When you pass away your estate may be required to go through probate (with a will) or administration (without a will). These judicial processes are used to accomplish the legal transfer of your property to your beneficiaries and heirs. Many families position themselves to avoid the delay and expense of probate and administration. By far the most popular strategy used by estate planners to avoid probate involves the creation of a revocable living trust. There are, however, some alternative probate avoidance strategies, and strategy combinations, that may work for some, but not all estates.
One way to keep your heirs and beneficiaries out of court is to simply give your wealth away during your lifetime. If your estate is under the cut-off value stated in Nevada Revised Statutes (NRS), and does not hold an interest, lien or mortgage in real property, the estate can be transferred to the beneficiaries by using a simple one-page affidavit of entitlement. At the time of this article, the cut-off amount is $100,000 for a spouse claimant. For other claimants, the probate threshold is $25,000. Refer to NRS 146.080 for current estate value threshold for probates and other qualifying criteria.
While some estates can be whittled down during lifetime sufficiently to avoid probate, there is a limitation on how much you can give away each year without being taxed. The IRS will tax the donor on any gift(s) during a year that exceed $15,000 to any one person. For example, if you have three adult children you can give them each $15,000 and reduce your estate value by $45,000.
Both a husband and wife can make gifts so the same recipient can receive $15,000 from the husband and $15,000 from the wife annually. That means if both husband and wife have three adult children, and they both gift the maximum of $15,000 each, they can reduce their estate value by $90,000.
It’s important to know how the IRS determines what is a taxable gift. The transfer of property by one individual to another while receiving nothing, or less than full value in return, is taxable. The tax applies whether the donor intends the transfer to be a gift or not. The IRS considers it a gift if you give property, or the use or income from property, without something of value given in return. Loans can also be considered taxable gifts if they are interest-free or have a reduced interest rate.
In addition to gifts with values of under $15,000, the IRS makes exceptions for the following as nontaxable gifts: tuition or medical costs, gifts to a spouse, donations to political organizations, and certain charity gifts are tax deductible.
Because all estates are unique, this probate avoidance strategy may work for some, but not all families wishing to avoid court. If you’re interested in using the tax-free gift as a way of potentially bringing your estate value below the probate threshold you can learn more by reviewing NRS Chapter 148, https://www.leg.state.nv.us/NRS/NRS-146.html#NRS146Sec080 and IRS website https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes.
The Living Trust Source believes the best estate planning for some families may involve strategies other than a will or trust. Follow this 5-Part Series on Probate Avoidance Strategies to learn more ways to keep your family out of court.
Kevin Walsh
Attorney at Law
