When Aretha Franklin died in 2018 without a legal will (intestate), she joined a remarkably long list of legendary stars, including Bob Marley, Sonny Bono and Prince, who also did the same. By simply not preparing an estate plan, she made the task of settling her affairs much more complicated and expensive for her heirs. While your estate may not be as large or complex as hers, it is still extremely important to have a plan in place in the event of your death.
An estate plan is important for everyone, regardless of income, to ensure that your assets are distributed fairly and efficiently. Realizing your vision for the future requires a carefully, personally, crafted estate plan.
An ‘estate’ is a collection of everything you own. That includes real property, vehicles, cash, investments, business interests, and all other personal property; and an ‘estate plan’ is a collection of legal documents that detail your intentions and expectations for three general situations:
- What happens when you can no longer care for yourself and/or your estate; and
- What happens to your assets after you pass away; and
- Who will look after your children, if necessary.
A comprehensive estate plan does not just involve what occurs after your death, it can also cover a situation where you are incapacitated, physically and/or mentally.
Importantly, and what is often overlooked, is that a plan can make life a lot easier for your loved ones, who don’t want to be thinking about financial and legal matters as they grieve and handle your last wishes.
Without an estate plan, it can be more difficult, time-consuming, and expensive for your heirs to handle your financial accounts, property and other assets, and ultimately making sure everything is distributed in the way you wanted it.
What do I need?
Exactly what you need in your estate plan depends on your assets and your family situation. Business owners will need a succession plan, parents with young children will to provide for the children’s health, education, maintenance and support, and parents of children with special needs may need to set up a special needs trust.
Estate planning is especially important for unmarried couples and blended families. State law awards assets to biological relatives if there is no will and an unmarried partner will be shut out. Blended families may want to split assets between current spouses and children of previous marriages, or they may not.
If you live in a community property state, which Nevada is, your spouse may be entitled to receive your community property after your death. This can make it difficult to pass on assets to other heirs, and therefore if it is your intent to provide for someone other than your spouse (i.e., if you are separated/divorce pending or have children from a prior relationship), it is imperative that you have an estate plan.
In Nevada, a Will does not help your estate avoid probate. If you have a Will, the court uses the Will as their guide. If you did not have a Will or if it was invalid for any reason, you are considered to have died intestate (just like the legendary stars above), and the court will use state intestacy laws to decide who oversees your estate, and who inherits your assets.
Probate is a process of verifying that your Will (if you have one) is legal and that your final wishes are carried out. The court appointed Executor of your Will manages your estate through the probate process. If you died intestate, an Administrator is appointed. Your Executor or Administrator will handle tax returns and payments, creditor payments, sale and liquidation of assets, together with all other matters affecting your estate.
NV does not have state inheritance tax; however, an estate in Nevada is still subject to federal inheritance tax. In 2021 the first $11.7mil per individual is exempt at the federal level and therefore your estate will only pay tax if it is more than $11.7mil. Anything more than $11.7mil can be taxed up to 40%.
Other states do have state inheritance tax, so your beneficiaries may be subject to state inheritance tax, depending upon where they live.
The four steps to estate planning:
- List everything you own
- Design a plan
- Execute the plan
- Keep your plan up to date.
When you create your estate plan, there are many things to consider, like who you would want in charge of your healthcare and financial decisions, who you would like your assets to be distributed to; what would happen if that named person(s) is unable or unwilling to serve, or if s/he predeceases you. It is always recommended that you name successors and contingent beneficiaries.
Even after you have created your estate plan, you should review it from time to time based on changes in your life, but everyone should check at least every two years. Heirs may have died or remarried, or the person you chose to administer your estate may no longer be capable. Also, if you marry or divorce, you should review your estate plan.