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Wills, Trusts, and Estate Planning
The three most common types of estate planning techniques are Wills, Testamentary Trusts, and Living Trusts. The table below can help explain the Pros and Cons of each technique.
|Living Trust||Testamentary Trust||Will with No Trust|
|PRO: Does not require Probate||CON: Requires Probate because it is in the Will||CON: Requires Probate|
|PRO: Private (not public record)||CON: public record because it is in the Will||CON: public record|
|PRO: Allows you to control what beneficiaries do with property after death||PRO: Allows you to control what beneficiaries do with property after death||CON: Cannot control what beneficiaries do with property after death|
|PRO: extremely minimizes and likely eliminates estate taxes if the trust is irrevocable||CON: Not likely to help minimize estate taxes||CON: Will not minimize estate taxes|
|CON: Set up can be time consuming and expensive||PRO: Not much set up involved.||PRO: Not much set up involved|
To find out which technique will best suit your estate planning needs, call today to set up a consultation with one of our estate planning attorneys.
A trust is an entity created so that a trustee can hold the grantor’s property for the benefit of the beneficiaries. Trusts can be revocable or irrevocable, and instructions for the trustee can be as generic or specific as you like. There is a lot of freedom and benefits to be had in establishing trusts, and this article should explain the different kinds.
One type of trust is a testamentary trusts. Testamentary trusts are drafted into and executed with a will. They do have to be probated with the will and they will be public record after you die. However, the good thing about them is that they do not come into existence until the time the testator dies, and they are set up by the executor of the will. This means that you do not have to transfer your property into the trust now, because the trust does not exist yet. Therefore, there is significantly less set-up costs involved by you, the testator. You basically tell us how you want it and we will draft it into your will for you. Simply put, a testamentary trust is a way to be able to control how and when your property is dispersed after you die, something that a simple will alone will not do.
A living trust is different from a testamentary trust in that it is created while you are still “living” (hence the name). It is not put into a will and therefore, does not need to be probated. Rather, it is an agreement or contract between the grantor and the trustee and is a separate document in and of itself. The major practical difference between a living trust and a testamentary trust is the set-up that is involved. Since the trust is created now as opposed to when you die, the grantor is required to transfer title of all of the property that he wishes to pass through the trust rather than through a will. This means going to DMV to change the title on your car, re-deeding your house to the trust, and changing your bank accounts. Remember that these trusts can be entirely revocable if you decide you don’t like it. You (as grantor) could be the trustee of your trust so that you can still control what happens with your property, and you could list your kids as your beneficiaries. The good thing about these trusts is that they are private and will not be recorded publicly. They can also help your heirs avoid having to pay estate taxes, but only if the trust is irrevocable and if your estate is worth more than 5.25 million when you die. Your family will be pleased that they do not have to go through the probate process.
Another thing you will need when you have a living trust is a pour-over will. Pour over wills are set up in case you forget to transfer property into the trust. For example, say that you buy a car and forget to purchase it in the trust’s name and never think about it again. This pour over will catches all the things that have not been transferred (the car in the previous example) and immediately pours them into the trust upon your death. A pour over will may have to be probated since it is a will, but there may be no property to probate if you are diligent in putting all of your property in the trust. Even if there are only a few things to probate under the pour over will, it likely would not be as extreme of a process.
More and more people are being proactive and turning to trusts now to protect their property. They want to plan ahead so that their families don’t have to worry about property issues while they are grieving and going through the most difficult time of their life. Truly, the best gift you can give to your family is a proper estate plan. We can help you to determine what that is for you and answer any questions you may have about the different estate planning techniques.
Wills and Estates
What is a will?
A will is a written document in which you direct who is to receive your property upon your death. Any real property (land) or personal property (cars, jewelry, money) to be given to a specific person must be done so with a will.
Why should a person have one?
Without a will, property will passes to persons in accordance withInterstate Succession Laws.
Probate is a court-supervised legal process that gives someone, usually the surviving spouse or other close family member, authority to gather the deceased person’s assets, pay debts and taxes, and eventually transfer assets to the people who inherit them. Probate isn’t always required after a death; it depends on what the deceased person owned, as explained below.
Will Probate Be Necessary?
Probate court proceedings are required only if the deceased person owned assets in his or her name alone. Other assets can usually be transferred to their new owners without probate.
Examples of common assets that do not need to go through probate include:
- Assets the deceased person owned in joint tenancy, which pass automatically to the surviving owner;
- Real estate the deceased person owned with his or her spouse in “tenancy by the entirety”;
- Assets for which a beneficiary has been named outside of the will—for example, retirement accounts for which the deceased person named a beneficiary, or payable-on-death bank accounts;
- Life insurance proceeds or pension benefits that are payable to a named beneficiary; and
- Assets held in a revocable living trust.
Claiming Personal Property with an Affidavit:
If the value of the estate isn’t too large, North Carolina offers an unusual procedure, which lets you get approval from the local probate (superior) court to wind up the estate without formal probate. All you need to do is to file one simple form with the court.
You can get a fill-in-the-blanks form, called an Affidavit for Collection of Personal Property of Decedent, from the court clerk’s office or the North Carolina courts website. On the form, you state that the value of the estate’s personal property (everything but real estate) is less than $20,000 (or less than $30,000 if the surviving spouse inherits everything under state law) and that at least 30 days have passed since the person’s death. You must provide other information about the deceased person’s assets as well.
You file a copy of the completed affidavit with the clerk of the superior court in the county where the deceased person lived. Once you’ve filed the form, you may present a certified copy to institutions that have custody of property you’re inheriting (a bank, for example) or control the paperwork you need to get the asset into your name (the department of motor vehicles, for example). The institution will turn the property over to you or issue a new title document showing you as the owner.
If no one has initiated a probate proceeding, the person who files the affidavit collects the personal property, pays debts of the estate, and distributes what’s left to the people who inherit it. That person then files another affidavit with the court (within 90 days of the first one), stating how the assets were distributed.
Executors and Administrators:
The court appoints an executor (if someone was named in the will) or an administrator (if there is no will or the person named in the will isn’t available or willing to serve) to take charge of the estate. The surviving spouse, if any, has first priority to be appointed as administrator. Both executors and administrators are known as “personal representatives” of the estate.
If you want to serve as executor or administrator, you must apply to the clerk of the court in the county where the deceased person was a resident at the time of death. You can use a form provided by the clerk’s office. With it you’ll need to supply a preliminary inventory of the deceased person’s assets, listing what the person owned (real estate, bank accounts, vehicles, and so on) and their estimated value as of the date of death. There is a $120 fee to open an estate.
If you’re appointed executor, the court will issue a document called “Letters Testamentary,” which gives you authority to handle the assets. If you’re appointed as administrator, you’ll receive “Letters of Administration.” You must take an oath of office, promising to faithfully carry out your duties.
If you’re not a North Carolina resident, you must appoint a resident as your “agent”—someone who is in the state and can receive official court documents on your behalf. You may also be required to post a bond, which is a kind of insurance policy that protects the estate if you cause it loss because of incompetence or dishonesty (State residents generally don’t have to furnish a bond).
You may, however, have to post a bond if you are an administrator and there are young (under 18) heirs. But if all the heirs are adults and sign a waiver, or if you are the sole heir, you won’t have to furnish a bond.
The personal representative is entitled to reimbursement for out-of-pocket costs (for example, postage) and to compensation, called a commission, for the work involved in settling an estate. Unless the will establishes the amount of compensation (most don’t), the court clerk can allow a fee of up to five percent of the value of the money that the estate receives and gives out. In approving compensation clerk is required to take into account the actual work done in settling the estate—how much time it took and how difficult it was. The court clerk must also approve the fees of an attorney, if the PR hired one to help with the estate.
The Probate Process in North Carolina:
Probate in North Carolina is a fairly straightforward process. The state court system provides many fill-in-the-blanks forms online, and the process is relatively informal. The superior court clerk, an elected county official, acts as the probate judge. (Clerks are often referred to as “ex officio” probate judges, which just mean that they are judges because they hold the office of clerk).
The personal representative must:
- Collect and inventory the deceased person’s assets, and keep them safe;
- Have assets professionally appraised, if necessary;
- Sell some assets, if necessary;
- Pay valid debts and taxes; and
- Give out the remaining property as the will (or if there’s no will, state law) directs.
The personal representative has authority over all assets of the deceased person that go through probate; these assets make up the “probate estate.” Probate assets typically include vehicles, real estate, bank and brokerage accounts, and personal belongings such as jewelry, furniture, art, and collections.
Usually, the personal representative opens a bank account for the estate, and deposits money from existing cash accounts into the estate account. Amounts paid to the estate (for example, wages owed to the deceased person, refunds, and other miscellaneous payments) also go into the estate account, and its funds are used to pay estate expenses.
A personal representative who wants to sell any real estate in the estate—for example, if it’s necessary to raise cash to pay debts—must first get permission from the court clerk unless the will directs the executor to sell the property.
Paying Debts and Taxes:
One of the first jobs of the personal representative is to publish a notice of the probate proceeding in a local newspaper, once a week for four weeks. (If there isn’t a printed newspaper in the county, the notice can be posted at the courthouse and other public places; the clerk’s office will have information on what to do.) This alerts creditors that they should come forward with any claims against the estate within three months after the date of first publication of the notice.
The personal representative must also deliver or mail a notice to creditors about how, when, and where they can file claims against the estate. Notice must be sent to all creditors the PR knows about or can discover with a reasonable amount of investigation. If the PR has already paid a claim, or will pay it, a mailed notice isn’t necessary.
If there isn’t enough money in the estate to pay all the debts, state law sets a priority. Assets that have liens (legal claims) attached to them have first priority; after that come funeral and burial expense (up to $5,000), taxes, and then other expenses.
The executor must file final state and federal income tax returns for the deceased person. These returns are generally due by April 15 of the year following the year of death. Income tax returns may also be required for the estate itself, if it receives income.
State and federal estate tax returns will be required only if the taxable estate is very large—for deaths in 2015, more than $5.43 million. The vast majority of estates—more than 99.7%–do not owe federal estate tax. North Carolina repealed its state estate tax in 2013.
Distributing Assets and Closing the Estate:
When debts and taxes have been paid, the personal representative can distribute the property to the people who inherit it. The personal representative must follow the directions in the will, or if there is no will, give property to the closest surviving relatives, as state law directs.
Before the estate can be closed, the personal representative must file a final accounting with the court. The accounting is a statement showing all the transactions the personal representative entered into on behalf of the estate.(If the estate stays open more than a year, an accounting must be filed annually). The accounting must be accompanied by evidence of all transactions, such as cancelled checks, receipts, and bank statements.
- What is a will and why should a person have one?
- Will is a written document in which you direct who is to receive your property upon your death. If you have any real property (land) or personal property (cars, jewelry, money) that you want to give to a specific person you must have a will. Otherwise, the property will pass to persons in accordance with the Intestate Succession Laws.
A relative (friend) just died and I am supposed to handle her estate. What does that mean?
Handling a person’s estate, depending on the value of assets in the estate, your relationship to the decedent, and whether other people are entitled to some of the assets can be as simple as paying the money to the Clerk of Superior Court or so complicated that estate lawyers and tax professionals assistance are required. For more detail about estate administration see estate administration guide.
In general, handling someone’s estate means:
-Determining all of the decedent’s assets or property (land, automobiles, boats, money, stocks, jewelry, or other items of value);
-Identifying and notifying the creditors of the estate (the people or businesses to which the decedent owed money before his death (mortgage, car loan, credit cards)) and the persons or businesses who are due money as a result of the decedent’s death (funeral home, hospital bills);
-Identifying and notifying the persons or organizations entitled to a share of the estate (spouse, children, and friends, charitable or religious organizations);
-Publishing notice to creditors in the local newspaper;
-Paying the decedent’s debts;
-Filing accountings with the Clerk of Superior Court, showing income and disbursements;
-Distributing the rest of the estate as required by the decedent’s will or by intestacy law.
What is my spouse won’t agree to leave and I cannot move from my home or it is solely my home?
This is a difficult situation that many clients find themselves in. When a living situation is untenable, one solution can be to file for Divorce from Bed and Board and ask the court to kick your spouse out of the home based on fault they have committed. Additionally, you can also ask the court for sequestration of the marital residence in child support or an interim distribution of the marital residence if you have good cause.
How We Can Help You
You may have come to the website today searching for something specific that is not listed here. Please call as we cannot list everything here and combined we have extensive knowledge of every area of law that may affect your family in district court or we can refer you as necessary.
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