Orsbon & Fenninger, LLP

Estate Planning and Estate Administration

704-900-3883 Phone
888-314-8134 Toll-Free

Charlotte Estate Planning Blog

Using transfer on death to bypass probate

North Carolina residents might wonder how they can arrange their estates to avoid probate. One man named his daughter as a beneficiary on investments and left her his car and home in his will. He wondered if there might be a better way of doing this.

While it is possible to leave these types of assets to a person in a will, another way to do it is with a transfer on death deed or transfer on death title. The former would be for the house and the latter for the car. This would mean that the property would not have to go through probate and would instead pass directly to the man's daughter without delay. Another advantage of TOD is that unlike making someone a joint owner of an asset, the other person's ownership only happens at death.

Divorce and estate planning

People in North Carolina who are getting a divorce may want to consider changing their estate plan as well. If a person dies before the divorce is final or shortly after the divorce, the ex- or soon-to-be-ex-spouse could end up with the person's assets.

For example, one man had a large settlement he had received after an accident. He and his future wife signed a prenuptial agreement under which the settlement would remain the man's property. The man placed it in a trust, but after being married for several years, he made his wife an 80 percent beneficiary of his trust. His family was the 20 percent beneficiary. However, after a decade, his wife filed for divorce. Changing the trust would have simply been a matter of signing an amendment. However, the man did not do so and died just days before the divorce decree was final. The couple lived in Arizona where the law stipulated that since the decree was not yet final at his death, his wife still received $14.4 million or 80 percent while his family only got about $3.6 million.

Set the stage for continued business success and a lasting legacy

Successful business owners like you understand the importance of good leadership. After all, your North Carolina business did not grow into the productive, prosperous company it is today by osmosis. You put your whole heart and soul (and a lot of time and effort) into bringing your long ago dream to fruition. Now, the time has come to think about the future., namely who will take over the reins of your business when you are no longer here to man the helm.

As someone who likely already knows how crucial good organizational skills and proper record keeping can be toward business success, you may be wondering how best to proceed to line up all your ducks in a row with regard to passing the torch when the time comes. A solid business succession plan may be just the viable option you're looking for.

When an irrevocable trust needs to be decanted

Traditionally, the only way to change an irrevocable trust is with the permission of beneficiaries and costly, time-consuming legal action. The idea behind an irrevocable trust is that the assets in it are outside of the control of the grantor and that it remains unchanged. However, some states, including North Carolina, now permit a process known as decanting that changes the irrevocable trust.

Decanting involves the creation of a second trust that the contents of the first trust are "poured" into. However, it is the trustee and not the grantor who creates the second trust.

What to know about estate taxes in 2018

In 2018, residents of North Carolina, along with the rest of the country, will have a $5.6 million federal estate tax exemption. This is an increase from $5.49 million in 2017. Couples may choose to combine their individual exemptions, which means that they have a total exemption of $11.2 million. However, couples will need to tell the IRS that this is what they want to do.

The gift tax exemption was $14,000 in 2017, and it will go up to $15,000 in 2018. These increases are linked to inflation, and the gift tax exemption amount will go up for the first time since 2013. If the current administration has its way, the estate tax may be eliminated. However, it is likely that such a proposal will be scrapped in favor of lower tax rates for individuals and businesses.

When an asset protection trust may make sense

North Carolina residents who are looking to do what's best for their children may be interested in creating a spendthrift trust. This may be especially useful for those who may not have had experience handling money who may otherwise be inheriting a lot of it at once. Such trusts can either be created while a person is still alive or triggered upon a person's death.

Typically, the trustee has broad authority to provide money to beneficiaries as he or she sees fit. In some cases, the trust lasts for a defined period of time, and it can also allow for discretionary distributions by a trustee. This may allow a child to have relatively easy access to their inheritance without having direct access to it. In addition to protecting children who may not be responsible with money, a spendthrift trust may be out of reach of creditors.

Estate tax rules withdrawn by the Treasury Department

Small business owners in North Carolina may breathe a sigh of relief upon learning that the proposed valuation rules for family businesses will be withdrawn by the Treasury Department. The rules were proposed in August 2016 and would have greatly limited discounts in value that business owners claim in order to pass their businesses on while minimizing their estate and gift taxes.

The rules, which were called "Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes," fell under Sec. 2704. They would have limited the valuation discounts that business owners currently enjoy when they transfer family businesses to their heirs upon their deaths. The rules would have meant that families would face more gift and estate taxes, and they would have disrupted their abilities to conduct wealth transfer planning.

Do you really need a special needs trust for your child?

You may already know that your special needs child cannot have assets over a certain amount in order to receive benefits from the government. This limitation may make it seem difficult to plan for your child's future. Fortunately, an estate-planning tool that could work for you and your child does exist.

A special needs trust allows you, other family members and friends to set aside assets for your child's benefit. You may think that any type of trust would work, but this type of trust has particular language in it and some limitations that protect it from inclusion in your child's assets by the government. While you are alive, you can continue to add assets into the trust, and make distributions to your child. After your death, assets from your estate can go into the trust as well.

The various types of trusts

North Carolina residents may take advantage of a variety of trusts as part of their overall estate plan. For instance, a testamentary trust is one that is included in a will. The will spells out which assets the trust is to hold after the testator passes away, and they do not avoid probate. However, it may avoid the cost of trying to create and fund a trust while still alive.

Bypass and marital trusts may work to benefit both a spouse and any children a deceased person may have. Bypass trusts take advantage of the roughly $5.5 million lifetime estate and gift tax exemption to help an individual cement his or her legacy. The surviving spouse can generally make use of assets in the trust, and he or she may also receive whatever doesn't go into the trust. Marital trusts are primary for the benefit of a surviving spouse, and they are typically used if a person has children from another marriage.

Estate tax and gift tax exemptions may rise in 2018

Couples in North Carolina and throughout America may see their joint federal estate tax exemption climb above $11 million in 2018. It is also likely that the gift tax exemption will increase to $15,000 for 2018, which would mark the first increase since 2013. The federal estate tax exemption is indexed to inflation, and was first set at $5 million in 2011.

For 2017, the exemption was set at $5.49 million per person while the gift tax exemption has been at $14,000 since 2013. Any gifts over the exclusion amount are applied toward a person's federal estate tax exemption. While this may make it easier for some to avoid paying the 40 percent federal estate tax rate on some or all of their assets, many are looking forward to eliminating estate taxes altogether. President Trump has called for an end to the tax.