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Estate Planning and Legal Awards

Posted on : June 7, 2017, By:  Christopher Hildebrand
Estate Planning and Legal Awards.

Estate Planning and Legal Awards

You may be surprised to learn that receiving a lump sum of cash may not always be a good thing.  What I mean is, a lump sum can create estate planning complications that you may not have anticipated.

This article will offer an idea of what to consider and expect, so you can properly create a new estate plan or update your existing plan.

There are a few key areas that are impacted if you receive a legal judgment award as follows.

  1. PROBATE
  2. ESTATE TAXES
  3. ESTATE DISTRIBUTIONS

PROBATE

Probate Fees

Estate Planning and Legal Awards.

Estate Planning and Legal Awards.

Probate is a court process that is necessary to get your assets re-titled and distributed to your heirs and/or beneficiaries. Probate fees and costs and often based upon the value of the estate assets is if a lump sum legal award is received, this means probate costs and fees may have just gone up significantly.
Probate Complications

Like any other court process, probate is a formal proceeding that involves a judge. Legal paperwork, called a petition, must be filed to open what is called an “administration” of the estate. When someone dies without a last will and testament, this process gets even trickier.

Avoiding Probate

Common ways to avoid probate are through using a revocable or irrevocable trust OR through joint titling of assets. Transfers upon death are also sometimes used. All of these methods are designed to pass title to the assets without the need for a probate judge’s order.

Legal Awards and Probate

When it comes to legal awards and probate then, the proper approach is to make sure they are in an account that is titled either in a trust OR jointly OR in a POD or TOD account. If this is properly done, then probate of the proceeds can be avoided.



ESTATE TAXES

Overview of Estate Taxes

For larger estates, a legal award may be subject to federal and/or state estate taxes. As a brief overview, the federal estate tax is a lump sum tax based upon the value of the gross estate at the estate owner’s death. This amount includes the death benefits from all accounts and insurance and is approximately 40% of the value. So a $500,000 legal award may be reduced for your heirs by 40% or $200,000. State estate taxes vary and may or may not apply based upon the state laws.

Estate Tax Exemption

As of this writing, you can pass $5,490,000 as a single person and double that if you’re married without incurring estate taxes. This may all change with the current administration who is considering abolishing the federal estate tax, although this question has been being debated for years.

Limiting Estate Taxes

Estate taxes can be avoided or limited by spousal planning, gifting, using trusts OR charitable planning strategies. These strategies are all somewhat complicated, so you’ll need the assistance of an estate tax expert if you’re facing this circumstance.

Legal Awards and Estate Taxes

Estate Planning and Legal Awards Arizona.

Estate Planning and Legal Awards Arizona.

Regardless of the strategy used, the key to estate tax planning, similar to probate, is how the assets are titled. The legal award can be transferred to an irrevocable trust, such as an ILIT, and used to purchase insurance. Another way may be to use a charitable trust. These are ways for you to use the income AND to preserve assets free of estate taxes for your heirs.
ESTATE DISTRIBUTIONS

Another possible unintended consequence of your legal award is to throw off the distributions or your current estate plan.

An Overview of Estate Distributions

Your last will and testament AND/OR your trust will determine “who gets what” of the remains of your estate. Often, people are making distributions based upon their current knowledge of their estate. Personal and business assets may be involved, and certain assets may be designated to go to certain people.

Estate Distributions and Legal Awards

For example, let’s say you received $300,000 as a legal judgment award BUT your last will or trust provides for something other than an equal distribution of your estate. If your estate plan isn’t updated, in order to factor in your legal award AND direct how much of the balance goes to each heir, needless confusion and litigation can result.

The point of all of this is that you’ve probably spent enough time in hard-fought court battles to obtain your legal judgment award. You don’t want your loved ones to ensure the same experience. Yet, failure to update your estate plan after having received a substantial legal award can throw your heirs into a needless court battle. On the other hand, updating your plan with the help of an experienced Florida estate planning attorney can be a simple and empowering process.

Gibbs-Law-Office-PLLCThanks to our friends and contributors from Gibbs Law Office, PLLC for their insights into estate planning and legal awards.

Contact our experienced Arizona Estate Planning Attorneys at (480)947-4339.