Common Probate & Estate Planning Questions

What is a Will?

A last Will and Testament is a writing that states who will receive the assets of a deceased person.  Wills not signed in accordance with Minnesota law are void.  Minnesota residents must sign Wills at the end of the document in the presence of at least 2 witnesses who are both present at the same time and place with the person making the Will.  Wills are usually signed in the presence of a notary public in addition to the witnesses so that the Will is self-proving in case of death.  Self proving Wills can be admitted to probate without having the witnesses come to the court house.  The Wills should be kept in a safe place because it must be presented to the court after death.  Only in exceptional circumstances will a copy of a Will be admitted to probate.

 

 

What is a Personal Representative or a Trustee?

A Personal Representative is the person or entity appointed by the court to administer the decedent’s estate.  A personal representative can be appointed by a court whether the decedent died with or without a Will.

A trustee is a person or entity named to administer a trust.  Most Wills and trusts name a close relative, or a financial institution (such as a bank), and provide for alternates to serve in case any of those named predeceases the testator or grantor.

 

 

What is probate?

Minnesota law requires a probate proceeding upon the death of an individual if the individual owns assets.  The probate proceeding is the law’s way of assembling the decedent’s assets, paying debts and taxes, and passing title to the decedent’s beneficiaries.  There are several different types of probate proceedings ranging from affidavits of survivorship to summary proceedings, informal unsupervised proceedings, or formal supervised proceedings.

 

 

What is a Revocable Living Trust and how does it avoid probate?

A revocable living trust is a writing that creates a form of ownership in which assets originally owned by the grantor of the trust are legally re-titled in the name of a trustee who manages the assets for the benefit of the trust beneficiaries named in the document.

Creating a revocable living trust, also called an “inter vivos trust”, or just a “living trust”, is the most effective means of avoiding probate and guardianship with respect to the trust assets.  It is safer than using joint ownership to avoid probate because the trustee named by the grantor does not personally own the assets of the trust, as is the case with joint property.  The trustee holds title to the assets “in trust” for the benefit of the beneficiaries named in the trust so creditors of the trustee and beneficiaries cannot reach the trust assts.

The living trust names the grantor as the initial trustee and initial beneficiary.  This means that the grantor both manages the trust assets as trustee and is entitled to the benefit of the assets as beneficiary for life.  The grantor may also name a bank, a trust company, or another individual as the initial trustee.

The trust also lists the beneficiaries entitled to receive the assets when the grantor dies.  This part of the trust is similar to dispositive provisions in a Will.  The trust also names who will be the successor trustee after the initial trustee dies or becomes incapacitated.

A trust is created by signing a written trust agreement.  After the trust is created, assets of the grantor must be transferred to the trust.  The trust avoids probate as to the assets placed in the trust because upon the grantor’s death or incapacity the assets of the trusts are owned by the trust and not by the grantor.  Assets which have not been transferred to the trust and which remain titled in the grantor’s name at death are subject to probate after the grantor’s death.  Accordingly, most assets should be placed in trust if probate and guardianship avoidance is the primary goal.

On the other hand, certain assets, such as real estate owned in joint tenancy, life insurance, annuities, IRA’s, retirement accounts and other assets can avoid probate on their own through valid pay-on-death beneficiary designations (for example, a life insurance policy that names someone other than the decedent’s estate as the beneficiary).

 

 

Do life insurance proceeds avoid probate?

Life insurance proceeds payable by valid pay-on-death beneficiary designation to someone other than the estate are not probated.  This does not mean that the proceeds avoid estate taxation if, when added to the gross estate, the total estate exceeds the exemption permitted by federal law.  It just means that proceeds are paid directly by the insurance company to the beneficiary without going through probate.

 

 

Do IRA, 401(k), Keough, Pension, and other retirement account proceeds avoid probate?

The owner of an IRA, 401(k) Keough, pension, profit sharing, and other retirement accounts may designate the beneficiary entitled to receive the account at his or her death by signing a written beneficiary designation.  Proceeds of the account will then be paid directly to the beneficiary without going through probate.  Such assets are still subject to estate tax, and often income tax.

 

 

What is included in the exempt property of a decedent?

The following property of a deceased Minnesota resident is exempt from the claims of his or her creditors (except for persons having liens on those items and medical assistance claims): if the decedent is survived by a spouse or children the homestead, household furniture, furnishings and appliances in his or her usual place up to a net value of $10,000, one motor vehicles (regardless of value) held in the decedent’s name and regularly used by the descendant or his or her immediate family as her personal vehicles, a “family allowance” for 12 months if the estate is insolvent, or 18 months if the estate is solvent, and certain other properties.  Unless the decedent’s Will leaves the exempt property to the others, the surviving spouses entitled to the exempt property.  If there is no surviving spouse, the decedent’s children are entitled to it.

 

 

What is a guardianship?

Guardianship is to the living what probate is to the deceased- a court proceeding to oversee the rights and property of an individual who is unable to manage on his or her own.  The court may appoint a guardian for a minor (someone under the age of 18 years).  The minor’s parents are often appointed as guardians.  The court will also appoint a guardian for a person who has been found to be incapacitated.  Guardians must file papers with the court and follow special rules pertaining to guardianships.  The guardian must file annual accountings with the court, and the courts must audit the accountings.  These requirements are intended to protect the Ward (minor or incapacitated person), but the expense and public nature of a guardianship can be counterproductive to the Ward.  For this reason, guardianship avoidance through the use of more effective estate planning techniques, such as living trust, is preferred.

 

 

What are estate taxes?

It is important to remember that probate avoidance does not mean estate tax avoidance.  Federal estate tax returns must generally be filed by anyone who dies after 2010 owning a total of more than one million in assets, including such things as joint accounts, IRA’s, 401(k), pension and profit sharing plans, real estate, bank accounts, stocks, bonds, mutual funds and life insurance.  A portion of the estate is not taxable depending upon the law in effect at the time of death.  Minnesota residences are subject to an estate tax for property exceeding one million in assets.  If a Minnesota resident owns property in other states or countries, then the estate or inheritance taxes of that jurisdiction may apply.

No estate taxes are payable upon assets left to the surviving spouse outright or in a trust qualifying for the marital deduction.  Therefore, no matter what the value of the estate, it is possible to leave the entire estate to the surviving spouse without incurring estate taxes on the first spouse’s death. However, the estate taxes upon the death of the surviving spouse could be very high depending upon the law in place at the time of death.

Estate taxes can be reduced in a number of ways.  One way is for each spouse to take advantage of the exclusion by leaving that amount of assets at death to someone other than the spouse or to a unified credit trust for the surviving spouse that would not be included in the surviving spouse’s estate.

Another way is for each spouse to make life time gifts of up to $13,000 per year to one or more persons.  Other estate tax reduction methods include the use of irrevocable life insurance trusts, charitable trusts, and other types of trusts.  These techniques are often complicated, but they can result in savings many times greater than their initial cost.

 

 

Where is my Will?

Always let someone know where your original Will is stored.  If your Will cannot be found after you die, the court will decide that the Will never existed or that the estate will proceed intestate (as if the Will never existed).  One place to keep your original Will is a safe deposit box.  In Minnesota, it is relatively easy to access a safe deposit box after you have passed, even if you have not provided the key to a family member or someone close to you.

Other options include filing the Will with the court of clerk in the county where you reside, or leaving one original copy of you Will with your attorney.  You can always store your Will in your home, but it could become lost, destroyed, or discovered by an interested party who could deliberately destroy, conceal or alter the Will.

 

For more information on probate and estate planning, please contact Nic Wenner at 612-355-2202.

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