Kevin Mark Klughart

PhD, PE, JD, MIP, LLM

Patent Attorney / Engineer

 

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Estate Planning FAQ

 

Does the Estate/"Death" tax repeal impact me?

YES!  Recently I've had the opportunity to review a number of Wills/Trusts that were drafted within the last decade and are STRUCTURALLY DEFECTIVE given the current state of the Estate/GST tax.  Furthermore, it is clear that very few of the Wills/Trusts drafted in the last decade have anticipated the current state of the Estate/GST tax structure, its potential retroactive repeal, and anticipated litigation.  AS A RESULT, I AM ADVISING ALL OF MY CLIENTS TO HAVE THEIR WILLS/TRUSTS REVIEWED FOR POSSIBLE MODIFICATION TO CORRECT DRAFTING ERRORS THAT ARE INCONSISTENT WITH CURRENT AND PROPOSED ESTATE TAX LEGISLATION.

Do I really need a Will?

YES!  While all states provide mechanisms to distribute assets for those who do not have a Will, these provisions generally require the appointment of an administrator WHO MUST POST A BOND in order to windup the affairs of the deceased.  The fees associated with this and the additional court time required for the appointment of the administrator (even if it is your spouse), are generally much higher than that associated with probating a simple Will.  Additionally, the default distribution provisions of your state of residence may not conform to your wishes.  Therefore, it is always prudent to have a formal Will drafted for each individual, regardless of their marital status.

I am not married but cohabiting with my significant other.  Are we OK without a Will?

NO!  In this situation you definitely need a Will as well as other documents (collectively referred to as an Advanced Directive Kit) that will permit your partner to act on your behalf in the event you are unable to do so.  In this situation BE ASSURED THAT THE DEFAULT LEGAL PROTECTIONS PROVIDED BY THE STATE WILL NEITHER MEET YOU NOR YOUR PARTNER'S EXPECTATIONS OR DESIRES!

I need a trust created to avoid taxes.  Can you help?

Yes, but you probably don't need a trust to minimize your estate tax burden.  Invariably individuals who come to me wanting some form of trust can be better served with a Will and Advanced Directives document package, which costs about one fifth of  a trust document package.  Unfortunately, it is my belief that the legal industry has promoted these documents more as a revenue generation stream rather than good client counseling.  Often the incorporation of a trust in the overall estate plan for a client increases rather than decreases the overall legal costs associated with death/probate.

Isn't probate expensive?  Should I avoid it if possible?

NO!  At least for residents of Texas, the Will probate process is not necessarily expensive and on the contrary relatively simple.  It involves hiring an attorney to represent the designated executor to then (1) file the written Will with the court, (2) obtain Letters Testamentary to authorize the Executor to act on behalf of the deceased, (3) file an estate Inventory and List of Claims with the Court, (4) ensure that requisite legal notices are published to extinguish any claims against the estate, and (5) counseling the Executor as to proper disposition of estate assets.

Except for disbursal of estate assets, this whole process can be completed in less than six months at a cost substantially less than the cost of a living trust or other "probate avoidance" methodologies. In any case, whether the deceased had a living trust or not the probate process should be followed in order to extinguish potential claims against the estate.  Therefore, even an individual who opts for a living trust should have a current Will and this Will should be probated on their death.  Given this fact, generally (at least in Texas) there is no significant cost savings in any attempt to avoid probate.  Other states may differ, so contact me or consult with another attorney practicing in the estate planning area of law should you have questions.

How long does probate take to complete?

This depends heavily on whether the deceased has a Will, the contents of the estate, and the domicile of the decedent.  Generally speaking, however, for a Will probated in Texas the following checklist is a minimum of items that should be addressed:

Filing the original will with the appropriate district/probate court and setting a hearing for the application for probate.  This hearing can usually be scheduled within one month of the death of the decedent.

Appearance at a probate hearing of the executor and any persons named as beneficiaries in the Will.  Appearance of beneficiaries can be waived with appropriate paperwork and notices.  Filing an Executor's oath and obtaining a Letters Testamentary to empower the Executor to act on behalf of the decedent in executing the instructions in the Will.

Marshalling the assets of the decedent's estate and preparing an inventory that is filed with the Court.

Paying priority claims against the estate (funeral, medical expenses, etc.).

Issuing public notice (via newspaper) to notify any persons who may have claims against the estate.  The statute of limitations on recovery is 120 days from this public notice.

Waiting for the expiration of the 120 day claims window and then distributing estate assets to cover these claims and bequests within the Will.

Miscellaneous housekeeping items such as obtaining duplicate Letters Testamentary, duplicate death certificates, notification of Social Security regarding decedent's death, canceling credit cards, forwarding mail, notification of professional licensing organizations, filing final IRS tax returns, filing annual estate tax returns, filing final estate tax returns, etc. can occur at any time during this process.

If this process is addressed in a diligent manner, the entire probate process can be completed well within six months after the date of death.  Additional items involving final asset distributions and tax returns may run into the next calendar year depending on the actual date of death.

I've been giving gifts to my relatives each year.  What should I know?

In order to protect both yourself and your donee, you should file an IRS Form 709 each year and declare the gifts, even if they are less than the yearly exemption amount.  This paperwork prevents the IRS from later claiming the money transferred to the donee was INCOME rather than a GIFT.  Furthermore, I always suggest that a copy of this form be given to the donee at the time the tax return is filed so that they have documentation of the gift.

What is the 2010 Gift Tax Exclusion amount?

In 2010, up to $13000 can be given by an individual as a gift without any gift tax consequences.  This amount changes yearly, so check with a tax professional to determine this exclusion amount in the year that you make the gift.  As stated previously, you should file an IRS Form 709 each year and declare the gifts, even if they are less than the yearly exemption amount.  This paperwork prevents the IRS from later claiming the money transferred to the donee was INCOME rather than a GIFT.  Furthermore, I always suggest that a copy of this form be given to the donee at the time the tax return is filed so that they have documentation of the gift.

 

Contact Information:

Kevin Mark Klughart

Registered Patent Attorney, USPTO

3825 Leisure Lane, Denton, TX 76210-5589

tel: 800-353-1211 / 940-320-0580  -  fax 940-320-0581

Kevin@Klughart.com   email  -  web    www.Klughart.com

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