TRUSTS
Trusts are set up instead of using wills for many different reasons:
TRUSTS TO AVOID PROBATE:
In general if property has a title and the owner dies it will take a Probate to transfer title to the person who inherits UNLESS there is already in place a will substitute, as for example, if the property is held in joint tenancy or in a Payable on Death account. (See section on Wills.)
Probate is the process in which a will is taken to court and the property distributed according to the will. There are three problems with probate:
(1) Probate is usually expensive. Probate fees have come down from the "old days" in which attorneys charged the greater of an hourly rate or six or seven percent of the probate estate. Clients are free to bargain with attorneys over probate fees. Even so, probate is usually time consuming and hugely expensive compared to a trust, especially for estates over $200,000. Few people can handle a probate proceeding without hiring an a lawyer. (By the way, an executor is under no obligation to use the attorney who drafted the will to help with probate. We welcome calls asking how much we will charge to do a probate and have listed our fees below. If you compare our probate prices to those of other attorneys I believe you will find we are more than affordable, we are the low cost, high quality probate lawyers in town.)
(2) Probate is time consuming. Even for uncontested probates it take months for the process to be completed if the estate is worth more than $100,000, and even if your lawyer moves as fast as possible. In addition, the sale of real estate through the probate process is very time-consuming, expensive and cumbersome through the probate process. (If you hire us to do a probate and there is real estate in the estate we will talk to you about the possibility of having the probate court transfer the real estate directly to one or more heirs--a much simpler process.)
(3) Probate is public. Probate records are open to the public. Leave your 19 year old daughter $300,000 in your will and that is a public record.
In contrast, a trust provides for the transfer of property outside the court system. Many people can handle the distribution of property in a trust without an attorney. But, if an attorney were required the attorney could help out with much less work and should charge a lot less. Trust transfers can proceed quickly and privately after death.
Our law firm drafts these trusts for a flat fee of $675 which is much lower than what many other attorneys will charge for the same document. Note that each piece of real estate transferred to the trust must be recorded in the county recorder's office in the county the real estate is located in. In Las Vegas in Clark County, Nevada, the recorder's office charges a fee of about $16-$17 to record a deed in proper format. Our fee of $675 for a trust includes our firm recording one parcel of Clark County real estate. If there is additional real estate we charge $50 for each additional Clark County real estate item plus the recording fee. Our fee of $675 also includes a Pourover Will and Health Care Power of Attorney
It is important to note that some attorneys work with a financial investment firm and that the chief interest of this team is to steer you into investing with them. Our firm does not offer investment advice or sell investment products. If we draft your trust we am only interested in helping you avoid probate and plan who gets your money and property when you die. How you invest your money is your business.
Probate can be effectively avoided with such a trust if the client(s) keep in mind certain rules, the most important of which are:
1) All property with a title such as real estate and financial accounts must be titled in the name of the trust.
2) At the time the trust is set up assets with a title such as real estate and financial accounts must be re-titled in the name of the trust.
3) When assets with a title are later acquired they must be titled in the name of the trust.
TRUSTS TO HANDLE MINOR'S MONEY:
People under 18 years of age are not considered legally competent to make contracts. Wills that anticipate minors may inherit money usually incorporate a provision providing that a specific person will hold the minor's money in trust until the minor reaches 18 or an older age. The provision may also contain guidelines as to what the money can be spent on for the minor's benefit until the minor is given the money. In the situation just mentioned there are trust provisions within a will. In other situations a trust document, not a will, controls the minor's money.
Likewise, if there is an adult but financially irresponsible child, a trust can provide for a subsequent trustee to handle that person's money. Also, as discussed below, the trust can protect the financially irresponsible adult child from creditors with respect to the money from the parents.
TRUSTS CAN SPECIFY WHAT HAPPENS IF YOU
START TO LOSE YOUR MENTAL SHARPNESS
OR BECOME UNABLE TO MANAGE YOUR OWN AFFAIRS:
With modern medical care, more and more people are living long enough to suffer from considerable decline in their mental ability or to incur substantial mental disability. According to one study 12% of people over 65 and 50% of people over 80 have Alzheimer's Disease. Or, if a person's mind is still working 100%, the person still might be unable to manage his or her own affairs if he or she has physical problems with vision, hearing or being exhausted from medical treatment, for example, "chemo-brain" from undergoing chemotherapy.
Estate Planning Trusts (will substitutes) almost always start off with the person setting up the trust being the trustee (manager of the trust assets). The trust always names a successor trustee (and alternative successor trustees if the first choice successor trustee can not or will not serve.) The hope when we set up the trust is that the person setting up the trust who is the original trustee will remain trustee until he or she dies and only then will the successor trustee take over. This hopes assumes that the person setting up the trust will remain in good physical and mental health right up until the time of death. (Most of us hope to live to a ripe old age in great health and then suddenly die, say while playing tennis at age 90.)
Unfortunately, short of suicide, we don't have a choice as to how we die. We don't know if we will say a long goodbye as Ronald Reagan did with Alzheimer's or die suddenly of a heart attack.
Whenever we draft a trust we ask our client to specify the trigger that will allow the successor trustee to take over management of the trust assets. Our clients choose a variety of options:
1) A tiny small minority of clients don't allow for themselves to be replaced as trustee during their lifetime. In that case, the only mechanism for their heirs to take away control of the assets of such a person is the traditional route of going into Guardianship Court and proving that "dad" is incompetent to handle his own affairs and asking the court to set up a guardianship over the estate.
2) But, the vast majority of our clients use the trust document as a way to enable trusted children or other relatives to take over the management of their finances if there is a fear that the assets will be lost or stolen due to mental or physical decline. Some typical conditions for involuntary removing "mom" as the trustee of her own estate are:
a) One trusted younger relative, or a majority of named trusted relatives can replace "mom" as the trustee of her property simply be delivering a letter to "mom" stating that they are doing so.
b) Same as above but, in addition, a medical doctor must give a letter or affidavit stating that the person is incapable of managing his or her own affairs.
c) Other varieties are possible.
In conclusion, most of our clients recognize the possibility that they may live long enough to experience mental and physical decline that could cause them to lose their property to scam artists or through neglect. Most of our clients want a simple, out of court mechanism to allow their children or other younger relatives to take over managing their property when the time is right. This is one big advantage of a trust over a will.
Note: The above discussion concerns management of property, not management of medical care. All of us should have a "Health Care Power of Attorney" which specifies our care choices when the diagnosis is bad and which says who should make health care decisions for us when we are unconscious or not mentally able to. We write Health Care Powers of Attorney for all of our trust and will clients w/o additional charge. In addition, you can write your own. See Health Care Power of Attorney
TRUSTS TO PROTECT THE BENEFICIARY AGAINST
SPENDING ALL THE MONEY:
One of the simplest ideas to prevent a person from quickly running through a large amount of money is to give it to the person in portions. For example, a will or trust could provide 1/3 of the sum be given to the person on reaching the age of 18, 1/3 upon reaching the age of 22, and 1/3 upon reaching the age of 25. These provisions can be put into a will in which case the provisions are called a testamentary trust. These provisions can also be put into a trust designed to avoid probate.
PROTECTING TRUST ASSETS AGAINST CREDITORS:
Nevada law allows a "spendthrift trust" to be set up for the benefit of another person and allows for this money to be protected against present or future creditors of the person being given the money.
(However, if creditors already have a claim to the money being transferred, this transfer may be attacked.)
Nevada law also allows a "spendthrift trust" to be set up for your own benefit. But if you are setting up the "spendthrift trust" for your own benefit, there are additional limitations. These are:
1) The trust is not intended to defraud, delay or hinder known creditors. (So, if you cause a terrible car accident and the victims have claims far in excess of your insurance coverage it is probably too late for you to set up a spendthrift trust for your own benefit as you would be intending to defeat the claims of the car wreck victims because they are potential creditors you know about.)
2) You have to irrevocably give up control of the money or property put into the trust. We believe that this limitation will be looked at very critically by a court if you are later sued and we believe it is hard to predict precisely how much control has to be given up to make sure that a court will allow this trust to protect you in a future lawsuit.
For these reasons our law firm will set up a spendthrift trust for the benefit of someone other than the person giving property and money to the trust. However, we are not comfortable attempting to set up a spendthrift trust for the benefit of the person funding the trust.
The Nevada laws regarding these types of trusts can be found in the Nevada Revised Statutes ("NRS") sections 166.010-166.170, et. seq. These statutes are collectively referred to as: "The Spendthrift Trust Act of Nevada".
PROTECTING TRUST ASSETS AGAINST THE IRS:
Unfortunately, there is no legal way to place your assets offshore out of reach of the IRS (Internal Revenue Service). If you are a U.S. citizen you owe taxes on your income even if earned abroad. If anyone offers you a plan to keep money safe from the IRS (when you owe the IRS money) they are scamming you and/or inviting you to break the law. (You will be amazed at how much money and time federal prosecutors have when they decide to go after someone.)
TRUSTS TO MINIMIZE ESTATE TAXES:
Until and unless estate taxes are permanently abolished, there will always be a demand among the wealthy for lawyers to devise inheritance plans that minimize estate taxes. Such estate planning is expensive and needs to be updated frequently as the laws concerning estate taxes are constantly changing. The IRS website, states "Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections or jointly held property) with a total value under under [$5,000,000 in 2011] do not require the filing of an estate tax return."
Our firm does not draft trusts to minimize estate taxes but we will be happy to refer you to competent attorneys who do.
SPECIAL NEEDS TRUSTS:
The idea of a special needs trust is existing federal law which requires Medicaid recipients to "spend down" to be eligible for Medicaid. Federal law allows a specials needs trust in some circumstances to be set up so that the beneficiary can tap into this trust for a large variety of needs, but the money in this trust doesn't have to be spent down for continued Medicaid eligibility. A special needs trust should be written to take into account the new "Obamacare" and previously written special needs trusts should be reviewed in light of the new "Obamacare laws." We do not write special needs trusts but will be happy to refer you to competent attorneys who do.
Contact Information:
Reed & Mansfield
6655 W. Sahara Ave., Suite B-200
Las Vegas, NV 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
(c) Jonathan Reed 2010