How do property taxes work in Kentucky? +

Please see this article, "How do property taxes work in Kentucky?"

What does the process look like to purchase a home? +

What Should I Expect When Buying a Home?

What does the process look like to sell a home? +

What Should I Expect When Selling My Home?

What happens if I die without a will? +

If you don't make a will or trust to transfer your property when you die, state law will determine what happens to your property. In Kentucky, should you die intestate (without a will), your property would pass half to your spouse and half to your children or, if you have neither, to your other closest relatives. If no relatives can be found to inherit your property, your property will go to the state.

In addition, in the absence of a will, the court will determine who will care for your minor children and their property if the other parent is unavailable or unfit to do so. Should you make a will, you are able to put a guardianship provision in your will which would designate your preferred guardian of your children upon your passing.

Keep in mind that if you have life insurance policies, retirement accounts or other accounts with Transfer on Death (or Payable on Death) designations, those accounts will transfer automatically to the designated payee and will not be a part of your probate estate.

What makes a will legal? +

Any adult of sound mind is entitled to make a will. Beyond that, there are just a few technical requirements a will must fulfill:

First, Kentucky law does allow a holographic will, provided the will is written entirely in the your own handwriting. No typewritten sections are allowed and the will must identify who you are, that this is your last will, identify an Executor for your estate, and make a disposition of your property, as well as be signed and dated. This type of will is not common and there are various pitfalls when someone not versed in the law attempts to make such a will.

We strongly advise you not to attempt to make a holographic will. In the event that you have a holographic will that you believe is valid, we would be happy to review it with you to ensure that it meets all the legal requirements.

In almost all cases, our office would assist you with a formal last will and testament. In Kentucky, any formal will must be signed by at least two witnesses. The witnesses must watch you sign the will and the witnesses must be people who won't inherit anything under the will. You must then date and sign the will.

In addition, the best practice is to have your will notarized by a notary who watches both you and the witnesses sign the will. This makes the will what we call "self-proving" and will greatly simplify the procedure required to have the will probated.

After the will is executed, we would not record or file your will with the court, because your will can be changed at any time. The will is not filed with the court until after you are deceased. Therefore, we advise that you keep your will in a safe, accessible place and ensure that your Executor knows where it is and how to access the will.

Can I use my will to name a guardian to care for my young children and manage their property? +

Yes. If both parents of a child die or become otherwise unable to care for a minor child, another adult -- called a "guardian" -- must step in. The guardian will be responsible for raising your children until they become legal adults. You and the child's other parent can use your wills to nominate someone to fill this position. To avoid any conflicts, you should both name the same person.

You can choose that same guardian to manage property that you leave to your minor children or you can name someone different. We advise that you leave any property passing to minor children in trust and name a trustee to manage their property until they reach an appropriate age.

We would advise setting up a trust for each child. You can use your will to create a trust for any property the child inherits and to name a trustee to handle the trust property until the child reaches the age you specify.

Must I leave something to my spouse and children? +

In Kentucky, you can disinherit your spouse and there may be good estate planning reasons to do so, depending on the health and financial status of your spouse at the time of your passing. However, the law does protect your surviving spouse from being left with nothing. Kentucky's elective share statute (KRS 392.080) allows a surviving spouse to renounce what they receive under a deceased spouse's will, and instead receive one-half of their deceased spouse's probate estate (except real estate, in which a surviving spouse has only a one-third elective share).

Unless your spouse willingly consents in writing to your plan, you should plan to leave at least half of your property to your spouse, either through your will or outside it. For the foregoing reasons, we generally advise that to avoid any confusion and litigation, both spouses be fully informed of each other's estate plans and our office would not draft a will that disinherits a spouse wihout the spouse's knowledge.

In contrast, it's perfectly legal to leave one or more of your children nothing in your will. There is no legal right to inherit from parents. We do advise identifying any children that you plan to omit from your will and making a brief statement that you intentionally are leaving them nothing in your will. That will clear up any question as to whether or not you intended to leave that child out.

Can someone challenge my will after I die? +

Yes, although few wills are ever challenged in court. When they are, it's usually by a close relative who feels somehow cheated out of a share of the deceased person's property. To get an entire will invalidated, someone must go to court and prove that your signature was forged, you weren't of sound mind when you made the will, or you were unduly influenced by someone. In general, as long as you are competent and of sound mind, your will will be valid absent someone forcing you to sign the will.

What is a living trust? +

A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.

A "living trust" (also called an "inter vivos" trust) is simply a trust you create while you're alive, rather than one that is created at your death.

Different kinds of living trusts can help you avoid probate or set up long-term property management. Our team has many years experience in drafting living trusts tailored to the exact needs of our clients.

Why should I make a living trust? +

The mot important advantage to making a living trust is that property left through the trust doesn't have to go through through the probate process. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The probate process lasts a minimum of 6-9 months in Kentucky, and the average estate has administrative expenses of 3%-5% in legal expenses and court costs. Many estates take even longer to administer, depending on the assets of the estate and the number of heirs that the property is distributed to.

How does a living trust avoid probate? +

Property you transfer into a living trust before your death doesn't go through probate. The successor trustee -- the person you appoint to handle the trust after your death -- simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks, and there are far fewer attorney fees and court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.

Is it expensive to create a living trust? +

A living trust is more expensive to create than simply creating a will, but usually the cost to create the trust is less than the probate costs that you would eventually incur should you not create a living trust. Most of the time, an estate plan for a couple which includes a living trust can be completed for a few thousand dollars or less.

Is it a hassle to hold property in a living trust?

Making a living trust work for you does require some crucial paperwork. For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust. This paperwork can be tedious, but the hassles are fewer these days because living trusts have become more common. You would need to make sure that all of your assets, including vehicles and boats, are re-titled in the trust name once all trust documents are drafted and signed.

Is a living trust document ever made public, like a will?

No. A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate -- inventories of the deceased person's assets and debts, for example. The terms of a living trust, however, are private and will not be made public. For many clients, the privacy afforded by a living trust is a major benefit.

Does a living trust protect property from creditors?

No. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

Generally, after your death, all property you owned -- including assets held in a living trust -- is subject to your lawful debts. For example, if your house is held in trust and passes to your children at your death, a creditor could demand that they pay the debt, up to the value of the house. Ownership of real estate is always a matter of public record, so creditors can always find out who inherited real estate. It can be more difficult for creditors to know who inherits other property, however (because a trust document, unlike a will, is not a matter of public record), and they may not bother tracking it down.

On the other hand, probate can also offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.

If I make a living trust, do I still need a will?

Yes, you do -- and here's why:

A will is an essential back-up device for property that you don't transfer to yourself as trustee. For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your trust -- which means that it won't pass under the terms of the trust document. Whenever we draft a living trust, we also include a new will for each client that passes all of their assets to the newly created living trust. This type of will is called a pour-over will.

If you don't have a will, any property that isn't transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.

Can a living trust reduce estate taxes?

A simple probate-avoidance living trust has no effect on taxes. More complicated living trusts, however, can greatly reduce the federal estate tax bill for people who own a lot of valuable assets.

One tax-saving living trust is designed primarily for married couples with children. It's commonly called a credit shelter trust. Each spouse leaves property, in trust, to the other for life, and then to the children. This type of trust can save a great deal of money for you, money that will be passed on to the couple's final inheritors. Over the years, we have created many of these types of trusts for our clients, and we would love to talk with you about your estate plan, as well.

How long does probate take? +

In Kentucky, the probate process takes a minimum of 6 months from the date an Administrator or Executor is appointed to administer the estate. Assuming all heirs are in agreement with the property distribution plan, most estates can be wrapped up within 6 to 9 months of opening the estate. If there are assets that are difficult to dispose of, or heirs that are in disagreement, we do see some estates that are open for much longer. It just depends on the facts of your specific situation.

Will all of the decedent’s property have to pass through probate? +

In most instances, the answer is no. Most of the time, the decedent will have some mixture of “probate property” and “non-probate property.” In fact, if the decedent established a living trust or owed assets jointly with another person, probate might not even be necessary. We can help you evaluate your situation to determine the proper course of action.

Non-probate property includes items that pass from the decedent to another person by contract or operation of law.
Some examples of non-probate property would be:

• Jointly-owned property. Examples include jointly owned bank accounts and real estate jointly owned by married couples. Upon the death of a joint owner, the decedent’s interest in the jointly-owned property automatically passes to the surviving joint owner outside of the probate process.

• Any accounts or financial instruments, including bank accounts, retirement plans and life insurance policies, that have a payable on death beneficiary designation. These assets are distributed directly to the designated beneficiary upon the death of the account holder. Note that only the designated beneficiary of these properties, and not the Executor or Administrator, has the authority to apply for payment upon the death of the account holder.

• Any assets that were held in the name of a trust prior to the decedent’s death. Because these assets were not owned individually by the decedent, they will not be included in probate. After the decedent’s death, these properties are handled and transferred as directed by the trust document outside the probate process.

None of the assets listed above would be included in the probate process and would therefore not be controlled by the decedent’s Last Will and Testament. Many people own no probate property at death, in which case no probate is needed. For example, the first to die of a married couple might own at death only jointly-owned assets with the surviving spouse and assets like retirement plans and life insurance policies with designated beneficiaries. No probate would be needed for that spouse’s estate regardless of the value of these assets.

Probate property would include all individually owned items without beneficiary designations, such as individually owned bank accounts, investment accounts, vehicles, real estate, business interests, and many other types of assets. Probate property also includes the decedent’s interest in any assets which are owned with others as a “tenant in common” and not with “right of survivorship.” In addition, should the decedent receive any payments after death, those payments would be probate assets, including compensation paid after death, refunds, and retirement plans and life insurance policies that are payable to the estate rather than to other designated beneficiaries.

Probate sounds time consuming and there are not many assets in this estate. Is there a simpler process? +

In Kentucky, if the estate consists entirely of personal property totaling no more than $30,000, we can assist you with dispensing with administration of the decedent’s estate. This process usually requires only a single court hearing and can be completed within a few weeks. We can help you evaluate whether dispensing with administration is the correct course of action for your estate.

What are the steps in the probate process? +

The first step in the probate process is to obtain the original Will, list all of the decedent’s assets and liabilities, identify the estate beneficiaries, and determine whether there are any issues that may affect the estate.

Next, we would prepare a petition to open probate to file in the district court of the county where the decedent lived. The petition includes the decedent’s full name and address, date of birth and date of death, and will state whether a Will exists or not. In addition, the petition will identify the decedent’s next of kin, the proposed Executor or Administrator, and an estimate of the estate property and value.

The court will then schedule a hearing for the district court judge to review the Will and consider the appointment of the proposed Executor or Administrator.

Until the court signs the order appointing the Executor or Administrator, no one has any legal authority to take any action regarding the estate or the probate assets. A Will might designate an Executor, but that person has no legal authority until the judge signs the order opening the estate and formally appointing them to the job. Unless the named Executor would be disqualified from serving by virtue of prior criminal convictions or some other conflict of interest, the judge will appoint the Executor identified in the Will.

Upon filing of the order opening the estate, the Executor or Administrator then has the legal authority to administer the decedent’s estate. This includes having access to information that was previously confidential (such as bank account information) and having the authority to gather (or “marshal”) the decedent’s probate assets.

After opening the estate, the Executor would then file an Inventory of the estate assets within 60 days after being appointed by the court. Should assets of the estate be discovered after the 60-day period, the Inventory can be amended as needed.

After the Inventory is filed, the Executor would administer the estate and pay any valid claims relating to the estate. Upon the expiration of the 6-month time period, and after all valid claims have been paid, the Executor may distribute funds to the estate heirs, and the estate may be closed with the probate court. Once the judge signs the order closing the estate, the Executor has no further responsibility or obligation to the estate.

What are my responsibilities as Executor? +

The responsibility of the Executor is to administer the probate estate according to the terms set forth in the will or, if there is no will, to administer the estate in accordance with the law of intestate succession. The Executor will have to respect and consider the rights of estate creditors, the rights of tax authorities, and the rights of estate beneficiaries. The Executor is responsible for making sure that any and all rightful claims are paid by the estate, and that all taxes are timely paid on behalf of the estate. If the Executor were to distribute estate property to the heirs when it should rightfully go to creditors, the Executor would be personally liable. Our office can assist you with handling estate claims to make sure that you never get into a situation where you could be personally liable for estate debts.

1. Opening the Estate Bank Account
Most estates need an estate bank account to deposit the estate’s liquid assets, including transfers from the decedent’s bank accounts and other receipts of money during the estate administration. Payments for the estate debts and the costs of administration also are also made from the estate bank account. A federal tax ID number is required to open an estate bank account. We will obtain a federal tax ID number from the IRS on behalf of the estate so that the Executor may then open the estate bank account.

2. Filing The Inventory
After opening the estate, the Executor would then file an Inventory of the estate assets within 60 days after being appointed by the court. Should assets of the estate be discovered after the 60-day period, the Inventory can be amended as needed.

3. Marshalling the Estate Assets
The purpose of probate is to transfer the decedent’s assets to the correct parties. Therefore, a big part of the Executor’s job is to locate and gather up all of the decedent’s assets so that they can be either paid to creditors or to the heirs of the decedent.

• Liquid assets such as bank accounts or investment accounts would be transferred to the estate bank account.
• Vehicles, boats and other high value items would be insured until sold or distributed to heirs. The Executor has authority to sell these assets and may sign the title to any vehicles, boats or other titled assets on behalf of the estate.
• Real estate should be insured and any mortgages should be paid from estate funds until sale or distribution.
• All other assets should be safeguarded until distribution to the heirs of the estate, unless the sale of said assets is required to pay creditors.
  
  

4. Paying Valid Claims Against the Estate
The Fiduciary is responsible for paying the valid debts of the decedent before distributing the probate property to the estate beneficiaries. In many estates, there are little to no debts so this is quite simple. However, in some instances, the decedent’s debts exceed the value of the estatae’s assets.

If the estate has sufficient funds, the estate will fully pay the debts and costs of administration and then distribute the remainder of the assets to the estate beneficiaries. If the estate is insolvent (meaning the probate assets are insufficient to pay all of the debts and costs of administration), our office will work with the Executor to review and evaluate all claims made, and determine the proper distribution of the estate assets to the creditors. Under no circumstances should payment be made for any claim that was submitted after the 6-month claims period. If a claim is received within the claims period that the Executor believes was not a valid debt of the decedent, the Executor may formally “disallow” the claim. After the Executor has disallowed a claim, the creditor has a limited time to file suit in circuit court to attempt to prove the claim’s validity. If such a lawsuit is filed, the estate will not be able to be closed in district court until the validity of the claim is determined.

5. Paying the Heirs and Closing the Estate
Upon the expiration of the 6-month time period, and after all valid claims have been paid, the Executor may distribute funds to the estate heirs, and the estate may be closed with the probate court. Once the judge signs the order closing the estate, the Executor has no further responsibility or obligation to the estate. In Kentucky, estates can be closed by either an Informal Final Settlement process or a Formal Final Settlement process. Our office has years of experience in assisting clients with filing Informal Final Settlements, which save the estate time and money. Informal settlement requires the Executor to file an Informal Final Settlement affidavit stating that by the estate administration is complete and that all heirs and creditors have been fully paid. In conjunction with this affidavit, receipts for payments of any claims should be filed, along with an affidavit from each heir stating that they have been paid their portion of the estate assets and therefore will not require the Executor to file a formal settlement. The Informal Final Settlement does not require providing the court detailed information regarding the estate transactions, making it fairly simple to prepare and file. The Informal Final Settlement is available only for solvent estates (where all debts and expenses have been fully paid) and is the preferred method to close the estate when all beneficiaries are satisfied with what they received from the estate. The standard way to close an estate is Formal Final Settlement. This is a more complicated process and involves providing the probate court and other parties having an interest in the estate complete information about the administration, including an accounting of the estate’s financial transactions. Parties with an interest in the estate then have an opportunity to present any objections they may have to the final settlement presented by the Fiduciary. If objections to the Formal Final Settlement are presented, the court holds a hearing to resolve the objections.

The Formal Final Settlement is common where an Informal Final Settlement is not possible or practical. This includes insolvent estates and other estates where it may be difficult or impossible to obtain documents signed by all beneficiaries indicating their satisfaction with the estate administration.

What costs are associated with the probate process? +

Funeral, Burial, and Estate Administration Costs
Funeral and burial costs and all proper costs of the estate administration process are priority debts of the estate. These costs must be paid first, before other debts of the decedent, which is very important in insolvent estates. Funeral and burial costs are incurred prior to opening of the estate. To the extent that they were paid for by any party other than the decedent, they should be immediately reimbursed upon opening the estate bank account. Estate administration costs include probate attorney fees as well as court costs, accounting and appraisal expenses, and other ancillary expenses. In some cases, estate administration costs can be up to 4-5% of the estate, but in many cases the costs is much lower than that.

Executor or Administrator Commission
Executors and Administrators have the right to be paid a commission for their services, but commissions are not required to be paid. The commission is capped at 5% of the value of the probate assets. Any commission paid is taxable income and if the Executor is one of the only beneficiaries of the estate, taking a commission may have negative tax consequences. All things being equal, you would rather get a non-taxable inheritance instead of a taxable executor’s commission.

Income Taxes
If the decedent’s taxable income during the decedent’s last year of life was enough to exceed the minimum tax filing threshold, the Executor is responsible for filing an income tax return for the decedent to report that income.

In addition, the estate is a separate taxable entity that could receive its own income during the period of administration. Many estates have no taxable income, or an insignificantly low level of income, and never have to file income tax returns. However, some estates earn significant enough income during the period of administration that income tax returns have to be filed by the estate. Income sources for the estate can include, but are not limited to, compensation received after death, investment income, or a taxable retirement account that is payable to the estate rather than to another designated beneficiary.

Estate and Inheritance Taxes
Federal estate taxes are payable only by very large estates exceeding $10 million, so federal estate taxes rarely come into play. Should your estate exceed the federal exemption amount, our office can work with the decedent’s CPA to plan for and file the appropriate estate tax returns.

Kentucky also has an inheritance tax. The good news is that Kentucky does not tax any assets passing to the decedent’s spouse, children, grandchildren, siblings, or parents. In addition, amounts passing to charities are not subject to the inheritance tax. Should assets pass to non-exempt beneficiaries, our office will work with the decedent’s CPA to plan for and file the appropriate Kentucky inheritance tax returns.

Can the Executor begin selling estate property as soon as the estate is opened?

In general, yes. The Executor may begin to liquidate estate properties as soon as the estate is opened. However, when it comes to real estate, the Executor only has legal authority to sell the real estate if the Will specifically authorizes the Executor to sell real estate or an order is obtained from the probate court granting the Executor that authority. If no Will exists or the Will fails to provide authority to sell the probate real estate, our office will assist the Executor with obtaining the appropriate order authorizing the Executor to sell real estate.

When will the heirs receive their money from the estate?

As discussed above, the Fiduciary is responsible for paying funeral and burial costs, estate administration costs, and debts of the decedent as part of the Kentucky probate process before making distributions to the estate beneficiaries. Because the estate creditors have six months to present their claims to the estate, the estate’s total debt obligation cannot be known with certainty until the six-month notice period has expired. Therefore, distributions to estate beneficiaries should not occur until after that six-month notice period has expired and the Fiduciary has established the net estate assets available for distribution to the beneficiaries.