute, as well as upon N.R.S. 375.010(1)(b)(1-5) and N.R.S. 375.170(4), is not crystal clear from a literal reading of the statutes. And, indeed, we have had cases where some recording office clerks tell us that if the inheritance is not between child and parent there is a real estate transfer tax, but at present the assessor is sticking to the position that all inheritances by will are free of real estate transfer tax regardless of the relationship between the decedent and inheritor.)
However, when we probate estates we often encounter a situation in which real estate is not left to one particular person but instead the real estate is divided among two or more people. Sometimes the real estate is sold during the probate process and there will be a real estate transfer tax imposed. At other times the two or more people make a deal among themselves with one of them getting the real estate and the other(s) getting something else. When this happens, our recent experience is that the Clark County Recorder's Office seeks to impose a real estate transfer tax on the percentage that is not inherited according to the will. For example, we recently had a situation in which a man left 80% of his estate to his mother and 20% of his estate to his godchild. He had two Las Vegas timeshares. His mother and godchild agreed that Mom could have the more valuable timeshare and Godchild the less valuable one. In this case the Clark County Recorder's office said Mom had to pay a real estate transfer tax on the 20% of the timeshare she didn't get by the will and Godchild had to pay a transfer tax on the 80% of the timeshare she didn't get by the will.
Occasionally, we get a client who just donates a probate to charity or to friend. In both cases the Clark County Recorder's office demands payment of the real transfer tax.
Timeshare Company Transfer Fees:
In addition to the expense of a Timeshare Probate the timeshare company usually charges a fee of $200 to $300 to record the transfer. This is why we encourage people to take title to timeshares as joint tenants with people they are likely to leave the timeshare to.
Expect more and more governmental and private entities to impose and increase transfer fees and taxes.
Contact Information:
Mail:
Law Firm of Reed & Mansfield
6655 West Sahara Avenue, Suite B-200
Las Vegas, Nevada 89146
Phone:
702-343-0494
regular business hours: 9am-5pm (Pacific Coast time) M-F
most days: We will also take your call between
7am-9pm including weekends and holidays
e-mail:
lawlv@cox.net
Web Pages and Informational Text (c) Copywright 2010, Jonathan C. Reed