What is an Estate Advancement?
Creating an estate plan is a great way to take care of our loved ones after we pass. However, sometimes our loved ones need help during our lifetimes. One way to take care of the financial needs of our beneficiaries before we pass is through an estate advancement. An estate advancement is a lifetime gift to a beneficiary of assets that they would have otherwise received upon your death.
LKP has highly experienced attorneys who assist clients with estate planning all throughout Nevada. Call us at 702-333-1711 to schedule a free consultation on whether making an estate advancement is right for you.
Explaining Estate Advancements
Advancements are usually lifetime gifts that are to be treated as part of a person’s estate or trust for the purpose of calculating the beneficiaries’ shares.
For example, if you leave $525,000 to three beneficiaries equally, they each get $175,000.
If you give one beneficiary $25,000 early as an advancement, the shares should be the same as if the gift had not been made early, but the share of the gift recipient is reduced by the advancement. To calculate the effects of an advancement properly, we add the advancement to the value of the trust assets to determine the “aggregate amount” that is being shared equally. The aggregate amount reflects the amount that would have been divided equally if the gift had not been made early.
Stated another way, the beneficiaries are each entitled to his or her share of the aggregate amount minus any advancement(s) received.
If a beneficiary’s advancement exceeds his or her share, the beneficiary gets nothing and owes nothing back to the estate or trust. The remaining beneficiary(ies) divide up the remaining balance on a pro rata basis.
When should I consider an advancement?
Some choose to give a loved one an advancement for a down payment on a home.
For example, Fred has a will that provides for his children, Sally, Sarah, and John, to receive equal shares of his assets at the time of his death. While Fred is living, Sally asks for $25,000 for a down payment on a home, with the understanding that it will count as part of her inheritance share upon Fred’s death. Fred gives her the $25,000, and Fred signs a document declaring that this is a gift that is to be treated as an advancement of Sally’s share under Fred’s will.
When Fred dies, he has an estate of $500,000 after all taxes and other expenses are paid. We add the advancement to the value of the estate assets to determine the “aggregate amount” that is being shared equally. Thus, we add $25,000, representing the gift to Sally during Fred’s lifetime, to the estate’s assets, resulting in an aggregate amount of $525,000. Each beneficiary is entitled to $175,000, which is one third of $525,000. Using this approach calculates the shares using the same figures that would have applied if the lifetime gift had not occurred.
Sally is entitled to $175,000, but she has already received $25,000, so her net distribution from Fred’s estate upon his death is $150,000. Sarah and John each get $175,000.
Advancements can also be used to help a person get out of debt, to pay for their education, or to cover any other large expenses that arise during your lifetime.
How is an advancement calculated?
The calculation of an advancement is determined by application of the terms of the will or trust. If the will or trust is silent, the principles of NRS 151.130 are usually applied.
The key to understanding advancements is understanding that the amounts advanced are added to the value of the property remaining in order to determine each beneficiary’s share upon death. After each share is determined, the value of the advancements reduce the shares of those who received the lifetime advancements, but not below zero.
Contact an Estate Planning Lawyer in Nevada
Before making an advancement, it is best to seek legal counsel to make sure that an advancement is addressed property in your estate plan. Call us at 702-333-1711 to schedule a free consultation on whether making an estate advancement is right for you.
Attorney Kennedy Lee practices in all aspects of trust and estate law. He views all legal issues from multiple angles (e.g. from litigation to administration point of view) to provide a higher quality of service to our client.