Careful and Creative Planning for
You. Your Family. Your Land.

Retirement: Assets to Sell, Assets to Hold

If you need cash during retirement and you have sufficient assets to be choosy, with which types of assets should you part first?  This recent article by Forbes contributor William Baldwin is worth a read on the topic: Estate Planning:  A Ranking of Good Assets and Bad Assets.  It includes a very helpful ranking of asset types.

Baldwin highlights several key issues to consider, including the step-up in basis at death, how to think about depreciated assets, and withdrawals from traditional versus Roth IRAs.  You’ll notice that under current tax law, the reasoning and analysis is largely driven by income tax considerations, rather than the estate tax.

For both you and your heirs, it’s important to understand which assets you should hold throughout retirement, and to which assets you should turn first to pay the bills.

If you have specific questions about these choices and how they fit into your estate plan, please contact me at 406-219-1254 or kristin@kristinbaileylaw.com.

Big Tax Break for Farm and Ranch Land Conservation

On July 17, the U.S. House of Representatives passed a bill that would make the Enhanced Conservation Easement Incentive permanent. This is big news for farmers, ranchers and for those interested in preserving open space. The bill is now awaiting a vote in the Senate.

With this tax law, farmers and ranchers could donate a conservation easement to a qualified organization and deduct up to 100 percent of their adjusted gross income each year, up to the value of the donation.  Remarkably, any unused deduction could be carried forward for up to 15 years.  Non-farmers would be able to deduct up to 50 percent of their adjusted gross income annually for a similar donation and for the same carry-forward period.

A conservation easement is a donation of specific development rights on private property.  The donation must be given to a qualified organization that “holds” those rights.  The qualified organization must be a nonprofit organization or a government agency.

The bill would amend Code Section 170(b)(1)(E).  This “incentive” was first enacted in 2006 but has never been made permanent.  Under current law, it expired on December 31, 2013.

  • Read more on this and other charitable giving tax incentives in the bill:  Ashlea Ebeling, 4 Charitable Giving Tax Breaks in Play, Forbes.com (July 18, 2014).  Available here.
  • Read the text of the bill here.

Pros and Cons: Wills and Trusts

Many Montanans and Coloradans believe that all they need is a Will in order to get their estate in order.

Here is the biggest reason that is a mistake:

A Will does not offer any protection to your family and loved ones if you are ever in an accident or if you lose your physical or mental ability to handle your affairs.  This can be a big concern if you have young children.

You might think that a Will is the simplest form of estate planning.  While a Will may be the traditional and familiar approach, simplicity is not a good reason to plan your estate with a Will alone.

Many families choose to plan for the future using Trusts instead of Wills.  One of the major benefits of Trusts is that you can include instructions to your loved ones spelling out your wishes – or providing for the care of your minor children – in case you are ever involved in an accident or became incapacitated.  If you have a Will-based plan, you can still provide these kinds of instructions to and for your loved ones, but you cannot do this through a Will alone.  It’s important to talk with a trusted estate planner about these issues, especially if you have dependants.

In the end, it’s important to make educated decisions about your estate plan.  The most important thing is that you have a plan, that you have your plan in writing, and that the plan takes care of those you love.

In this update, I explain some of the biggest differences between Wills and Trusts and describe some of the pros and cons of each type of estate planning.

Wills Explained

A Will is a legal document that expresses a person’s wishes about who gets his or her property after death.  A Will becomes effective when the Will-Maker dies and not before.

A Will must always go through a court proceeding called Probate.  Probate can be costly – often more expensive than administering a Trust.

Probate can take a long time – typically, between six months and two years.  Through the Probate process, the Court determines whether your Will is valid and appoints a Personal Representative to oversee the distribution of your property to creditors and to your loved ones.

Lastly, but perhaps most importantly for many in Montana and Colorado, Probate is not a private process.  Probate requires a Notice to Creditors to be published in the newspaper, even if you don’t have any debts.  All Wills filed in a Probate proceeding are public record, which means that anyone at all can look at your Will and view information about your personal property and your heirs.

Trusts Explained

A Trust is a legal agreement that involves three different parties:  the Trustee, the Grantor, and the Beneficiary.  A Trust is a legal document that creates a property interest held by the Trustee at the request of the Grantor (also known as the Settlor or Testator) for the benefit of the Beneficiary (or Beneficiaries).

For those who think this sounds complicated, it’s important to know that all three parties can be the same person.  In many cases, the Grantor will name herself the Trustee and also name herself a Beneficiary, along with loved ones who are also Beneficiaries.  This is frequently the case with what are called Revocable Living Trusts.

A Trust can take many forms and is a very flexible document.  The Grantor can retain control of her property during life by naming herself the Trustee.   A Trust becomes effective as soon as it is signed, so it can provide instructions for the management of your property and care of your dependants if you become disabled during your life as well as the distribution of your property after death.

Of key importance to many clients, a Trust is private.  Even after the Trust-maker’s death, a trust will stay private and need not ever become public record.

Why use a Will?

  • Better to have a plan than no plan at all!  If you die without a Will, your property passes according to state law to your nearest relatives.  If your wishes aren’t set down in writing, they are legally impossible for the Probate Court to follow, so the Court has to follow state intestacy law.  Better to have a Will than no estate plan at all!
  • Familiarity.  Many people are comfortable with Wills because they are familiar with them.  A Will is a document everyone knows and understands.
  • Procedural simplicity now. A Trust doesn’t work if it isn’t funded properly.  This means that simply signing a Trust document isn’t the last step – you must also make sure to transfer all appropriate assets to the Trust.  Your estate planning attorney can help guide you through this process, but it is indeed an extra step required by a Trust.
  • Probate is simpler than it used to be.  In both Montana and Colorado, the Probate Court process is far simpler than it used to be.  This is true unless you have a contested estate, where Probate can be long, drawn out, and costly.
  • Having a Trust does not do away with the need for a Will.  Every Trust still needs a Pour-Over Will as a sister document.  This serves to protect you and your loved ones in case you forget to add an asset to your Trust that should have been added.  A Pour-Over Will is a catch-all.  If any of your property passes by the Pour-Over Will, that property must go through the Probate process.

Why use a Trust?

  • Privacy.  One of the greatest things about a Trust, especially in the opinion of many clients in Montana and Colorado, is that it is private.  Unlike a Will, a Trust is a private agreement and never becomes public record.
  • Avoid Probate. With a Trust, the Trustee is automatically empowered upon the Trust-maker’s death to act according to its instructions.  The Trustee need not seek the Court’s permission, as is the case with a Will.  When you create a Trust, these instructions are carefully written by you with the help of your estate planning attorney.  So with a Trust, you are able to avoid a costly and sometimes lengthy Probate because your property can pass privately under the terms of a private agreement you created.
  • Incapacity.  A Trust is a legal document that becomes effective the minute you sign it, while you’re still alive.  A well-drafted Trust will include specific guidelines helping your family and loved ones administer your property in the case of your incapacity, without them having to go to Court to have you declared incapable.  This can save an enormous amount of heartache during a difficult time.
  • Getting organized.  Whereas a Will merely states who you want to get your “stuff” when you die, creating a Trust forces you to get organized now.  Funding a Trust causes you to think through each part of your financial situation and make a conscious decision about each asset.  It’s a great motivator to get your financial affairs in order.

For more information, please get in touch!  You can reach me by email at kristin@kristinbaileylaw.com or by calling me at 406-219-1254.