Frequently Asked Questions about Estate Planning, Special Needs Planning, Minnesota Business Law, and Asset Protection Services
We have compiled a variety of questions that we regularly get from estate, special needs planning, asset protection and business clients in the Minneapolis area. Our answers are included with each question and we hope that you find value in the information we have provided.
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Do I Need to Update My Will, Trust and Other Estate Planning Documents If I Move to a New State?
A common question we get is whether or not you need to update your will, trust, financial power of attorney, living will or directive or other estate planning documents when you move to another state. In todays’ video, I’m going to answer that question and reveal some things you should be aware of and do when you move to a new state or even just purchase a home in another state.
So here are some things you should be aware of if you are thinking about moving to a new state, or even if you are just thinking about buying a second home in another state. For example, many of my clients have lake homes in WI, or farm land they inherited in Iowa or Nebraska. Many more are buying a second home in FL and becoming snowbirds or are even moving full-time to FL in retirement.
Many states have state-specific powers of attorney.
So as part of your estate plan, you should have an up-to-date financial power of attorney giving a spouse, family member or others the ability to step in and manage your financial affairs in the event you are unable to. If you don’t have one, your family may need to go to Court to get the authority to manage your finances in the event you become incapacitated.
Many states will have a state specific form, For example, both MN and FL have separate power of attorney forms and even differing requirements for their contents and their execution. Many states also require that a financial power of attorney be recorded with either the county or a court.
Probate requirements can vary between states.
One of the biggest misunderstandings I see in the general public when it comes to estate planning is that wills avoid probate. They do not. A will is a set of written instructions to a probate court about how you want probate to occur. So absent something else or additional planning, if you have a will, your family will need to go through probate. And probate costs and timelines vary by state.
So if you are moving from a state where probate can be relatively quick and inexpensive and your currently have a will-based estate plan, but are now moving to a state, like Minnesota or Florida, where probate can be much more time-consuming and expensive, you may want to switch to a trust or other planning tools that would allow your family to avoid probate.
Also, if you own assets in more than one state, and you do not already have a trust, you should consider switching to a trust-based plan. So for example, let’s assume you live in the MN or another state and then buy a home in FL where you plan to spend part of the year. Or you move to FL but keep a home back up north. If you were to pass away, your family would need to open a probate proceeding in your home state to manage assets there. However, that Court will not have jurisdiction over your home and other assets in the other state, only that state’s court does, which means your family will have to open a second, ancillary probate, in that state – which greatly increases the time and expense of managing your affairs. That is why we always suggest clients use a trust-based estate plan whenever they have a home or assets in more than one state as it avoids having to do multiple probates in multiple states.
Estate tax and other tax laws vary by state.
Some states are community property states and some states are separate property states. Some states, like FL, are separate property states but allow a married couple to choose to treat assets as community property and save on taxes. Some states, like MN, have a separate state-level estate tax, whereas some states, like FL, do not have a state-level estate tax. The differing tax laws may require updates to your plan if you own assets in more than one state or move to another state.
Signing Requirements for Estate Planning Documents vary by State.
Some states, like MN, only require you to sign your powers of attorney and trusts in the presence of a notary. Other states, like FL, require that the documents be witnessed as well as notarized.
Homestead Laws Vary By State.
Florida has wonderful homestead protections. However, homestead can be lost if people are not careful. For example, a trust needs to have some specific language in it in order to maintain the homestead protection for any FL real estate transferred to the trust.
The Rules on Protecting Your Home and Life Savings From Long-Term Care and Nursing Home Costs Vary by State.
If you have worked with an attorney to protect your home and life savings from long-term care costs, or need to, you should be aware that the rules and requirements vary a great deal by state and what works in one state may not work in another.
For example, we work with a lot of clients that split their time between MN and FL. We carefully tailor their planning to not only avoid probate, but to minimize taxes and to help them protect their home and life savings in the event they were to need long-term care or nursing home while working within the VERY different rules of each state.
As you can see, whenever you move to a new state, or even if you are just purchasing a home or other assets in another state, it is a good idea to meet with an attorney to review your estate plan to make sure it will work for your family when it is needed.
If you would like to learn more about Why Your Existing Estate Plan (or lack of one) May Fail Just When Your Family Needs It Most, and How You Can Put a Plan in Place to Make it as Easy and Inexpensive as Possible For Your Family While Protecting Your Assets… I will be hosting a free, online masterclass, where I will be revealing what you need to know about powers of attorney, living wills, health care directives, wills vs. trust, tax minimization strategies, how to protect the assets you leave to your family in the event they get divorced or sued and much more, click here to register for the free msaterclass.
And if you’d like to learn how you can protect your home and life savings from long-term care and nursing home costs, download my free Guide, “Save My Home: How to Protect Your Home and Life Savings from Long-Term Care and Nursing Home Costs” by clicking here.
Or call us today at (763) 420-5087 in the Minnesota office or at (941) 909-4644 in the Florida office to schedule a consultation.
Who Should I Name as the Beneficiary of my IRA?
Your individual retirement account "IRA" may be one of the most valuable assets you own. In order to decide who you should name as the beneficary of your IRA, you need to weight the tax consequences along with the need for protecting the IRA from potential future creditors.
If your children are minors, the decision is simple. Minor children cannot inherit so you should set up a trust to own and manage your assets, including your IRA, until your children are old enough to responsibly manage the money you leave for them.
If your children are adults, the quesiton becomes more complicated. If you name your adult children as the beneficiaries of your IRA, they can, under current law, continue to strecth the IRA over their lifetimes. There are significant tax adantages to doing this. However, they are not required to and could just cash it out. Also, under a new ruling by the U.S. Supreme Court which you can read about by clicking here, inherited IRAs are subject to creditors claims.
So if you have any concerns about your children's financial management skills or the possibility that they may be subject to creditor's claims in the future, you should consider naming a trust as the beneficiary of your IRA. A properly prepared trust can provide significant tax advantages as well as protecting the IRA from potential creditor's claims of your children.
To learn more about protecting the money you leave for your children from divorce and creditor's claims, click here.
What is a qualified personal residence trust "QPRT"?
A qualfied personal residence trust is an advanced estate planning technique that can reduce your state and federal estate taxes by removing the value of your home from your estate.
A qualified personal residence trust is an irrevocable trust that is set up to own your home for a period of time, usually ten to fifteen years. After the time specified passes, the home is transferred out of the trust and to the benficiaries of the trust - usually your children. You continue to live in your home while it is owned by the trust. Once your home is transferred out of your trust to the beneficiaries, you can continue to live in your home but must now pay fair market value rent to the owners of the home - again, usually your children.
By utilizing this advanced estate planning technique, you remove the value of your home from your estate for estate tax purposes. If the value of your home is $1 million, you have effectively removed $1 million from your taxable estate.
To learn more about qualified personal residence trusts, click here.
What is the unlimited marital deduction?
The unlimited marital deduction allows a married couple to pass an unlimited amount of money, estate tax free, to a surviving spouse. As an example, assume Steve and Carrie are married and Steve passes away with an estate worth $7 million and a federal estate tax exemption of $5 million. In the absence of the unlimited marital deduction, Steve could only pass $5 million dollars estate tax free to Carrie. His estate would pay tax on the balance of $2 million. At a tax rate of 40%, that would be $800,000 in federal estate tax. With the unlimited marital deduction, Steve can pass his entire estate, tax free, to Carrie.
If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, give us a call today at (763) 420-5087.
What is federal estate planning portability?
Portability of the federal estate tax exemption between married couples means that upon the passing of the first spouse, if the value of their estate does not require the use of their entire federal estate tax exemption, then the amount of the exemption that was not used can be used upon the passing of the surviving spouse. In simple terms, it means that married couples can easily double the amount of their estate that escapes federal estate taxes.
An example of portability may help. Assume Steve and Carrie are married, own all their assets jointly, and have a combined estate worth $8,000,000. Let us also assume that the federal estate tax exemption in effect at Steve’s passing is $5,250,000.
If portability were not in effect and Steve passed away first, here is what would happen. Steve could pass his entire estate, estate tax free, to Carrie pursuant to the unlimited marital deduction. However, when Carrie passes away, only $5,250,000 is exempt from federal estate tax. That would leave $2,750,000 subject to the estate tax. At a federal estate tax rate of 40%, $1,100,000 in federal estate taxes would be due upon Carrie’s passing.
With portability in effect, Carrie could use Steve’s $5,250,000 exemption as well as her own and double the amount not subject to estate tax to $10.5 million. With a total estate of $8,000,000, the estate would not be subject to federal estate tax and would save $1,100,000.
If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, give us a call today at (763) 420-5087.
Does Minnesota have estate tax portability?
Portability allows married couples to easily double the amount of their estate that escapes federal estate tax. Assume for example that Steve and Carrie are married, own everything jointly, and have a combined estate of $2,000,000. If Steve were to pass away first, using the unlimited marital deduction, he can transfer everything to Carrie and no estate tax is due upon his passing. However, when Carrie passes away, her entire estate is now $2,000,000. With only a $1,000,000 exemption in Minnesota, under current rates, Carrie’s estate would pay approximately $99,600 in Minnesota estate tax. If Minnesota had portability, Carrie could have used Steve’s $1 million exemption, in addition to hers, and no estate tax would have been due. The bad news is that Minnesota does not have portability. The good news is that with advance planning, Steve and Carrie can still avoid the Minnesota estate tax and pass an additional $99,600 to their heirs.
If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, visit our video page by clicking here.
Can I just save money on estate planning and do it myself on the Internet?
Estate plans come in a wide range of quality. Some are very basic form documents that leave big holes open. Sometimes clients are given a will when a trust would have been better, or a trust when a will would have been better, because they did not get the proper advice regarding the benefits and disadvantages of each one.
I have had multiple clients ask me to review the plans created by other offices. These clients thought that they had a trust that would allow their estate to avoid probate, when in fact they actually just had a will. These clients had asked for a trust and were told they had a trust, only to find out after my review that they had a will with a testamentary trust that only goes into effect after their death and does not avoid probate.
I have had clients come to me with plans that do not protect the money their children inherit from full public disclosure of the assets/liabilities, from potential claims of a child's ex-spouse, or from their children's creditors.
In short, to answer the question, "Can I just do my own estate plan myself?", I often mention that some of my estate planning clients include lawyers who practice in other areas. These attorneys are aware of the intricacies that estate plans can contain. They ask me to do their plan because they believe that using an online provider or doing it themselves would leave too many holes in their estate plan.
Is there any way to avoid or reduce estate taxes, the “death tax”?
Yes, there are multiple ways to avoid or reduce estate taxes, commonly referred to as the “death tax”. In Minnesota, estates smaller than $1 million dollars, including life insurance, are not subject to the death tax. Estates larger than $1 million dollars, including the value of life insurance, are subject to the death tax. One simple way to double the $1 million dollar exemption is if you are married and use a special kind of trust. However, few people take advantage of this. If you would like to avoid or reduce the death tax, give us call at 763-420-5087 to schedule a free consultation to discuss protecting what matters most to you.
If I don’t do an estate plan, won’t my assets just transfer to my spouse and children anyway?
The short answer is yes. However, they may not go to the people and in the manner you prefer. If you pass away without a written estate plan (known as “intestate”), the State of Minnesota will decide who is in charge of your affairs, who should receive your assets, in what amounts and in what manner. This process is known as probate. None of these may be what you would have wanted or intended.
If you pass away without a written estate plan, assets will only be distributed after the Court appoints a personal representative and only in connection with a formal probate proceeding. The personal representative can be anyone with an interest in your affairs. Although a family member is most likely to be appointed, your bank, credit card company or others could petition the court to be appointed. Also, a family member who you would not want to act as your personal representative could also petition the Court. If you have minor children, the Court will appoint a guardian for the children and a conservator to manage their assets and they will most likely receive those assets outright and unprotected at the age of 18. If your children are not minors, they will receive an outright distribution of their share of your estate unprotected and regardless of whether or not they have the ability to manage what they receive from you. If you have a child or grandchild with a disability, their inheritance from you could cause them to lose needed government benefits. In the event you are married at the time of your passing and have children from a prior relationship, a portion of your estate will be given to your spouse and another portion will be immediately given to your children.
In short, if you pass away without a written estate plan, the State of Minnesota has a plan for you. It is known as probate. The probate court will decide who is in charge of your affairs, who receives your assets, when they receive those assets, the process takes on average 12-16 months, costs on average 3%-5% or more of your estate, and is completely public. Whether you choose to use a will or a trust as your written plan, dying without a written estate plan should be avoided if it all possible.
I have a will. Should I do a trust?
It is personal preference. We take the time to explain all of the options to our clients and help them choose which plan best meets their unique needs and goals. A will requires a probate proceeding to administer your estate upon your passing. Probate is time consuming (approximately 12-16 months in Minnesota), can be expensive (averages 3%-5% of the value of the gross estate), and is completely public. A properly crafted and funded trust avoids the probate process. We explain the differences this way: a will is cheaper and easier on the front end but far more expensive and difficult to administer at the back-end due to probate; a trust is more expensive and a bit more work to do at the front but much cheaper and easier for the family in the long run.
Can’t I just put my children’s names on our home, bank accounts and other assets?
Never, ever do this! If you put your children’s names on your home, bank accounts and other assets, you’ve given them a share of the asset. If you give them a gift over $13,000 per year per person, you will have a gift tax problem.
You have also given away a valuable tax advantage. Let’s assume you give them a stock when it is worth $10,000 that you bought for $100. They will pay taxes on the $9,900 difference. If you had given them the same stock upon your passing, there would be no tax due because of the differences in what is called carry-over versus step-up basis.
If your children were to have a creditor’s claim against them, the creditor could attach your assets because your children’s names are on them. That means you could lose stocks, savings, etc. to your children’s creditors.
If you put your children’s names on the title to your home, you have huge potential problems for you and your children. If you sell the home, you and your spouse will have the capital gains exemption for the sale of your primary residence but your children will NOT. That means they will have to pay the capital gains tax. Also, if one of your children gets divorced, it is possible that their soon to be ex-spouse could sue for the sale of the home if there are insufficient other assets to pay them out. Yes, you read that correctly, you children’s soon-to-be ex-spouse has an ownership interest in your home even if it is only your child’s name on the title with you. That is because Minnesota law gives spouses a marital interest in real property even if their name is not on title to the home.
To illustrate this point, I once had a client come to me for legal help. After his wife’s passing, his previous attorney advised him to put his children’s names on his home, bank accounts, brokerage accounts and other assets. Unfortunately, his daughter became disabled and applied for government benefits. Her ownership interest in her father’s assets disqualified her for the help she needed. To further complicate the matter, his son’s broker had invested with Tom Petters. Even though the client’s son knew nothing about the investments his broker made on his behalf, his father’s assets were now fair game for the government officials looking to recover assets – my client’s entire life savings were at risk simply because his son’s name was on them. When I explained all of this to him, he could not understand why his previous attorney had advised him to do this. I told him, I couldn’t understand it either.
I heard that every time you take something out of your trust, or buy anything, you have to go back to an attorney to have them change the trust. Is that true?
Unfortunately, some attorneys do draft trusts that require them to change it every time you buy or sell an asset. When I was still at the large law firm, I was stunned to discover that most attorneys never told the clients that they needed to fund their trusts – much less give them instructions on how to do it. Later, when the client would call with questions, they would get a bill in the mail for $155 and make a mental note to never call the attorney again. It wasn’t a surprise that the plans they had put together were failing when the clients needed them most.
At the Roulet Law Firm, we NEVER do this. We give our clients all the necessary paperwork to allow them to put things into, and take things out of, their trusts. We also give our clients extensive written instructions on how to do this and we never charge our clients to talk to us: not before preparing your trust, not during preparation of your trust, or after the trust is completed. Our no surprises flat fee covers everything.
I have heard that if I have a trust, I will lose control of my assets. Is that true?
That is not true. When you have us prepare a revocable living trust for you, you retain complete control of everything. If for some reason you want assistance with managing your assets, we can draft your trust to allow for someone else to help you manage your assets.
What if I want to change the trust, can I do this?
Absolutely. A revocable living trust can be amended or terminated. You can change it as often or as little as you want to. Usually, the reasons you would make changes to your trust are to change who you want to manage your assets after your passing or to change who receives your assets after your passing.
I have a will. That means my family avoids probate upon my passing right?
Wrong! This is one of the biggest misunderstandings I see. If you have a will, your estate will still need to go through the probate process. That being said, you obtain some key advantages by having a written will. In the absence of a written estate plan, the Court decides everything about your estate: Who the personal representative is; Who receives your assets; Who the guardian is of your minor children; and When they receive those assets. When you do a properly prepared will, you get to determine ahead of time who you would want as your personal representative, who the guardian of your minor children should be, who you want to receive your assets, when you want them to receive those assets, as well as any restrictions and protections you want to place on receipt of those assets. This is particularly important when you have minor children.
Your estate will still go through the probate process which means it will still take 12-16 months, cost 3%-5% of the gross estate and be completely public. However, you get the advantage of assuring your wishes are followed and not leaving everything up to the Court.
Do I need a will?
If you have children or own property, you should have a written estate plan no matter how large or small your estate is. If you have a written estate plan, you have the peace of mind of knowing that upon your passing, your wishes will be carried out by whom you want and how you want. In addition to deciding who should manage your affairs, where your assets should go and when people should receive them, you can and should name guardians for your minor children.
What if I die without a will?
If you pass away without a will (known as “intestate”), the State of Minnesota will decide who is in charge of your affairs, who should receive your assets and when they should receive your assets through a process known as probate. In short, your affairs may be managed by people you would not have wanted, your assets given to people you may not have wanted to receive them, and in amounts and a manner which you may not have wanted.
What is a living will?
In Minnesota, a living will is also known as a health care directive. A health care directive is a document in which you name someone, or a couple of people, to make health care decisions for you in the event you are unable to express your wishes for your health care. You may also provide detailed instructions to your agent(s) as to what your specific wishes are for your health care. In fact, the more detailed your instructions are for your care, the easier it will be on your agent and your family in the event your agent(s) is ever called upon to act.
My wife and I own everything jointly. If I die first, my spouse will get everything without probate. If my spouse dies first, I get everything without probate. So why do we need an estate plan to avoid probate, it looks like we will avoid it right?
Wrong. If you die, your spouse will indeed own everything without probate. If your spouse dies first, you will indeed own everything without probate. The problem is when the last of you die, there will be a probate. Owning everything jointly does not avoid probate, it just puts it off until the last of you passes away. The only way to avoid probate is to prepare a valid trust and make sure it is properly funded.
What is probate and how does it work?
Probate is the legal process that happens after you pass away. Each state has a probate court with their own rules, so the way things work may vary slightly from state to state. However, the general idea of probate administering your estate remains the same.
The probate court will look at your will, make sure it is valid, and decide how to proceed from there. Officials appointed by the court will usually pay off any debts you have first. After that is done, they'll begin the process of distributing your assets to the beneficiaries named in your will. If you do not have a will, your assets will generally pass on to your spouse. If your spouse is deceased, Minnesota has a table of heirship to determine who is next in line. The list can go very deep if you do not have immediate family, but if you do, it will generally go in this order:
In Minnesota, certain kinds of property and assets do not need to be probated. They include:
- Property owned as joint tenants
- Jointly held bank accounts
- Payable-on-death accounts
- Life insurance proceeds to a specific beneficiary
- Pension benefits with a designated beneficiary
Probate court in Minnesota can take quite a bit of time and be expensive, but it is an important part of distributing your estate accurately and according to your wishes.
Contact Attorney Chuck Roulet at 888-719-5589 if you're looking for a lawyer to oversee your will in probate or if you have any other questions regarding estate planning in Minnesota.