An Estate Plan: The Best Holiday Gift

The holiday season is here.  Finding the perfect gift can be a difficult task, but what better gift for your loved ones than making sure your affairs are in order?  For many Minnesotans, the task has been simplified by two facts: 1) most assets pass by beneficiary designation, which keeps the assets out of probate; and 2) most Minnesotans no longer need tax planning due to the increase in the federal and state estate tax exemption amounts.

In 2017, the Minnesota legislature increased the estate tax deduction to $2.1 million for decedents dying in 2017, and provided that the exemption will increase to $3 million by 2020.  The increased exemption amount means that fewer than 2 percent of estates pay estate tax, and fewer families need to plan for estate taxes at death which simplifies estate planning.

Creating an estate plan is further simplified by the fact that more and more people hold the bulk of their wealth in qualified plans and individual retirement accounts, which virtually always pass via beneficiary designation.  Since 2008, real estate can also pass without a probate if a transfer-on-death deed is executed and recorded before death.  Further, bank accounts can be titled “Pay On Death” by filling out a 1-2 page form at your bank (ask your local banker).  Almost everyone has one or more vehicles, and as of August 1, 2017, you can execute a DVS Transfer on Death Beneficiary Form so that title to your vehicles transfers automatically at death (upon the filing of some DVS paperwork of course).

So, if all your assets can pass by beneficiary designation, do you still need a will or a trust?  Perhaps not, but having one is smart for several reasons.  First, executing a simple will is advised in case an unknown asset exists and to nominate a personal representative in case any disputes arise.  Moreover, there are many circumstances that will require a will or trust, such as a disabled beneficiary or an asset that cannot pass by joint ownership or beneficiary designation.

To illustrate, imagine a married couple with three adult children who want to leave everything to each other and then to their children in equal shares.  The couples’ assets include a house, a 401(k), an investment account, life insurance, bank accounts, and a car.  All of those assets can pass automatically by titling the assets jointly or executing a beneficiary designation form in favor of the surviving spouse.  The house and investment account would likely be titled jointly.  The 401(k) and life insurance will have a beneficiary designation form to complete.  The bank accounts could be joint, or most banks permit an account holder to name a “Pay on Death” beneficiary.  Finally, the car may either be jointly owned or subject to a transfer on death form.

Therefore, at the first death everything will pass automatically to the surviving spouse.  Then, if the surviving spouse simply wants to leave everything in equal shares to his or her children (assuming no complications exists), the assets could again be titled to pass automatically upon his or her death to the three adult children.  A transfer-on-death deed could be executed naming the children as beneficiaries to receive the home at the death of the surviving spouse, and the remainder of the assets (investment account, 401(k), life insurance, car, and bank accounts) could pass by beneficiary designation, pay-on-death or transfer-on-death forms.  The surviving spouse could even accomplish charitable giving by naming a charity as a beneficiary of a qualified plan (which would also provide the added bonus of an income tax deduction).

As this scenario shows, it is possible for to create a plan for assets to pass automatically at death without a will or a trust.  But, there remain some important reasons to consider having a will or trust, including:

• Difficult assets such as stock certificates or US Savings bonds;
• Planning for incapacity or special needs planning;
• Risk of unknown assets; and
• Nominating a personal representative to represent the estate in post-death matters.

As you can see, creating an estate plan may not be as challenging as you think and would make a great holiday gift.  If you have questions about the planning process, an attorney with estate planning experience can be a helpful resource.

Mia E. Thibodeau is an attorney with Fryberger, Buchanan, Smith & Frederick, P.A., and practices in the areas of family law, estate planning, real estate and municipal law.