The Swier Law Firm Estate Planning and Probate Law FAQs

The Swier Law Firm Estate Planning and Probate Law FAQs

 

Have questions? We have answers! Our South Dakota attorneys answer the questions they hear most often from clients just like you.

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  • What is a "stepped-up" basis?

    The "basis" of an asset is what a person has paid for an asset together with money invested in an asset after purchase This determines gain/loss for income tax purposes.

    A "stepped-up basis" occurs when assets get a new basis when they are passed by inheritance (through will or trust). These assets will be re-valued as of the date of death of the owner.

    If the value of the asset has gone up in value since purchase, the new owner will take that asset with a new basis equal to the current value without paying tax on that increase. This has the potential to save a significant amount of capital gains upon sale in the future and can be a good way to do some strategic estate planning.

    Example: My mom bought real estate in 1950 for $25,000. When she died last year it was appraised at $500,000. I received that real estate from her estate and my basis is now $500,000 tax-free. If my mom had sold this real estate before she died she would have had to pay taxes on $425,000 of gain, but because she died with the property I received a "step-up" in basis to the current value.

  • What is the "basis" of an asset?

    The "basis"of an asset is what a person has paid for an asset together with money invested in an asset after purchase. This determines gain/loss for income tax purposes.

    Example: You purchased your house for $100,000, but have since had to put on a new roof for $3,000, you added on a garage for $10,000, and updated the windows for $4,000. Your new basis in your house is now $117,000 ($100,000 + $3,000 + $10,000 + $4,000).

  • What is a "stepped-down" basis?

    The "basis" of an asset is what a person has paid for an asset together with money invested in an asset after purchase This determines gain/loss for income tax purposes.

    A "stepped-down" basis is the same as the "stepped-up" basis - except the asset has gone down in value since it was purchased. The new owner would take that asset with a new lower (stepped-down) basis. This depends on the value as of the date-of-death of the owner compared to the price the owner originally purchased the asset.

    Example: Dad was convinced that AOL was going to make a comeback. He bought it for $50,000 and it’s now worth $10,000. Instead of selling his AOL stock at a loss during his lifetime he held onto it. I now own it with a basis of $10,000.

  • What is a South Dakota "trust company"?

    A South Dakota "trust company" is an institution specializing in the management of trusts. There are lots of trust companies in South Dakota because of the favorable trust laws of our state. They serve as a corporate trustee and can have roles ranging from specific to general depending on the needs of the family. These roles can change over the years.

    Example: When we formed our South Dakota trust we had to hire a South Dakota trust company as the trustee so we can take advantage of South Dakota law, but we still have a lot of control over all the assets. It’s a win-win situation.

  • What happens if someone dies without a Will in South Dakota?

    Our law firm is often asked, “What happens if someone dies without a Will?” The answer is that you will have made very significant (and likely unwise) estate planning decisions. If you die without a Will, South Dakota law dictates who gets your property. These laws are known as the laws of intestate succession.  

     

    In other words, if you die without a Will, the State of South Dakota has written a Will for you. The State also determines who gets your property, who will manage your estate, and who will serve as guardian of your minor children. Often, the State’s laws in these areas do not reflect what you would have really wanted.    

  • What is a "spendthrift clause"?

    A "Spendthrift Clause" is a clause added to a trust to protect assets in that trust from a beneficiary’s creditors or to prevent assignment of an inheritance before it is received. This can include protection from a spouse in divorce.

    Example: My dad put a spendthrift clause in his trust so even though I was supposed to get distributions already, the trustee won’t give me any money because I’m in the middle of a nasty divorce and they don’t want it taken from me.

  • What does "vesting" mean?

    A "Vested" interest means having an immediate interest in a piece of property or asset that a third party cannot take away. You can have a vested interest in something without yet having it and you can leave that vested interest to someone else in your will or even sell your interest.

  • What is a "holographic will"?

    A "Holographic Will" is a will that is partially or fully handwritten. Not all states recognize holographic wills. However, South Dakota does recognize holographic wills.

    Example: My grandma wrote a holographic will. She meant to have an attorney type it up, but never got around to it, but we were able to file her handwritten version with the court when she died.

  • What is a "Pour-Over Will"?

    A "Pour-Over Will" is used together with a revocable trust to “pour” any assets that were not in a decedent’s trust at the time of death over to the trust.

    Example: My wife and I have formed revocable trusts as part of our estate plan, but we still need to sign Pour-Over Wills for things that aren’t held in our trust when we die.

  • What is a "will contest"?

    A "Will Contest" does not determine who has the best Will, it is a process where someone files a formal objection to a Will. 

    The objection could be for any number of reasons, but the objection must be filed with and heard by the court of the county where probate of the Will is taking place.

    Example: My uncle filed an objection to my grandma’s Will. He says grandma wasn’t competent when she wrote him out of the Will and didn’t know what she was doing.