However, there are very important estate planning issues that need to be considered beyond the simple Will, including the following:

1. Estate Taxes. Currently federal estate taxes are an issue for estates over five million dollars. Virtually everything we own is taxable, but what many people do not realize is that certain assets we do not presently possess can also be taxable. For example, life insurance is free from income tax but not estate tax. Assets that may have been transferred for less than fair market value might be valued differently in the gross estate. The combination of a variety of different assets, including but not limited to life insurance, retirement plans and real estate may put many people over the exemption amount. Without proper planning roughly 45% of property over five million dollars will go to the government (a combination of the federal and Minnesota estate tax).

2. Probate Avoidance. Property passing under the terms of the Will, typically will not avoid probate. The probate process, governed by the court and state law, can be lengthy and expensive. A Revocable Living Trust, if properly funded during lifetime, can effectively remove many if not all of your assets from the probate process and avoid the time and expense of court proceedings. An example of a probate asset would be a brokerage account in your name alone. Such an asset could be conveyed to a revocable living trust, naming you as trustee during your lifetime, and in that case your use and management of that account would be virtually the same. The primary difference is that upon your death, the account is administrated within the trust and is not considered a probate asset.

3. Asset Protection. There are certain instances when you will not want to leave an inheritance to someone outright because the inheritance at that point is no longer protected. The assets could be lost to judgments, creditors, divorce proceedings, and the like. Leaving the assets in trust can protect the intended beneficiary. At the same time, the trust can be designed to be very flexible, and even a beneficiary can be a trustee of the trust.

Clearly, an effective estate plan goes beyond the drafting of a basic Will in many instances.

For more information on this article, please contact Nic Wenner at 612-355-2202.

1. The death of individuals named in the Will.  If individuals named in the Wills, such as beneficiaries or personal representatives, have died or become emancipated, the Will may need to be changed.  There are instances where change would not be necessary.  For example, depending upon the Will, a predeceased child’s share typically passes to that individual’s children.  Also, in some cases a testator may nominate a personal representative as well as an alternate personal representative.  A review of the Will may be necessary to determine whether changes are necessary.

2. Assets. A change in your portfolio of assets may require a corresponding change in your Will.  For example, if you leave your home to one of your children, and the balance of assets to your other children, and then sell the home, you may want to change the distribution of your other assets.

3. Marriage. If you already have a Will at the time that you are married, you will probably want to change your Will to name your spouse as the primary beneficiary of your estate, or to obtain spousal consent if you wish to dispose of your estate by devising some property to someone other than your spouse.  Changes in your Will are especially important in second marriages when you or your new spouse have children from previous marriages or relationships.  In Minnesota, a spouse who is not named in a Will will be able to elect against the Will in a legal proceeding, in which case the spouse would receive a certain percentage of the “augmented” estate depending upon the length of marriage.  These types of proceedings can be avoided by simply revising your Will to properly account for your new spouse.  Unmarried couples who want to leave assts to each other must create a Will except in cases where property is owned in joint tenancy, the decedent had named the surviving partner as a beneficiary on certain accounts or retirement plans, and the like.

4. Divorce. Although a divorce automatically revokes a Will in most states, there are exceptions and Wills drafted prior to the divorce should be revised.  This also provides an opportunity to review other beneficiary designations that you have made on a variety of different assets such as life insurance policies, retirement assets, brokerage accounts, and the like.  You may also want to change your Will if one of your children gets a divorce or you are concerned about the stability of that marital relationship.

5. Birth. Once parents have children, the Will should be amended to name the children, appoint guardians in the event both parents die prematurely, and create a trust for the children during their minority.  Grandparents may also want to restructure their Wills concerning distribution of assets to grandchildren.  Often, the use of a trust is recommended.

6. Retirement. This event may trigger the need to make changes to existing Wills or trust documents, particularly if there is a move to another state or you purchase property in another state where you might vacation for significant times during the year.  The laws of each state are different and this may require reassessment of your planning.  Retirement also triggers the reality that some decisions which may have been put off at a time when your mortality seemed more remote.

7. Tax law revisions. A change in tax law does not usually require a change to your Will, but may require a change in a trust that has been executed and funded, or may introduce the possibility of new trusts.  On the other hand, it is not unusual for individuals to create a Will in their youth only to realize later in life that the basic planning that they have done does not adequately protect their estate from estate taxes.

If you need to update a Will or living trust, contact your estate planning attorney for assistance.

For more information on Wills, please contact Nic Wenner at 612-355-2202.

1. Set up and fund a Revocable Living Trust to save your family the time, cost and burden of probate.

2. Have a Will that disposes of your remaining assets according to your wishes, nominates an executor to administrator your estate, and identify whether a bond should be required and whether the estate should be administered in a supervised or unsupervised setting.

3. Have a durable power of attorney that would appoint an individual (often a close family member) to handle your affairs in the event you become temporarily or permanently incapacitated. The Power of Attorney avoids the need for court proceedings to declare you incompetent and to have a guardian appointed to manage your property.

4. Have a health care declaration that states your wishes regarding life support and end-of-life decisions, and setting forth your wishes regarding your health care so that the appointed health care agent can make and form decisions about your health care if you are unable to express your own wishes.

5. Have a HIPPA authorization naming a specific individual who can talk to your doctors and get your medical information in the event you are unable to consent when the information is needed.

6. Thoroughly review the advantages and disadvantages of life insurance, not only from an estate planning perspective but also in the event that your family members are dependent upon you for support.

7. Review the beneficiary designation on your retirement accounts and life insurance policies and make sure they name the proper individuals, including possibly a trust. In most cases this will avoid the possibility of such a retirement benefits or life insurance policies being paid to your estate (which automatically happens if you do not designate a beneficiary).

8. Consider an umbrella liability insurance policy in addition to the insurance coverage you have in place to ensure against risk that can possibly put your estate in jeopardy due to serious accidents or other liability.

9. Make sure than someone, such as the nominated personal representative, knows the whereabouts of your important documents such as those listed in this article. Also let family members know your wishes for funeral and burial arrangements, especially if you have already purchased a burial plot.

10. Enjoy your loved ones while you have a chance.

As with most projects, getting started is the most difficult part. Once the process has begun, momentum builds quickly and much of what needs to be accomplished can be put into place in a relatively short period of time. The best part is the satisfaction of knowing that you have helped your family avoid a very difficult time, particularly when you are incapacity or you demise is sudden and unexpected.

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

In 2005 and 2006, the Minnesota legislature passed a new child support statute, now codified at Minn. Stat. §518A.26, et al, resulting in significant changes to the methodology in calculating a non-custodial parent’s basic child support obligation , as well as each parents’ obligations pertaining to medical and dental support for minor children. Similarly, in 2006, the Legislature passed legislation codified at Minn. Stat. §518.175, subd. 3, affecting the removal of children from the state by the custodial parent. This article is not intended to be an exhaustive summary of all changes pertaining to the new child support and removal statutes, but will highlight the most significant changes which will be of interest to clients at potential clients.

The new child support statute became effective on January 1, 2007, for newly filed cases, or for existing cases in which a modification would be warranted as long as the basis for the modification is not the change in the child support statute. For most existing cases (cases where modification is not warranted under the old law), the new statute is effective January 1, 2008. It is important to note at the outset that the effect of the new law will in many cases result in a significant modification of an obligor’s support obligation but, conversely, there will be many instances were the new law will not change the support obligation and may even increase the obligation. Therefore, it is important that you consult with legal counsel to recalculate the support obligation under the new law before actually filing a motion.

Generally speaking, under the old law, child support was calculated as a percentage of the obligor’s net income depending upon the number of children for whom support was paid. Support calculations under the new law include the gross income of both parents, the sum of which is referred to as “Parental Income for Child Support” (PICS). The calculation then divides the non custodial parent’s income by the combined PICS to arrive at the non custodial parents “Percentage Share of Combined PICS”. The non custodial parent’s percentage share of combined PICS is multiplied against the “Combined Basic Support Obligation” (the combined PICS for each parent applied against the guidelines chart which is included in the new statute, factoring in the number of joint children), which results in the non custodial parent’s basic support obligation.

By using the gross income of both parents, the new statute eliminates the deductibility of income, social security and Medicare taxes, retirement contributions, and the like. For self employed individuals, the statute does allow certain deductions to arrive at “adjusted gross income”, such as a cost of goods sold and other strictly business related expenses.

Another important feature of the new law is that both parents (including the custodial parent) are rebuttably presumed to gainfully employed on a full time basis and, if the custodial parent is not employed on a full time basis, support must be calculated based on a determination of potential income. This has always been the case for the non custodial parent who has the obligation to support the child, but the old law did not factor in the custodial parent’s income or employability. The presumption that a custodial parent can be employed on a full time basis can in some cases be “rebutted” with the result that potential income will not be “imputed” to the custodial parent. However, it appears that the policy behind the new statute mandates the inclusion of potential income for a custodial parent, with rare exceptions.

The foregoing illustrates the calculation of a non custodial parent’s basic support obligation, but there are other features of the new statute which, when figured into the calculation, will change the amount of the basic support obligation. For example, non joint children who primarily reside in the parent’s home and for whom that parent is not obligated to pay basic child support is factored into the calculation as a “deduction” equal to 50% of the guideline amount of support for that child. The new law caps the number of non joint children that can be considered for each parent to two.

The last significant change with respect to the new child support law involves the parenting expense adjustment which basically adjusts the non custodial parent’s basic support obligation according to the amount of parenting time that parent has with the children. If the non custodial parent’s parenting time with the children is less than 10% (typically, but not exclusively, calculated as a percentage of overnights during the year), there is no adjustment. If the percentage of parenting time is between 10% and 45%, there is a 12% adjustment, and parenting time between 45.1% and 50% results in a presumption of equal parenting time and a corresponding adjustment. In such cases, a basic support obligation and a 50% adjustment is calculated for both parents, the support obligation is offset, and the party with the greater obligation pays support to the other party in an amount equal to the difference between that party’s obligation and the other party’s obligation.

The calculation of either parent’s share of child care expenses (daycare) under the new law is very similar to the calculations under the old law, as the old law contained a formula which in effect resulted in a PICS number after considering both parties’ income after the transfer of child support to the custodial parent. On the other hand, the determination of either party’s share of medical and dental insurance expenses under the new law is significantly different than the calculation under the old law, as both parties are obligated to contribute to those expenses according to their percentage share of combined PICS. For example, if the non custodial parent incurs medical and dental insurance expenses for one child in the amount of $300.00, and the custodial parent’s percentage share of combined PICS is 30%, the custodial parent will “owe” $90.00 resulting in a reduction of the non custodial parent’s basic support obligation is the amount of $90.00. With respect to unreimbursed medical and dental expenses, each parent’s share of those expenses correlates precisely to their percentage share of combined PICS. Typically, the parent who has not incurred the unreimbursed medical or dental expense is obligated to reimburse the other parent for a percentage of that expense. Importantly, under the new law, there is a retroactive two year statute of limitation for one party to collect the other party’s share of unreimbursed medical and dental expenses. In other words, even for those cases decided before the effective date of the new law, the court will now only go back two years when considering any motion for an order or judgment for unpaid medical and dental expenses.

The changes in the removal statute, effective August 1, 2006, substantially leveled the playing field with respect to the custodial parent’s right to move the children out of state. Briefly, under the old statute, it was presumed that a custodial parent could move out of state with the children, and the burden was on the non custodial parent to show that the move was not in the children’s best interest. The new statute places the burden of proof on the custodial parent who is requesting the move to show that the move is in the children’s best interest, and allows the court to consider several factors in determining the children’s best interest relative to the prospective move. However, if the parent requesting permission to move has been a victim of domestic abuse by the other parent, the burden of proof would be on the parent opposing the move. There are many in the legal community who believe that most courts will continue to side with the custodial parent requesting the move, but the new statute forces much stricter scrutiny of a prospective move and gives the non custodial parent a better chance of preventing a move.

The new child support statute is widely considered to be a more fair way of balancing each parent’s respective share of financial obligations for their children, but as I indicated earlier, it will not automatically result in a substantial change to a non custodial parent’s collective support obligation. It is recommended that those paying support under an existing order seek legal counsel to determine whether the new law will have a dramatic effect on their support obligation. For those experienced in implementing the new law and drafting worksheets under the new calculations, the process can be competed very efficiently and inexpensively.

For questions related to this article please contact Nic Wenner at 612-355-2202.

The obligation of non-custodial parents to provide financial assistance to their children, commonly referred to as child support, has long been a feature of state and federal legislation. However, in recent years legislation has become increasingly creative in the manner by which child support can be collected, particularly in cases where a child support obligor is behind in support payments. Given the ever aggressive state of the law, it is vitally important that anyone facing the possibility of ongoing support obligations or the imposition of retroactive child support obtain the expert advice of legal counsel to ensure the proper calculation of the support obligation and to ensure there is not an over collection of past support allegedly payable.

A child support obligation is typically calculated pursuant to specific guidelines set forth in Minn. Stat. 518.551. Based upon these guidelines, support obligations will vary depending upon the amount of the obligor’s net monthly income and the number of children for whom support is collected. Support obligations also include contribution to work or education related day care expenses, and contribution to dependent health and dental insurance premiums and unreimbursed dependent health and dental expenses.

The general rule is that support will only be awarded retroactive to the date that a motion is filed. There are three principal instances when support can be collected retroactively: 1) in paternity cases, 2) in cases involving reimbursement to a county for public assistance, and 3) where a legal guardian has custody of children with the consent of the non-custodial parent or by court order, and the children are not receiving public assistance. In each of these instances, with few exceptions, support can be collected for a period of two years prior to the filing of a petition or a motion that raises the support issue. In addition to being charged with an ongoing monthly support obligation, individuals will often find themselves suddenly burdened with thousands of dollars of child support arrears that will then be collected on top of the monthly support obligation, usually at the rate of 20% of the base monthly support amount.

In the first instance, Minn. Stat. 257.66 allows a court to go back two years prior to the filing of a petition in a paternity case for past child support, as well as for expenses of pregnancy and confinement, and the mother’s lost wages. The statute requires the potential support obligor to pay “all or a portion of the reasonable expenses . . ., after consideration of the relevant facts, including the relative financial means of the parents; the earning ability of each parent; . . . “. Without proper representation, the tendency will be for the Court to charge the support obligor for the full brunt of the expenses that could potentially be imposed.

A second area where support can be awarded retroactively two years prior to a motion is in those cases where a county is seeking reimbursement for public benefits paid on behalf of a minor child. County attorneys pursuing these claims will routinely request reimbursement from a potential support obligor for the maximum amount regardless of any limitations inherent in the law. If there is a current support order, the county will not be entitled to reimbursement beyond any arrears in the existing order. The county will also not be entitled to a retroactive upward modification of the prior order in an attempt to obtain reimbursement. Finally, any calculation of past support for reimbursement to the county must consider the obligor’s financial condition at the time public assistance was paid, rather than the obligor’s financial condition at the time of the motion.

Lastly, legal guardians of the children who are not receiving public assistance also can apply for retroactive support pursuant to Minn. Stat. 256.87, Subd. 5. This statute allows retroactive support “only if the person or entity has physical custody with the consent of a custodial parent, or approval of the court.” In the vast majority of cases where this statute is applied there is no prior court order. Rather, the situation usually involves a separation between parents, where one parent retains custody of the child. It is important to understand that a non?custodial parent in this situation has the potential exposure of having to pay support retroactive for two years, thereby resulting in a heavier ongoing support burden than would otherwise have been the case.

Occasionally a county will bring a motion seeking reimbursement of public assistance and add to the motion a request for an award of retroactive support to the custodial parent for the period of time before public assistance was being provided. There are several defenses to this type of proceeding, not the least of which is the fact that Minnesota courts will only allow custodial parents to seek retroactive support pursuant to this statute in the context of a marital dissolution proceeding (as opposed to a reimbursement proceeding). In addition, these types of motions brought by the county attorney’s office are usually prosecuted by the county attorney on behalf of the county, not the custodial parent, and therefore the court will not have jurisdiction to award retroactive support to the custodial parent.

There are many pitfalls facing individuals against whom a child support order is sought. Managing the payment of an ongoing support order is difficult in and of itself but is frequently greatly exacerbated by the failure of the obligor to precisely articulate the proper calculation of net income and to artfully defend efforts to seek retroactive support. The failure to seek competent legal counsel at the outset will lead many into the abyss of financial despair as they eventually attempt to navigate the double burden of an ongoing monthly support obligation and financial obligations imposed retroactively. Good planning and good advice can avert an unduly burdensome support order.

For questions related to child support, marital dissolution or any other family law or estate/probate related questions, please call Nic Wenner at (612) 355-2202, for a free telephone consultation.

Our firm has had the privilege of serving hundreds of clients of the years in regard to several family law related legal issues, including dissolution of marriage. In the course of responding to inquiries of several of our clients or prospective clients, it has become evident that we are hearing some of the same questions over and over again. This article will briefly address some of those questions related to divorce proceedings.

1. How Is A Dissolution Action Commenced, And What Procedures Are Necessary To Finalize The Divorce?

In rare instances, a dissolution of proceeding can be commenced jointly in what is known as a summary proceeding. These cases are limited to marriages of less than eight (8) years where the parties own no real estate, have no children, and have limited debt and assets. In other rare instances, parties can file a joint petition, but there is no clear advantage to a joint petition since the parties still have to reach an agreement on all issues and present that agreement to the court. Parties may wish to retain one attorney to assist them in this process, but that often raises ethical concerns and may place the attorney in a position of having a conflict of interest and expose the attorney to possible claims that one or the other party was not properly represented. In the vast majority of cases, a dissolution action is commenced by one party personally serving upon the other a summons and petition for dissolution of marriage and that the personal service cannot be made by the party or the attorney representing the party. The action is commenced upon the service and the district court will not be involved in the proceeding until the summons and petition, with an affidavit of service, is filed in the district court.

Minnesota law encourages, and in some instances, requires, mandatory non-binding mediation or arbitration before the case is heard by a district court judge. The parties, of course, are free to pursue any type of mediation or arbitration they desire to help them reach agreement on some or all of the disputed issues. At the same time, in some instances, the parties are allowed to file motions with the district court early on in the dissolution proceeding if there are temporary issues that need immediate resolution.

At any time prior to trial, the parties can agree on all issues involved in the dissolution action, including child custody, child support, spousal maintenance, property division and division of debt. If such an agreement is reached, the parties will execute a document universally known as a marital termination agreement. This agreement, along with a proposed findings of fact, conclusions of law, order for judgment, and judgment and decree, will then be forwarded to the district court and may be eventually finalized administratively (where both parties are represented by counsel), or will be resolved with a default hearing before the district court judge. In cases where the parties cannot reach an agreement, the matter will be scheduled for a pre-trial and eventually for trial. The parties can agree at any time during the process, but if the matter is tried before a district court judge, the judge will ultimately make all of the decisions on how the dissolution will be resolved. The vast majority of cases are resolved before trial.

2. How Much Does A Typical Dissolution Proceeding Cost?

Unfortunately, there is no such thing as a typical dissolution proceeding. In most cases, it is virtually impossible to determine in advance the overall expense of the process. The expense is usually determined by two primary factors: (a) whether the parties are able to come to an agreement early on in the process; and (b) the complexity of the issues involved in the proceedings. In most dissolution proceedings, attorneys charge an hourly fee, although some attorneys will charge a flat fee, usually with some well-defined contingencies if the case is not quickly resolved. In Minnesota and in most jurisdictions, it is unethical to charge a contingency fee in dissolution matters (i.e., a percentage of property awarded to the client). In addition to attorney fee expenses, there are other costs incurred during the course of the action depending again upon the complexity of the issues in the case. Independent custody evaluations, real estate and business appraisals, and the retention of other experts will all escalate the cost of the proceeding. It is our practice to provide a cost-benefit analysis to our clients early on in the proceeding, but ultimately individuals will make their own decisions about how much they are willing to expend on any particular issue.

3. How Long Do Dissolution Proceedings Last?

It is the policy of most jurisdictions to have all of their dissolution cases resolved within one year of filing of the case. It is important to note that this timeline is not in effect until the petition is actually filed, regardless of when it is served. Again, in complex cases, continuances are routinely granted to allow time necessary to complete, for example, custody evaluations and complex discovery issues. If the parties are able to quickly reach agreement on all issues involved in the proceeding, it may be possible for a judgment and decree to be entered by the district court within six to eight weeks after the proceeding began. Again, the length of the proceeding is largely dependent upon the parties’ ability to agree and the complexity of issues that they face.

4. What Is The Difference Between A Decree Of Legal Separation And A Decree Of Divorce?

A divorce decree generally resolves all issues between the parties, including a permanent division of property, and an order with respect to custody and support, and dissolution of the marriage. A decree of legal separation, of course, does not result in the dissolution of the marriage, and only decides a division of property and an award of support or custody on a temporary basis. If the parties eventually seek a divorce, all of those issues will have to be decided again in the dissolution proceeding. The advantage of a legal separation, although few, is that a petition for legal separation can be served at any time, whereas a petition for dissolution of marriage requires residence in the state of at least six months. Also, a decree of legal separation will determine the rights and responsibilities of the respective parties on an interim basis, which may be helpful in regard to certain issues, such as division of debt incurred during the separation, when the case eventually proceeds forward in a dissolution proceeding. The disadvantage of a legal separation is that it often duplicates the expense if the parties are eventually divorced, and it postpones the ultimate disposition of various issues to a later date when it might be more difficult to obtain the information or evidence necessary to allow people to arrive at a reasonable agreement, or for the court to make a reasonable decision at trial.

In most cases, it is important to retain the services of competent legal counsel to help you understand the dissolution process and to proceed as effectively and efficiently as possible. Although courts are very respectful toward pro se litigants, there usually is a decided advantage for parties who are represented by counsel. Dissolution proceedings can be procedurally very complicated, and all due caution should be taken to ensure that your rights are adequately represented.

For questions related to marital dissolution or any other family law or estate/probate related questions, please call Nic Wenner at (612) 355-2202 for a free telephone consultation.

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.