The Importance of Following Formalities in Creating and Operating Your Business
 
By Steve and Kiley Stuchlik, Attorneys at law
 
Many people have been able to successfully create an entity for their business through the respective state processes available online. In Idaho, for example, it is relatively simple to create an Idaho LLC using the online portal at the Idaho Secretary of State’s website.
 
Creating an entity for your business is a good idea. Creating a limited liability entity can shield your personal assets from attachment by business creditors, potentially save you some money come tax time (you should speak with your CPA or other qualified tax advisor about these potential benefits), and can provide a streamlined mechanism to transfer the business from one generation to the next.
 
When it comes to achieving the “limited liability” aspect of an entity, though, individuals must be aware that there is more to setting up a business entity than just filing the initial paperwork with your state’s Secretary of State. You must formalize the arrangement with the adoption of entity creation documents, such as bylaws and articles of incorporation for a corporation and an operating agreement for an LLC. Even if you are a single-member LLC, you should sign an operating agreement—it will be an agreement between yourself as the sole member of your LLC and the LLC.  Executing the operating agreement may feel awkward, as will following other business formalities such as holding an annual meeting for your business (and being the only attendee in the case of a single-member LLC), leasing property or equipment to your business, and formalizing loans to your business by executing a promissory note. Such formalities, however, must be followed in order to erect a barrier between you and your business so that you are not regarded as an “alter ego” of your business and can therefore, enjoy limited liability when it comes to your personal assets. The following case from Texas serves as a recent example of this point:
 
United States v. Lothringer, No. 20-50823, 2021 WL 4714609 (5th Cir. Oct. 8, 2021)
 
Arthur Lothringer formed a corporation, Pick-Ups, Inc., and was its sole director, officer, and shareholder. The United States sued Lothringer, his wife Janet, and Pick-Ups to collect federal taxes. The district court found that Pick-Ups was Lothringer’s alter ego under Texas law because “there is such unity between corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice.” The court relied on undisputed facts showing that Lothringer exercised complete dominion and control over Pick-Ups, failed to observe corporate formalities, loaned substantial money to Pick-Ups, and made personal loan payments from the corporate bank account. As a result, Lothringer was personally liable for $1,777,047 in federal taxes owed by Pick-Ups.
 
Takeaways: The $1.7 million judgment against Lothringer is a good reminder that business owners, especially sole shareholders or sole members of single-member limited liability companies, should erect strict barriers between their personal and business affairs and transactions and comply with all corporate formalities to avoid personal liability for business debts and obligations. *
 
Creating an entity for your business is a worthwhile endeavor whether your goal is to limit liability, save money, or as part of your estate planning. But if achieving limited liability is your goal, the barriers between personal and business matters must be erected and maintained. If you want to create a business entity correctly with all formal arrangements or need assistance in formalizing a business entity that you have already created, we can help.
 
 
*Source: WealthCounsel Newsletter, November 2021. http://info.wealthcounsel.com/blog/current-developments-in-estate-planning-and-business-law
 
 
 
 
 
 

A Thank You to Sportsmen and Sportswomen for Their Contributions

By Steve Stuchlik
 
As 2021 winds to a close and in this time of thanksgiving, I have been reflecting on how lucky we are to live in this great corner of our country with its abundant outdoor recreation opportunities.  For me, I was lucky enough to get out for several days of hunting and fishing in 2021 – with some lucky days (and some not quite so lucky).  But, had it not been for the foresight of our predecessors and the cooperation of sportsmen and women in the mid-twentieth century, such opportunities may not be as readily available.
 
In 1937, Congress passed the “Federal Aid in Wildlife Restoration Act of 1937,” and in 1950, Congress passed the “Federal Aid in Sportfish Restoration Act.”  Commonly, the two pieces of legislation are referred to as the Pittman-Robertson Act and the Dingell-Johnson Act, respectively – so named for the legislators sponsoring each bill.  Although there have been several amendments to both bills since their enaction, the gist of both remains the same.  A coalition of sportsmen and women voluntarily agreed to use monies generated from excise taxes on firearms, ammunition, archery equipment, and fishing equipment to go directly to support conservation programs and sporting education opportunities.
 
According to the Department of the Interior, in 2020, sportsmen and women generated nearly $1 billion in excise tax revenue from qualifying purchases. *  Money generated by Pittman-Robertson, Dingell-Johnson, and licensing fees generally accounts for nearly 80% of State fish and wildlife revenue. **  In 2020, Idaho and Oregon collectively received over $40 million in Pittman-Robertson and Dingell-Johnson grant funding for the purpose of fish and wildlife conservation, restoration, and public opportunities.***
 
Knowing what I know, I take solace in the fact that every time I go chukar hunting and shoot through a box of shells with nothing to show for it but sore legs, I still donated to a good cause.  My dad always used to joke when it came to most days steelhead fishing we were better off driving to the river, pitching $50 in, and going home.  As for me? I would rather do what I usually do – drive to the river, pitch $50 worth of gear in the river, and go home.  At least I know that the money I spent on that gear is going to make sure there will still be fish in the river for me to not catch the next time.
 
So, thank you, sportsmen and sportswomen!  Keep up the good work, and here’s to another year of enjoying the outdoors!
 
* ** *** https://www.doi.gov/pressreleases/sportsmen-and-sportswomen-generate-nearly-1-billion-conservation-funding

Five Considerations When Nominating a Guardian for Minor Children
 
By Kiley Stuchlik, Attorney at Law
 
In our January 2020 blog, I discussed the importance of parents nominating others to take care of their children, both financially and physically, in the event of the death or incapacity of both parents. The proper place to nominate individuals to serve in the roles of guardian and trustee/conservator for minor children is in one’s last will and testament. In this article, I will focus on the guardianship role and five key considerations when nominating guardians for minor children:
 

1. Make arrangements for the immediate care of your minor children upon your death or incapacity.  For situations where parents have designated long-term guardians who do not live near the minor children, parents should also nominate temporary guardians who can take care of children immediately upon the death or incapacity of the minors’ parents. That temporary period could be a certain number of days or until a time designated by the parents, such as an end of a school year. Parents should also consider other arrangements such as including the temporary guardians as emergency contacts with the minor’s schools and executing a durable custodial power of attorney, which would allow the agents to act immediately in the parental role upon the parents’ incapacity, without the need to be appointed by the court.
   
2. If you nominate a married couple as guardians, include instructions as to what should occur in the event the couple divorces or either of them predecease you. For example, you can include instructions that if the couple divorces, one is the first choice and the other is your alternate choice. Or, perhaps you only want the couple to serve as guardians if they’re still together. In that case, include instructions to that effect and nominate an alternate guardian to serve should your first-choice nominees divorce.
   
3. Name alternate guardians to serve in the event your first choice is unavailable. Your first choice could predecease you, may be in an accident with you, or may be unable or unwilling to serve. It’s a good idea to nominate at least one alternate guardian and depending upon your circumstances and the age and health of your nominees, you may want to nominate several alternate guardians.
   
4. Exclude anyone you do not want to serve as guardian. The nomination of a guardian must be approved by a judge, upon the death or incapacity of the parents, with the judge ultimately making the appointment of a guardian. Therefore, if there is any family member or person who you believe would challenge your nomination or you would not want to serve in this role, you should include instructions in your will specifically excluding that person from acting in such a role. You can authorize the use of estate assets to contest the appointment of that person or defend any contest of your preferred appointment. 
5. Do not place undue emphasis on the financial resources of the person you wish to nominate as guardian. You can nominate individuals to manage assets and be the financial decision makers for your minor children in the event of your death or incapacity. The persons nominated as guardians need not be the same individuals you nominate to handle assets and finances. Persons nominated to handle assets and finances are typically referred to as trustees and conservators. You can provide money to support your minor children in the form of assets and/or life insurance to be managed by the trustees and/or conservators you nominate. The persons nominated as guardians should be the persons you believe would take the best care of your children on a daily basis. The proposed guardians should share your values and you should be confident in their ability to make healthcare, education, housing, and discipline decisions for your minor children.

 
If you’re ready to move forward with this important planning for your minor children, we can help.

The value of hiring an estate planning attorney, rather than buying a will or trust online.
 
By Kiley Stuchlik, Attorney at Law
 
            Online companies promising to make estate planning easy and affordable to consumers are prolific. We’ve had people ask us whether the documents they created online are valid. Of course, without reviewing the documents, we cannot say for certain whether they are in fact valid. Assuming the documents were executed in accordance with applicable state formalities, the documents created online should be valid. 
 
            This may leave you wondering—what’s the value of me hiring an attorney if I can create a valid will or trust online? The value of hiring an attorney is in the advice the attorney provides you throughout the drafting process, throughout your life, and to your family after your death. Let’s be real, if all we sold you at Stuchlik Law were documents, you might as well get them online.  But we sell you a lot more than documents. We sell you our time and advice. We explain your options for planning, we explain what provisions in documents mean, we alert you as to circumstances that might require an update to your estate plan, and we help you with any follow up to your planning that is needed to ensure your goals are achieved. We are also available to answer questions that arise after your death. 
 
            When it comes to the advice that we as estate planning attorneys dispense, that advice was gained through experience counseling families through difficult problems, experience responding to issues that arose in estate administration (aka “probate), and experience with individuals who engaged in DIY estate planning and made a mess for their families.
 
            If you’re considering utilizing an online will and trust company or engaging in any sort of DIY planning without the help of an estate planning attorney, please ask yourself the following questions:
 

• Will I know what the provisions in my documents mean?
• Will I know which documents I should execute and how to properly execute them?
• Will I understand how the instructions in my testamentary documents (will or trust) relate to lifetime gifts and vesting language in documents of title?
• Will I be confident in the accuracy and validity of my documents?
• Will I be confident that the documents will serve me and family in the way I intended?
• If I create a trust, will I know how to fund the trust so that it allows my family to avoid court administration?
• Do I even want to avoid court administration?
• If something goes wrong, am I ok with causing my family additional strife and expense?

 
            A competent estate planning attorney is not just a local drafting company.  We strive to be a trusted advisor willing to walk you through provisions in your documents, the pros and cons of certain estate planning tools, and alert you to certain issues that you should be aware of as you age and circumstances change throughout your life. We also hope to provide you with a peace of mind that you’re not going to receive when you take the chance with a DIY or online estate plan.  If you’re ready to gain peace of mind and get your affairs in order with the help of a trusted local advisor, we are here to help.
 
 

​Why Marital Agreements are an Important Estate Planning Tool for Re-Married Couples
By Kiley Stuchlik, Attorney at Law
 
Individuals often come to second marriages with children from a previous relationship. Additionally, they often already own real property or other significant assets. This dynamic makes estate planning for remarried couples even more important. 

In Idaho, if one dies without a testamentary instrument such as a last will, then state law provides that the surviving spouse is entitled to one-half of the separate property of the decedent spouse (if there are surviving issue or parents of the decedent) and all of the decedent spouse’s interest in community property. See IC 15-2-102. At the beginning of the marriage, what is separate property is clear but throughout the marriage, deeds may be exchanged between spouses, joint debt may be incurred with real property pledged as collateral, and property may be bought and sold, all of which, makes the distinction between separate and community property less clear. Given that reality, one can imagine the difficulty in dividing an intestate estate between a surviving spouse and a decedent’s spouse’s heirs upon death, especially if the surviving spouse and the decedent’s other heirs (issue or parents) do not get along.  

The good news is that what constitutes separate versus community property can be addressed by agreement. For remarried couples, a common estate planning tool is a marital agreement, also known as a prenuptial agreement, if the agreement is executed before marriage.   A marital agreement is simply a document wherein each spouse has an opportunity to not only list the separate property that they own in the marriage, but also to release and waive any interest they would have in the other spouse’s separate property. The reason this is important is because it gives each person an opportunity to give away their separate property to their own children without the property being in jeopardy of being distributed to the surviving spouse and then to the surviving spouse’s children in a way that would exclude the decedent’s own children from receiving any portion of the decedent’s estate.

For a marital agreement to be binding, spouses must engage in a full disclosure of their respective assets. The agreement should include a complete description of all property, with a list of each spouse’s separate property and a list of the property (if any) that the couple will treat as community property. Each spouse must have an opportunity to use a separate attorney of the spouse’s choosing to assist in negotiating the language of the marital agreement. Finally, neither spouse can be coerced or forced into signing a marital agreement. The marital agreement itself will state that each individual is signing of his or her own free will based on each spouse’s knowledge after consulting with an independent attorney or after having been given the opportunity to do so and voluntarily choosing not to consult with an attorney.

Once a marital agreement is in place, it is binding on each spouse and their respective heirs. Each spouse is then free to use their estate planning documents, such as a last will and testament, to provide for specific gifts of separate property upon death. A marital agreement can make distribution of an intestate estate, where a spouse dies without a last will, much easier since the agreement will be binding on the intestate heirs with respect to what is community versus what is separate property. There will be no presumption, or grounds for any claims that the property is community and is thus owned by the surviving spouse.

Besides making distribution upon death more clear and potentially much less contentious, marital agreements can bring peace of mind to the couple and their families. If you’re ready to move forward with a plan of your choosing and gain some peace of mind through executing a marital agreement, a last will and testament, or both, we can help.

​The importance of planning for long-term care.
 
By Kiley Stuchlik, Attorney at Law
 
There seems to be a stigma that if we plan for death, it’s more likely to happen. While there is no evidence to support that concern, there is a 100% chance of dying whether we plan for it or not. A smaller, but still quite large probability that looms over us is the likelihood that as we age, we are going to need long-term care. As with planning for death, there is no evidence to support the fear that planning for long-term care will increase the probability that we will need it. Given the likelihood that one will need long-term care, it is important to plan for it and for reasons explained below, it is important to plan for long-term care as early as possible.
A person can have his or her long-term care paid for by the state via Medicaid, a program that acts as an interest-free loan to pay for a resident’s basic, long-term care provided all applicable eligibility requirements are met. The state’s interest-free loan will come due upon the Medicaid recipient’s death or upon the death of the surviving spouse of the Medicaid recipient, in the case of married couples.  
 
In order to receive Medicaid, one must meet all 5 of the following eligibility requirements:

1.  Age- A Medicaid applicant must be 65 years of age or older.
2. Medical Eligibility- The Medicaid applicant must have a medical need for care determined based on an assessment of the Medicaid applicant’s daily living needs, such as bathing, dressing, meals, medication, mobility, personal hygiene, etc.
3. Income Eligibility- A Medicaid applicant cannot have more the $2,333.00 per month of gross income. However, a person earning too much income may still be eligible if they first establish a Miller Trust. A Miller Trust allows an applicant to divert excess income into a special trust account, while still allowing the applicant to qualify for Medicaid. 
4. Resource Eligibility- A Medicaid applicant must meet the resource eligibility test. Certain assets, such as a personal residence and two cars, are not considered part of the “countable” resources. In other words, those assets are exempt. A single Medicaid applicant must have two thousand dollars ($2,000) or less in countable (non-exempt) resources. Different rules apply when a Medicaid applicant is married. For example, if only one spouse applies for Medicaid, the healthy (non-applicant) spouse may keep a range of countable resources, typically between $25,284.00 – $126,420.00, based on the couple’s situation. If both members of a married couple are applying for Medicaid and reside in a skilled nursing facility, they may only keep three thousand dollars ($3,000) in countable resources.
5. Transfer Eligibility-If a Medicaid applicant transfers assets for less than fair market value during the 5-year (sixty-month) period prior to applying for Medicaid, the state will impose a penalty period of ineligibility. As we explained in an earlier blog regarding the legal and tax consequences of gifting a home during one’s lifetime, a Medicaid applicant, by making a lifetime gift of the applicant’s home within the 60-month period immediately preceding the application for Medicaid, will trigger the penalty period and be ineligible for Medicaid for the length of the penalty period.  The penalty period is determined by the fair market value of the gift divided by the average monthly cost of care in the state.

As explained above, there are some strategies, such as establishing a Miller Trust and spending down countable (non-exempt) resources, that one can employ in order to qualify for Medicaid.  Additionally, if one wants to shield certain assets, such as a residence, from being collected upon when the Medicaid loan comes due at death, there are certain lifetime strategies that can be employed, such as transferring the asset to an irrevocable asset protection trust. But, one must be sure that the strategy can be carried out at least 60 months before the need to apply for Medicaid arises. Sometimes that determination is difficult to make and one might risk being ineligible for Medicaid or having to unwind a transfer in order to qualify for Medicaid.  Other times, timing may be more predictable, making the transfer strategy a good option for protecting an asset.
The bottom line is that long-term care is expensive. The average monthly cost of a one-bedroom unit in an assisted living facility in Idaho is currently around $5,000, or $60,000 per year. That reality makes it even more important to think about long-term care and how one will pay for it. If you have questions about employing strategies to qualify for Medicaid or protect assets, we are happy to help.  If it’s a situation that’s outside of our scope of expertise, we’ll make sure to connect you with a trusted expert in the field.
 
 

When should you review your estate plan?
By Steve & Kiley Stuchlik, Attorneys at Law
It’s good idea to review your estate plan on a regular basis, such as every few years, and upon the occurrence of major life events to determine whether changes should be made to your estate plan. Additionally, there may be changes to state or federal tax code or other laws that govern your estate that would make it necessary or desirable for you to revise your estate plan. These are changes that you are not necessarily going to be aware of on your own, which is why it’s important that you keep in touch with professionals, such as an estate planning attorney and tax advisor, regarding your estate plan. 
The following are 6 major life events that necessitate a review of your estate plan:

1. You moved to another state or acquired real estate in another state. Laws that affect one’s estate plan are those that pertain to the vesting of real property, vesting of accounts, intestate succession, will formalities, and probate and trust administration, all of which are state laws, not federal. Some of the differences in state laws can seem trivial, such as the number of witnesses required for a will to be valid. Other nuances are more substantive. Many states, for example, require that a spouse inherit a minimum share of the decedent spouse’s estate, but that threshold varies by state. Also, some states, such as Oregon, impose inheritance or estate taxes, while others, such as Idaho, do not.

State laws vary on other elements of the estate plan, such as powers of attorney, advance medical directives, living wills and more. If you move to a new state, these documents need to be updated.
You also should work with your estate planning attorney to establish proof that you changed your state of residence. This is particularly important when you have a substantial estate and moved from a state with an inheritance or estate tax to a state that does not impose such a tax.
When you acquire real estate in another state, you should review your estate plan to ensure that title to that real estate is held in a manner that is consistent with your estate planning objectives or better yet, contact a trusted estate planning attorney licensed in the state in which you are buying the property before you close the transaction so that your attorney can advise you on the best way to take title to the property in light of your estate planning objectives. Doing so could save you from incurring additional recording fees down the road or from unintended results of vesting language in a deed.   
You can also do some planning to make sure that your heirs do not have to engage in estate administration in more than one state upon your death. As we mentioned in a previous blog, any real property owned in your name (as opposed to owned by you as trustee of your revocable living trust) may be subject to estate administration (probate) in the state in which the property is located. That means that for a decedent who owned real property in his or her personal name in more than one state, the heirs will have to engage in estate administration proceedings in each state in which the decedent owned real property in the decedent’s personal name. That result can be avoided with some estate planning. 

2.     The objects of your affection have changed. For most people, a change in who they desire to leave their assets to happens when there’s an addition to the family, such as the birth of a new child or grandchild. While general language can be included in an estate plan to ensure that these after-born heirs are included (if that’s what’s desired), it’s still a good idea to review one’s estate plan to ensure that a new addition will be provided for based on the language in one’s estate planning documents.  Additionally, revising one’s estate plan to specifically mention a new beneficiary (as opposed to relying on some general language) can help avoid potential conflicts or uncertainty when it comes time for your beneficiaries to interpret your estate plan.There may be instances when it is appropriate to delete someone who is named as a beneficiary in your estate plan. There might be a death or divorce in the family. You also might want to disinherit someone who’s been irresponsible with money or has become estranged from the family. If it’s someone in close relation to you whom you want to disinherit (meaning they may be entitled to notice of the estate administration), it is always better to specifically mention in your estate plan that you do not wish to leave anything to that person (as opposed to just ignoring the person in your estate plan). 

3.     You have been divorced, married or become widowed. Although there are state laws that apply in these situations to keep an ex-spouse from inheriting from a former spouse, it’s still better to revise one’s estate plan and make sure it is current and reflects one’s desires considering the new circumstances. Upon an event such as this, it is imperative that you check with your account holders (bank, investment, etc.) and life insurance company to ensure that your beneficiary and payable on death forms are current. 

4. Your assets or liabilities have changed. A significant change in the value of your estate since your estate plan was drafted necessitates a review of your plan, whether the estate’s value has increased or decreased. You need to review how the property is divided and decide if that still is what you want considering your new circumstances.A change in the composition of your estate also merits a review. You might have sold an asset, such as a business or real estate, that was a major part of the estate. Or you might have added such an asset. Either change means a review of your plan is in order.

5.    Your beneficiary designation for your qualified retirement plan is outdated. One of the major mistakes in estate plans is failing to update the beneficiary designations of IRAs, 401(k)s and other retirement plans. The beneficiary of these accounts is determined by the beneficiary designation form on file with the plan, not the language of your will or trust. If the value of your account has increased substantially you may wish to add a beneficiary, which must be accomplished by contacting your plan administrator and executing a new form. 

6.   Executors/trustees or guardians become inappropriate. The executors and trustees are the people who implement your plan and often determine how successful it is. Persons you nominate as guardians for your minor children will care for them in the event you and the other legal guardian pass away. Even when the appointments were made carefully at first, circumstances might have changed with respect to those individuals such that they are no longer an appropriate choice. Carefully reconsider the people appointed in your estate plan. Are they still able and willing to perform these jobs as you’d like them done? Has your estate or circumstances changed such that someone else is now a better choice for these roles? Has anyone aged, relocated, or passed away? Determine who is the best choice for these positions today.

​If you’ve had a major life event and want to discuss how that event impacts your estate plan or have reviewed your plan and want to make changes, we’re here to help.

What are the ownership and tax consequences of gifting my home to my child during my lifetime?
 
By Steve & Kiley Stuchlik, Attorneys at Law
 
Last month, we mentioned that one should not engage in DIY estate planning through the execution of deeds to make a lifetime transfer of real property without first obtaining the advice of an attorney.  We noted that there are ownership and tax consequences to transferring title to real property.  Many parents of adult children ask us about simply deeding (gifting) their home to their children during their lifetime as a way to avoid probate and/or avoid the state putting a lien on their home for the cost of the parents’ medical care (e.g. Medicaid). 
 
While those objectives may be accomplished, there are many consequences to a lifetime transfer of real property such that in most cases, gifting your house to your child now, via execution of a deed and without payment of a fair purchase price, is NOT the best option. While some states, such as Oregon, allow for a transfer on death deed meaning that the property is not transferred during the owner’s lifetime but rather, the transfer occurs automatically upon the owner’s death to the person designated in the deed, Idaho does not allow for a transfer on death deed.
 
The only circumstance when deeding your house to your child during your lifetime without payment of a fair purchase price is an ok option is when all of the following facts are true (and even then, a person should seek competent legal and tax counsel before proceeding): 
 

1. You own the house free and clear of any debt; 
2.  Your child intends to make the house his or her principal residence; 
3. You want to transfer ownership of the house to your child;
4. You are ok with filing a gift tax return to declare the gift with the IRS; and 
5.  You and your spouse are very unlikely to need and/or qualify for Medicaid (government funded long-term care) in the next five years.

 
And now for the reasons why deeding the house to your child during your lifetime without payment of a fair purchase price is most likely not the best option:
 

1. If you have debt on your house, by deeding it to your child, you are transferring ownership of the house and could, therefore, trigger the due-on-sale clause in your mortgage or deed of trust.
2. By deeding the house to your child now, you are making a current gift, meaning that your child will not benefit from the step-up-in-basis that he or she would enjoy had he or she inherited the house at your death. For example: you bought your  house for $100,000 and give it to your child during your life.  Child later sells the house for $300,000. Your child may have to pay capital gains taxes on the gain of $200,000.  If you do not gift the house and die with the house being worth $300,000 at the date of your death and your child inherits the house, your child gets a “step-up-in-basis” to the value of your house at the date of your death. Meaning that if your child sells the house for $300,000, the gain is $0 and there are not capital gains tax concerns. As Federal law currently stands, this is a very important consideration for the proposed recipients of any lifetime gift. 
   
3. When you deed your interest in your house, you are transferring ownership to your child.  By transferring ownership, besides potentially triggering a due-on-sale clause in your mortgage, you have triggered the following consequences: the house is subject to execution by your child’s creditors; your child can sell the house; your child can evict you from the house; your child can allow others to reside in the house; and you will no longer qualify for a homeowner’s property tax exemption.  
4. Making a present gift means that you are likely going to have to file gift tax return to declare the gift with the IRS.
5. If you or your spouse apply for Medicaid, you are going to have to declare on the application whether you have made any gifts in the preceding five years. If you have to declare that you made a gift of a house, then you will be subject to a penalty period and unable to qualify for Medicaid until the penalty period has run. (The penalty period is calculated based on the value of the gift and the average monthly cost for care). In the alternative, you could have an awkward conversation with your child and ask him or her to deed the house back to you in order to cure the gift and qualify for Medicaid sooner. 

​If your circumstances are such that gifting your home is an ok option, then you should consult competent tax and legal counsel to assist with the transfer.  If gifting is not an ok option for you, then you should consider consulting with legal and tax counsel to engage in estate planning in order to pass your home onto your children without the potential ownership and tax consequences of a lifetime gift.  

Should I avoid probate? What are the pros and cons of utilizing a revocable living trust? 
 
By Steve and Kiley Stuchlik, Attorneys at Law
 
Last month we explained what probate is. This month, we are discussing whether you should employ strategies to avoid probate and the pros and cons of utilizing a revocable living trust as a planning tool that can avoid probate.

1. Whether you should employ strategies to avoid probate depends upon the type, value, and location of your assets, as well as your goals for your legacy.
   
   

            Type of Assets
 
The type of your assets is an important consideration because some “non-probate” assets pass “automatically” outside of a probate proceeding via a beneficiary designation form or transfer on death designation. Investment accounts, for example, can be set up to pass by a payable on death designation.  Thus, this type of asset will not be subject to a probate proceeding as long as you properly execute the beneficiary paperwork before your death. 

With respect to real property, probate can only be avoided by employing a strategy such as: transferring title to the trustee of your revocable living trust; executing a survivorship deed; executing a transfer on death deed (not allowed in Idaho)*; or via executing and recording a devolution on death (aka “community property”) agreement with a legal description of the real property, for real property located in Idaho (this works to pass property from one spouse to another without administration, not for transfer to children or other heirs).  *One should be careful not to engage in DIY estate planning through the executing a deed without first contacting an attorney as there are ownership and tax consequences to consider.
 
            Value of Your Assets
            
The value of a decedent’s assets affects what probate administration proceeding, if any, will be required in order to transfer a decedent’s assets. Idaho and Oregon, for example, both have more expedient administration proceedings for estates where the value of the decedent’s assets is under certain threshold amounts. Thus, to determine whether you should employ a probate avoidance strategy, the value of your assets should be considered.
 
           Location of Your Assets
 
Although the primary place of probate administration will be the state of the decedent’s domicile, if the decedent died owning real property in the decedent’s name in other states, a probate proceeding (often referred to as an “ancillary probate”) will need to be carried out in each such state in which the decedent owned real property. Those proceedings will be necessary for the decedent’s Personal Representative to have the legal authority to transfer title to that real property per the decedent’s will or per the intestate laws of succession, for a decedent who died without a will.  

As we explained last month, some states, such as Idaho, are more “probate friendly,” meaning that court costs are relatively lower and the proceedings are relatively informal and expedient. Accordingly, if you own real property solely in Idaho, it’s likely that executing a will and having that property administered through a probate proceeding upon your death, will be a good option. On the other hand, if you own property in another less probate friendly state or in multiple states, it’s likely that employing a probate avoidance strategy, such as creating and funding a revocable living trust during your lifetime, is a better option for you. 
 
            Goals for Your Legacy
 
If your goals for your legacy involve retaining control over assets and/or people after your death or potentially limiting estate tax liability (you should also consult with a qualified tax advisor about these concerns), then trust planning may be necessary.  Trust provisions can restrict when beneficiaries will receive assets and what those trust assets can be used for, among other limitations. You can also designate who will be in charge of managing trust assets and distributing them to your beneficiaries. Trust provisions can be included in your will and become effective upon your death or they can be included in a revocable living trust and become effective during your lifetime. If you have concerns about becoming incapacitated, a trust may be able to provide more robust planning for your incapacity then you would be able to accomplish through other means, such as by executing a durable financial power of attorney. While a probate proceeding is a public proceeding, a trust administration is a private proceeding. Thus, if you want to control beneficiaries and/or property or plan for your incapacity and you wish to keep those plans private, avoiding probate through the use of a revocable living trust is the best option for you. 

      2.   The pros and cons of utilizing a revocable living trust. 
​
A revocable living trust (RLT) is an agreement that you as the trust creator (“Trustor”) enter into with yourself in your capacity as “Trustee”—the person designated by the agreement to manage your assets. This agreement, generally referred to as a “Trust Agreement” or “Trust”, must be created during your lifetime and is legally in effect as of the date you execute it. You can designate a co-trustee or alternate trustees to manage your assets in the event of your incapacity or death. Married couples typically create a joint RLT with both spouses as the Trustors and initial Co-Trustees.
            
In order for the RLT to accomplish the purpose of avoiding probate upon your death, your RLT must be funded.  An RLT is funded when ownership of your assets is transferred from your name personally into your name as Trustee of your RLT, during your lifetime. Various transfer mechanisms such as deeds, vehicle title transfers, retitling of bank accounts, re-issuance of insurance, etc. must utilized (a person should always seek competent legal advice when funding a trust to avoid potential pitfalls).
The creation of a RLT does not eliminate the need for a will.  A will is needed to nominate guardian(s) for minor children and to act as a catch-all transfer mechanism for any assets that you did not transfer to yourself in your capacity as Trustee of your RLT during your lifetime (commonly referred to as a “Pour-Over Will”). Your will should direct the personal representative of your estate to transfer all assets to the surviving or successor Trustee of the RLT upon your death so that they can be added to the trust estate and managed according to the terms of your Trust Agreement. 
            
Upon your death, the Successor Trustee is generally directed to either distribute the trust property to your beneficiaries, or to continue to hold and manage the trust property for the benefit of your beneficiaries. Like a will, a RLT can provide for the distribution of property upon your death. Unlike a will, it can also: (a) provide you with a vehicle for managing your property during your lifetime; (b) authorize the Successor Trustee to manage the property and use it for your benefit should you become incapacitated; and (c) allow your heirs to avoid initiating a probate proceeding upon your death (provided the RLT was fully funded). That being said, a RLT will still need to be administered upon the surviving trustor’s death and trust administration is similar to probate administration and may require the assistance of an attorney.
 
            To summarize, the following are the pros and cons of utilizing a RLT:
 
Pros:

• Avoids probate, if properly funded;   
• More private, if probate is avoided due to proper funding; 
• Can save money on backend, if probate is avoided;
• Allows for more robust planning for a Trustee’s incapacity;
• Good vehicle for trust provisions to control property and beneficiaries; 
• Good vehicle for trust provisions for tax planning purposes.

 
Cons:

• More expensive to set up;
• Must be funded and maintained throughout your lifetime, which could cause you to incur more expense throughout your lifetime;
• May be more difficult to change or revoke;
• No court oversight if probate is avoided. Improper administration, non-payment of valid creditor claims, etc. may be more likely with trust administration given the lack of court oversight.

 
If you are considering a revocable living trust or other probate avoidance strategy, we are happy discuss your situation and help you decide what is the best option for you. As always, we are here to help.

What does “probate” mean?
By Steve & Kiley Stuchlik, Attorneys at Law
 
            Probate is the legal (court) process for the general administration of an individual’s estate, with or without a will (i.e., payment of decedent’s debts and distribution of a decedent’s asset as directed in the decedent’s will or as directed by the state’s intestate succession laws in the case of a decedent who passed without a last will). 
          It’s important to note that there may be more than one process available for the distribution of the assets of a decedent, which will be dictated by the laws of the state of administration (where the decedent was domiciled or owned real property). Idaho and Oregon, the two states we practice in, for example, vary quite a bit in their options; but, both states do have a more expedient “small estate” process available for estates where the value of the decedent’s assets is under certain amounts. Idaho also has a proceeding available for a surviving spouse where an estate consists solely of community property.
           Depending on the nature of the decedent’s assets, the assets may be “non-probate assets,” meaning assets will pass outside of probate such as by a beneficiary designation or payable on death designation; thus, unless the decedent also has assets that are subject to probate administration, no court probate proceeding will need to be initiated.
           If you have been nominated to be in charge of an estate or you are a potential heir to the estate of a relative who passed away without a will, it is important to discuss the decedent’s situation with an attorney experienced in probate administration to determine if probate is necessary and if so, the most appropriate proceeding.
            With the caveat in mind that the type of procedure required will vary depending on the state of administration and the nature and value of a decedent’s assets, a typical, non-small estate probate would proceed as follows: 
 

• A person, typically the closest relative (in the case of a decedent who died without a will) or the person nominated in the decedent’s will to serve as the Personal Representative “PR” (aka “executor”), applies to the court to be appointed as the PR of the estate.  
• The proposed PR submits the alleged last will of the decedent with the application and asks the court to declare it as the valid and last testamentary instrument of the decedent or, the PR alleges that the decedent died without a will and administration of the estate should proceed under the intestate laws of succession.
• Once the person is appointed PR and the will (if any)  is admitted through a court order, the PR will receive letters of administration (intestate estate) or letters testamentary (testate estate), which is a document signed by the judge that states that the person has authority to act as the PR. The “letters” essentially act as the PR’s badge of authority and can be presented to allow the PR to carry out his or her tasks, such as opening a bank account for the estate, deeding real property, etc.
• The PR provides notice of his or her appointment to the spouse, children, heirs, and devisees of the decedent and to the state of domicile (when required).
• Notice to unknown creditors is published in the paper in the county where the decedent was domiciled and notice is sent to known creditors so that the PR can determine which debts of the decedent are valid and should be paid before assets are distributed to the heirs (intestate) or devisees (testate).  Claims must be presented within certain time frames or they will be barred. 
• The PR prepares an inventory of the estate’s assets, makes an accounting of the debts and expenses of administration, pays valid debts, takes care of any tax filings and tax liability, and distributes property to the heirs or devisees. To distribute, the PR takes actions such as issuing checks from the estate account, signing deeds to transfer a decedent’s interest in real property, signing vehicle titles, and other actions that are necessary to actually transfer possession and confirm title in the rightful recipient of the property.
• Once all of the above tasks have been completed and the minimum amount of time has passed as required by applicable state law, the PR can submit documents to close the estate with the court. In Idaho, the earliest a PR can close an estate is six months from the date the PR was appointed. 

 
The following are circumstances under which probate will be avoided:
 

• The decedent did not own any real property in the decedent’s name and the decedent’s personal property was of insufficient value to warrant a probate proceeding under the laws of the state of the decedent’s domicile;
• The decedent did not own any real or personal property in the decedent’s name at the time of death because the decedent deeded and otherwise transferred all of the decedent’s property to the trustee of his or her revocable living trust, which trust was created during the decedent’s lifetime; or
• All of the decedent’s assets pass by beneficiary designations or payable on death designations. 

 
         The last two categories are examples of what are referred to as “non-probate assets,” which will not need to be transferred pursuant to a court probate proceeding. Nonetheless, non-probate assets will be subject to the legitimate debts of the decedent. In the case of assets transferred to a trustee, there will need to be a trust administration, which procedure is similar to a probate proceeding. 
        You might be wondering whether you should employ a planning strategy to avoid probate. And likely, you’ve heard a horror story about a probate that took years and cost thousands of dollars in court costs and attorney’s fees. The truth is that in some states the probate process is more involved, meaning an increase in attorney time, and the courts require higher costs throughout the process. On the other hand, there are other states, such as Idaho, where court costs are relatively low and there is minimal court involvement, meaning lower attorney’s fees. Frankly, an estate that drags on for years or gets horribly expensive is mostly likely due to fighting among the heirs and devisees, rather than the process itself. 
       In order to definitively advise you as to whether you should endeavor to avoid probate, we need to know your state of domicile, information about the nature of your assets (type, value, location) and what is important to you and your legacy. Next month, we’ll explain some circumstances under which one would want to avoid probate and the pros and cons of creating a revocable living trust as a planning tool.