The Swier Law Firm Estate Planning and Probate Law FAQs

A trustees is responsible for many things, including investing and managing the trust's assets, distributing the assets in accordance with the terms of the trust, keeping accurate records, and filing all necessary tax returns.  Your trustee should be a person or financial institution that you trust.  Keep in mind that you can have co-trustees, and if necessary, your trustee can hire expertise (like investment, legal, and/or tax advice) to assist in performing their fiduciary duty.

Prioritize your goals and objectives when thinking about who your trustee should be.  For example, is it important that your trustee understand you and your family members/beneficiaries in a personal way?  If so, having a close family member or friend serve as an individual trustee may be important.  Is an objective trustee important when decisions are made about how and when assets are to be distributed?  If so, a corporate trustee or an independent individual trustee may be appropriate.

Choosing a trustee isn't always easy.  If you're naming individuals, be sure to speak with them ahead of time to help ensure that they're comfortable with the responsibilities you are asking them to undertake.  If you're using an independent trustee, especially in the case of corporate trustees, make sure you understand their investment philosophy, fee structures, and method for reviewing and deciding upon distribution requests from a beneficiary.

Source:  The Vanguard Group, Inc.

The generation-skipping transfer tax is an extra tax charged on transfers made to the donor’s grandchildren or later descendants that exceed the lifetime exemption.

This tax is also unified with the estate tax and gift tax schedules, with a maximum rate of 40% along with a lifetime exemption of $5.25 million in 2013. 

For clients with an eye on reducing taxes, there are certain gifting vehicles that make it possible to pass assets to the next generation, tax free.  

In 2013, the annual gifting exclusion is $14,000.00.  This means that you can gift $14,000 per individual (or $28,000 for a married couple) to as many individuals as you would like, without impacting your lifetime exemption.

Portability allows couples to take full advantage of each other's unused federal estate and gift tax exclusion amounts.

However, portability applies only to a surviving spouse.  Unused federal estate tax exclusions cannot be transferred to anyone but a surviving spouse.

Now that the uncertainty over estate and gift taxes has finally been clarified, here is a quick update:

Lifetime gift and estate tax exclusions have risen slightly, to $5,250,000 in 2013, while the estate and gift tax rate has increased, from 35% to 40%.  What’s more, the applicable exclusion amounts will continue to be indexed for inflation annually, and the popular portability provision that allows couples to take full advantage of each other’s unused federal estate and gift tax exclusion amounts, remains effective. 

Talking with your aging parents about their current and future financial issues is never easy.  However, in making any estate planning decisions, you should discuss:

1.  bank accounts;

2.  mortgages;

3.  loans;

4.  credit card accounts;

5.  life insurance policies; and

6.  ownership documents (regarding houses, cars, and other assets).

Once you receive this information, you will be able to know how you are going to be able to care for your parents long-term. It is a good idea that once you have discussed these topics that you then seek the advice of an attorney or financial planner.

You can certainly do your mother's probate in South Dakota on your own.  However, probate can often be complicated and you should seriously consider hiring a South Dakota probate attorney to make sure the process is done correctly.

Of course, when trying to find a South Dakota probate attorney, you should make sure he/she is licensed in South Dakota and has experience in probate issues.  

Our law firm recently received this question from one of our clients:

“After my husband passed away in November 2012, I sold the cattle and most of the farm equipment.  I'm now wondering how all will fall out as relates to depreciation.  Of course, the sale price was less than when purchased new. Example: Used 1999 Dump Truck on IRS depreciation @ $7,000 in 2004; had to sell for $1,000 for salvage/parts as repair costs exceeded any greater sales value.”

This is actually a fairly common question.  When a person passes away, any assets owned by them will get stepped up to fair market value as of the date of death (or stepped down if the asset is worth less than its adjusted tax basis).  If the asset is owned jointly with their spouse, then in most cases, the half owned by the person passing away will get the step up and the other half will continue to be depreciated by the surviving spouse.

For those assets stepped-up in basis you will begin to depreciate them using the class lives called for by the tax rules (sorry, no bonus depreciation or Section 179).

The nice thing about these rules is that you do not have to go back and try to find out what they originally paid for an asset (if not on the depreciation schedule).  The only documentation required is how you arrived at the fair market value of the asset.

In the example of our reader, even though they paid $7,000 for the Dump Truck and most likely fully depreciated it, they would most likely use $1,000 as their FMV value.  If this is not a community property state, then $500 would be their cost basis since the surviving spouse had fully written down her cost to zero.  In a community property state the basis would be a $1,000 and no gain or loss would be recognized.

Remember that this step-up applies to harvested grain that has not been sold.  If you have sold the grain on a deferred payment contract and have not received the cash yet, this does not get a step-up since it is considered “income”  and income items do not get a step up.

Source: www.farmcpatoday.com

Not all of your property may be probate property.  In other words, your will may not control all of your property.  One example of non-probate property is jointly-owned property.  Because the different types of jointly- owned property are treated differently for probate purposes, it is important to know what type of jointly-owned property you have.

Title to property is equivalent to ownership.  If property is titled only in your name, you are the sole owner.  If property is titled in more than one name, it is jointly-owned property.  In South Dakota, the most common types of jointly-owned property are joint tenancy with the right of survivorship and tenancy in common.

If you obtained real estate in South Dakota during your marriage, your property is most likely owned as a joint tenancy with the right of survivorship.  Under a joint tenancy with the right of survivorship, each owner effectively owns the whole asset.  In other words, each owner shares ownership equally.  If one owner dies, the other owner acquires the deceased owner’s interest automatically.

If you own real estate in South Dakota with someone other than your spouse, you usually have a tenancy in common.  Under a tenancy in common, each owner holds his share of the asset outright.  Under this ownership structure, there is no need for there to be “equality.”  For example, you might own 60%, and your brother would then own 40%.  If your brother dies, his interest in the property will  be distributed in accordance with the directions in his will.  In other words, your brother’s interest does not pass automatically to you as the remaining tenant in common.

You may also own bank accounts with another person.  Similar to real estate, most married couples have a joint account with the right of survivorship.  During your lifetime, the other joint owner can access the account.  At your death, your will does not control this joint account and the entire account will belong to the surviving joint tenant. 

Under some circumstances, you may not want to give another person access to your bank account during your lifetime, but you do want that account to go to a designated person at your death.  By naming a beneficiary in this way, the designated beneficiary will get the account’s funds at your death no matter what your will says.

You may also own stocks or bonds jointly.  Once again, if you own stock jointly with right of survivorship, it passes automatically at your death to the surviving joint tenant and does not transfer under your will.  On the other hand, if your stock is owned jointly with another person as tenants in common, your share or interest in the stock will pass under your will.

Finally, there are some assets that allow you to designate a death beneficiary.  Today, many South Dakotans have some type of life insurance or retirement plan.  Most life insurance policies and retirement plans allow you to designate a death beneficiary.  These arrangements are contracts that provide how the benefits will pass at your death.  These benefits do not become part of your probate estate (unless you name your estate as the beneficiary).  

A will directs how you want your property to be distributed when you die.  In South Dakota, anyone who is at least eighteen years old and of sound mind can make a will.  A will does not take effect until you die.  Also, as long as you are of sound mind, you can change your will as often as you want. 

In South Dakota, a will always needs to be in writing.  A will written in your own handwriting is called a holographic will.  South Dakota will recognize this type of will under certain circumstances.  However, our law firm does not recommend that you write your own will.  These wills are frequently unclear, incomplete, and poorly written.  A better option is a will that is properly witnessed, known as an attested will.  An attested will, with a special notarized affidavit, is a self-proving will.  Our law firm recommends that you have a properly written, attested, and self-proving will.   

Your will can do many things.  First, your will can direct how your property will be distributed after you die.  Second, you get to name the persons that will take your property, known as the beneficiaries.  Third, you can provide for several contingencies because you do not know who will be living at the time of your death.

Here’s an example:  Presume that you are married and have five children.  You probably want to leave everything to your spouse.  However, if your spouse dies before you do, then you could leave everything to your five children.  You could also decide what would happen if one of your five children dies before you.  Do you want that deceased child’s share to go to your remaining children or to your child’s spouse or children (your grandchildren)?  What happens if you have no surviving spouse or children – is there a charitable organization that you want to honor through your will? 

Another benefit of a will is that you get to choose your personal representative.  The personal representative is the person who manages your estate.  Under South Dakota law, your personal representative has four main duties: (1) to gather your assets, (2) to protect your assets, (3) to pay your debts and expenses (including any taxes), and (4) to distribute the remaining assets to your beneficiaries.  

You may name more than one person to serve as the personal representative.  These persons are called co-personal representatives.  This structure may work in some cases.  However, because both co-personal representatives often have to agree on all decisions (and sign everything) it may create more problems than it is worth.  You should definitely discuss this co-personal representatives issue with your attorney.

For young families, another important benefit of having a will is that you can name the person you want to serve as the guardian of your minor children.  For the parents, this is often the most difficult estate planning decision to make.  The guardian is the person you designate to raise your minor children until their eighteenth birthdays.  South Dakota courts will normally follow your will’s guardianship wishes.  

A will also allows you to establish a trust and name a trustee.  A trust is a legal arrangement that divides ownership of property into two parts: legal ownership and beneficial ownership.  The trustee is the person who holds the legal ownership of the property.  The trustee controls and manages your property according to your instructions for the benefit of your beneficiaries, who hold the beneficial title to the same property.

Here’s an example of how a trust could work:  Presume that your will leaves everything to your spouse.  In the event that your spouse dies before you do, your will leaves everything to your five minor children.  Because your five children are minors, the state Circuit Court will need to appoint a guardian to manage your children’s finances.  Under South Dakota law, the guardian may be required to file a financial accounting with the state Circuit Court.  Sometimes, the guardian must get the state Circuit Court’s permission to spend money for the children.  Perhaps most alarming is that as soon as your minor child turns eighteen, the child receives his estate share outright.  Of course, most eighteen year-olds are not mature enough to handle this kind of major financial responsibility.

A trust, however, allows you to designate whether or not the trustee must post a bond or file accountings with the state Circuit Court.  You can also grant the trustee discretion as to how to spend or invest the trust assets and designate the age that the trustee can provide the property to your children.  For example, you might postpone distribution until at least age thirty, or sometimes half at age thirty and half at forty.  In other words, your trustee can make sure that the funds are used sensibly, such as to pay for a child’s college education, before your trustee has to turn the property over to the child.