Estate Planning Attorney

QDOT – What is it and should I have one?

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Cleveland, Ohio estate planning attorney, Daniel A. Baron, offers information on a Qualified Domestic Trust and the benefits realized from including this as part of your Tax and Estate Planning:

 

 

The specific goal of a Qualified Domestic Trust (or QDOT) is to defer Federal Estate Tax on assets which are transferred from a spouse who is a US Citizen upon their death to the other spouse who is not a citizen of the US. If your marriage consists of both a US Citizen and a non US Citizen and your assets are minimally several million which the non US Citizen spouse has the possibility of inheriting,  it would be wise for you to secure a Qualified Domestic Trust.

What are some of the tax issues for spouses who are not US Citizens?

In the absence of Qualified Domestic Trust the non-citizen spouse now has to pay Federal Estate Tax on any assets transferred from the US Citizen spouse into the non-citizen spouse’s name, just as any other party who inherits assets from any other person when they pass.

 

What happens when no Qualified Domestic Trust exists and the spouse who is the

US Citizen passes away first?

If the surviving spouse is a non-citizen of the US, then as stated previously, Federal Estate Taxes will need to be paid on any assets which transfer to the surviving spouse. The surviving spouse would not have the unlimited Marital Deduction as it is should both spouses be US Citizens.  Paying the Federal Estate Taxes is the government’s way of collecting taxes so that the non-citizen spouse does not take all the assets back to their native country and avoid paying the necessary taxes.

There are two avenues which could be taken to avoid paying any inheritance tax:

  • Become a US Citizen
  • Set up a Qualified Domestic Trust

There are a number of requirements however set forth for set up a Qualified Domestic Trust after the spouse who is a US Citizen passes away, but it can be done. If your family situation is such that one spouse is a US Citizen and the other is not and has no intention of becoming one, it would be most advantageous for you to contact an Estate Planning Attorney to set up a Qualified Domestic Trust while you are both still living and of sound mind.

For more information on setting up a Qualified Domestic Trust as part of your Estate and Tax Planning, contact Daniel A. Baron of Baron Law to maximize your Federal Estate Tax savings upon your passing at 216-573-3723.

cleveland, ohio attorney

How Do I Avoid Probate?

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Successful Probate Avoidance Strategies

If saving time, money, and court supervision is right for your family, then avoiding probate is right for your estate plan.  There is a common misconception that having a will avoids probate. This is completely false.  Having a will does NOT avoid probate.  There are however many simple ways to avoid probate and some strategies that even offer asset protection.   But regardless of what estate planning method you choose, avoiding probate will avoid costly fees for your children and time consuming court proceedings. Here are a few helpful methods to consider.

Joint Ownership

Joint ownership is the most common method of probate avoidance and does not require the help of an attorney or other professional.  Assets owned by more than one person result in the survivor taking ownership.  Joint ownership examples might include a joint bank account or marital home.   This is significantly beneficial when avoiding probate for a residence because the transfer of assets is immediate and does not require a court approved transfer.   If you have a joint bank account, most banks require a simple death certificate and identification to transfer the account to the remaining account holder.  In lieu of a trust, the downside of joint ownership is that it does not offer asset protection.  Creditors may still attach their interest in a residence or asset of a jointly held account.

Beneficiary Designations

If you ever received life insurance or engaged with a financial planner, you’ve probably filled out a beneficiary designation.  These are very common with retirement accounts (401(k), 403(b), IRA, etc), life insurance, annuities, and other assets.  Here you simply designate the names of those you wish to receive the assets after your death.  Beneficiary designations are a great way to avoid probate and keep your estate private.  The transfer of assets is swift and does not require court approval.  If you name your minor children as beneficiaries, it is recommended that you appoint a guardian because a minor cannot take control such an account.  Once again however, the downside to beneficiary designations is that these assets are not protected against divorce, creditors, or litigation.  For example, if your children inherit an IRA but then get divorced, the ex-spouse is will receive half of the retirement assets.  (See trusts below for asset protection)

Transfer-on-Death

A transfer on death affidavit works just like a beneficiary designation.  Here the “TOD” allows you to designate the person or entity to receive your assets upon your death.  Just like a beneficiary designation, the TOD avoids probate while transferring assets swiftly and without court approval.  This method saves time and cost for commonly titled assets like a home, automobile, boat, and more.

Payable on Death

Similar to Transfer on Death Accounts, POD’s also transfer assets seamlessly through naming a beneficiary. Here the difference is that POD’s usually refer to checking accounts, savings, and certificates of deposit while TOD’s refer to brokerage accounts, stocks, securities, and mutual funds. Both TOD’s and POD’s do not offer asset protection.

Trusts

The single best way to avoid probate while also providing asset protection is by creating a trust.  A properly drafted trust is completely private, avoids probate, provides asset protection, and is advantageous for tax purposes (for larger estates).  There are numerous trust planning strategies available for all different types of estates.  For example, some trusts may be changed or modified during your lifetime (called revocable living trusts) or may not be changed (called irrevocable living trusts).  Other trusts may pay taxes themselves while others allow the trust beneficiary to pay taxes.  Regardless of what trust strategy is used, a properly drafted trust will ensure that your children and/or beneficiaries receive asset protection, favorable tax considerations, and probate avoidance.

To learn more about probate avoidance or trust planning strategies, contact an attorney at Baron Law LLC at 216-573-3723 or dan@baronlawcleveland.com  Baron Law LLC is a Cleveland area law firm providing legal services in the areas of estate planning, probate, wills and trusts, Medicaid planning, and more.

Cleveland Probate Attorney

Is Probate Necessary?

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As an estate planning attorney, many people ask me if probate is really necessary. The short answer is no, and I often advise my Cleveland, Ohio estate planning clients to avoid probate if at all possible. But what is probate? And, why should it be avoided? Here’s a quick synopsis to answer these questions.

What is Probate?

Probate is the legal process required to transfer certain assets at a person’s death. Probate becomes mandatory and necessary when a person dies owning assets in his or her name that do not pass to a survivor or beneficiary by operation of law or contract. An example of one of these ‘contracts’ might be a payable on death account (“POD”) or beneficiary designation. Through probate, claims, expenses and taxes are paid and property is distributed.

The assets subject to probate administration are referred to as “probate assets” while assets that pass outside probate to a survivor or beneficiary by operation of law or contract are called “non-probate assets.”

Probate is not the same as tax. Both Probate and non-probate assets may be subject to income and/or wealth transfer tax at a person’s death.

A will enables a person to choose how his or her probate assets are to be distributed following death. Without a will, the Ohio Statute on Descent and Distribution (Ohio Rev. Code § 2105.06) dictates how a decedent’s assets will be distributed.

Reasons to Avoid Probate
I often tell my Cleveland, Ohio clients to avoid probate for several reasons. First, probate is public. For a number of reasons, you may not want others to now the value of your assets being transferred to your decedents. The creation of a trust or other instrument is private and can avoid the public display of your assets. Second, the probate process is often time consuming.   When dealing with the loss of a loved one, you don’t want to be caught up in court which is costly and often ends up prolonging the grieving process.  Next, there may reason for wanting to control your assets through a trust; moreover, creating asset protection.  Finally, there may also be certain tax advantages for avoiding probate by placing your assets in trust.

For most clients, I will often weight the pros and cons of creating a will versus a trust and explaining the benefits of avoiding probate.  Often it comes down to the cost versus the value of avoiding probate.  If you would like more information regarding probate, trusts, wills, or other estate planning tools, please contact my office at 216-276-4282.    Baron Law LLC provides estate planning advice for the Cleveland, Ohio area.    Call estate planning attorney Dan Baron today for a free consultation.

Baron Law LLC

What is Probate?

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