September 25, 2017 By JRL, Esq.

The Family Trust: Top 3 Reasons Probate Wasn’t Avoided

While it is true that a properly funded and properly drafted revocable living trust will avoid the probate process, there are several reasons why probate isn’t always avoided.  Here are some of the most common reasons assets still go through the probate process, even though the decedent had a trust.

The Trust Is Not Properly Funded

You first have to understand which assets need to pass through the probate process.  Probate is the legal, or court, process that handles the transferring of assets from the decedent’s name to the names of the beneficiaries, whether those beneficiaries are intestate heirs or those named in the Last Will and Testament.

Certain assets have beneficiaries named on them. Such assets normally don’t pass through probate. Common examples include life insurance policies, retirement accounts, and transfer-on-death or pay-on-death bank accounts.  Such items pass directly to the named beneficiary with no probate.  If you are the named beneficiary, then you often just provide the life insurance company or financial institution with a death certificate and fill out some paper work, and the funds will be sent to you.

When talking about funding a trust, we are talking about transferring title of the assets to the trust that has been created.  For assets with actual titles, this means preparing and executing the proper transfer document.  For real estate, we would prepare a new deed to transfer ownership of the property.  Banks will have paperwork to fill out and sign to change the ownership of the bank accounts to the trust.  Ownership of an LLC may require an assignment.

As you can see the process is a little different depending upon what the asset is.  Nevertheless, it is important to make a checklist of your assets and check down through the list as they are transferred to the trust.  Typically, items of tangible personal property are transferred to the trust by signing a simple assignment of such items, which covers things such as household furnishings, personal effects, collections, art, etc.

Many, many times, people forget to retitle a few assets in the name of the trust.  Or some time after they establish the trust, they acquire a new asset and forget to title it in the trust’s name.  When they die, such items need to pass through probate in order for the title to be transferred.

Failure of a Beneficiary Designation

As previously mentioned, certain assets such as life insurance policies and retirement accounts list beneficiaries.  Both primary beneficiaries and secondary, or contingent, beneficiaries should be named.

What if the named beneficiary or beneficiaries predecease the insured in the case of life insurance? If no beneficiary survives the insured, the insured’s estate is often the default beneficiary.  “Estate”, as in probate estate.  So the life insurance proceeds must pass through probate to get to the proper beneficiaries.  Assuming the insured has a living trust and pour-over will, the probated insurance proceeds would end up in the trust and pass to or be held for the benefit of the trust beneficiaries.

Depending upon the situation, the trust may be named as a beneficiary of the policy or account, either as the primary or secondary beneficiary.  Then you don’t have to worry about the beneficiary dying first.

Poorly Drafted Trust

While not common, I’ve seen a trust drafted so poorly, that the trust assets ended up in probate under Nevada law.  One case involved a trust that simply failed to name a beneficiary at all.  Another case involved a trust that list a couple of specific bequests, but then failed to distribute the remainder of the trust estate to a beneficiary.  In each case, the trust assets had to be probated and passed to the intestate heirs of the decedent.

A trust that fails to fully devise all of its trust property is usually one that someone drafts themselves from a do-it-yourself kit.

The bottom line is that having a trust does not guarantee that your entire estate will avoid probate.  To work properly, the living trust must be properly drafted and fully funded.

To learn more about the probate process, read this article.

September 8, 2017 By JRL, Esq.

It is often reported that the majority of Americans do not have a Last Will and Testament, and I expect those in Nevada are no better.  That leaves many with the question: What if I die without a Will? And perhaps more specifically, without a will who gets what?  Well, there are several consequences of not having your estate planning in place.

Intestate Succession

First, one who dies without a Will is said to die “intestate”.  This means that instead of you deciding to whom your assets pass, either by way of a Will or living trust, the state’s intestate succession laws will apply.  In Nevada, the in intestate succession statutes are found at NRS Chapter 134. In effect, the state has written a will for you.

Second, your assets, at least those without beneficiary designations, will pass through the probate process.  Probate can be an expensive and time-consuming process.  Most people are interested in avoiding probate altogether.

But, back to the question of if someone dies without a will, what happens to their money and other probate assets?  You first have to determine whether the property is community property or separate property.

Community Property

If a spouse dies and the married couple have community property, the property will pass to the surviving spouse without probate if it was held as community property with rights of survivorship.  But if the survivorship clause does not exist, then the deceased spouse’s one-half community property interest will be probated.

If the deceased spouse had a will, you follow what the will says to do with the property.  A husband or wife may dispose of his or her community property interest in property however he or she pleases.

But if the deceased spouse did not have a will, that is he died intestate, Nevada law states that the community property asset passes to the surviving spouse.

Separate Property

But what about separate property?  If the decedent dies holding separate property, we look to the state’s intestate succession statutes.  Distribution will depend upon who the surviving next-of-kin are.

If there is a surviving spouse and one child, the separate property is divided one-half to each.  However, if there are two or more children, then the property passes one-third to the spouse and two-thirds are divided equally among the children.

When there is no surviving spouse, but there are children, then the estate goes to the children, share and share alike.  Obviously, if there is only one child, it would all pass to that child.  But if there is a deceased child who is survived by children, then the estate goes to the living children and the issue of the deceased child, by right of representation.

If there are no children, then the spouse receives one-half and the deceased person’s parents each receive one-forth.  If there is just one parent, that parent receives one-half of the estate.  And if no parents are living, that half is divided among the deceased spouse’s siblings.

If there is no surviving spouse nor children, then the estate is split between the decedent’s mother and father.  But if just one of the parents are living, then the entire estate goes to that parent.

What if there is a spouse that survives, but no children, issue of any child, parents or siblings? Then the entire separate property estate passes to the surviving spouse.

When someone dies without a spouse, issue, or parents, then the estate will pass equally to the surviving brothers and sisters, and to the issue of any deceased brother or sister, by right of representation.

As you can see, there is quite a variation of estate dispositions depending upon who survives the decedent.  Which is one reason for making sure you have at least a will.  And if avoiding probate is of interest to you, please consider a revocable living trust.

 

September 12, 2016 By JRL, Esq.

Have you set up a trust and wonder how to hold title to your residence?  Have you invested in your first rental property and wondered what would be the best way to hold title?  Or have you been investing in real estate for several years and now own several residential rental properties?  What would be the best way to title all of those rentals?  With this blog post I want to cover with you several aspects of how to hold title to real estate as it relates to your estate planning.

Personal Residence

When it comes to your home, the first thing you should consider is filing a homestead.  Under current Nevada law, a homestead will protect up to $550,000 of equity in your home.  Next, if you have set up a revocable living trust, you should transfer title of the home to the trust.  This will allow the home to avoid probate upon your death.

Spouses often hold title to their home in joint tenancy with rights of survivorship.  Or sometimes a parent will hold title to their home with a child as joint tenants.  It should be noted that joint tenancy does not avoid probate, but rather postpones the probate action until the death of the second joint tenant.

Also, when planning for your real estate, adding a child as a joint tenant as a probate avoidance method has two additional risks.  First, you are assuming the order of death.  Normally, you as the parent would pass away before your child.  However, if the child predeceases you, title to the real estate will simply end up back in your name.

And second, if your child is sued and a judgment is obtained against him, the judgment creditor may be able to attach the judgment lien to your home because your child’s name is on it as one of the owners.   Consequently, it is recommended that children are not placed on title to your home as a joint tenant.  Rather, place the property in your trust and allow it to pass to your child as a beneficiary of the trust.

Rental Real Estate

Rental properties can be a great investment.  However, they also bring with them a potential source of liability.  Consequently, it is recommended that rental properties be placed in a limited liability company.  An LLC not only shields your assets from liabilities that might arise from within the LLC, but can also protect the property owned by the LLC from your personal creditors.

In addition, if you own more than one rental property, you should consider how to protect each property from the potential liability exposure of the other properties.  This can be done, for example, by placing each property into its own LLC.  However, given the increasing fees that the State of Nevada charges for each LLC on an annual basis, some people are reluctant to establish a separate LLC for each rental property.  This has led many to place more than one rental property into a single LLC.  The problem with doing this is simply that you are exposing each property to the potential liability of the other properties within the LLC.

A solution to this problem that should be considered is establishing a Nevada series limited liability company.  If set up properly, under Nevada law, each property is placed into a separate series within a single LLC.  Each series is then protected from potential liability from every other series within the LLC.  Additionally, since the series LLC is one entity for filing purposes, only one annual fee is required to be paid to the
State of Nevada.

Whether you use a series LLC or multiple LLCs, it is recommended that ownership of the LLC be placed into your living trust.  Again, this will help avoid probate of the entity upon your death.  If you have questions about how a living trust or a series LLC might benefit you and your estate, please contact our office for a free initial consultation.

September 8, 2016 By JRL, Esq.

Often people wonder whether you can set up a trust without a lawyer.  I am not often asked this question I imagine because most people probably assume that my answer, as an attorney, will be “Absolutely not!”  However, that is perhaps not the correct question to ask.  The better question is whether you should set up a trust without an attorney?

What are the pitfalls of DIY Trusts?

I have had clients come into my office who have attempted to set up their own trust and became frustrated with the process.  Or those who were not sure whether they were doing it correctly.  Given the number of do-it-yourself living trust kits that you can purchase online or in a bookstore, it is clear that one may try to draft his or her own living trust.  Often such DIY living trust kits do not provide the in-depth instruction necessary to properly create and fund the trust.

For example, I have seen do-it-yourself trusts that fail to provide for a successor trustee or fail to provide for an alternate successor trustee if the one you have named is unable to serve.  People using do-it-yourself trust kits commonly create ambiguities in the drafting which makes it difficult, if not impossible, to properly administer the trust without going to court to clear up the ambiguity.

I have even seen a living trust created by an individual without the help of an attorney that failed to dispose of the person’s entire estate.  In that case, the individual trying to create his own trust left a specific dollar amount to a particular person, but failed to mention anything about distributing the remainder of his estate.  Consequently, the remainder of the trust estate, under Nevada law, passed through probate and was distributed under Nevada’s intestacy laws. The trust failed to achieve one of its main goals, to avoid probate.

What about future trust litigation?

Perhaps when considering whether you should attempt to prepare a living trust by yourself, you should consider that trust litigation attorneys love do-it-yourself living trust kits.  The DIY trusts are a great source of controversy that allow estate litigators to cost the trust and its beneficiaries a great deal of time and expense, especially attorney fees, in resolving the problems created by such trusts.  By the time trust litigation is over, the cost of having an attorney properly draft the trust in the first place will look minuscule.

If you have set up a living trust by yourself and want to have it reviewed, or if you would rather not set up a living trust by yourself, please contact our office to schedule a free initial consultation to discuss your options.

August 24, 2016 By JRL, Esq.

It is difficult to prepare for every contingency in life.  This is also true for creating a trust.  When it comes to money, not  everyone will see eye-to-eye, and disputes can arise.  Just like any other legal dispute, if a dispute arises over a trust it is always desirable to resolve it without the expense and burden of the court system.

In Nevada, as with many other states, a relatively new statute allows for all interested parties of a trust to resolve their differences by entering into a non-judicial settlement agreement (“NJSA”).  In Nevada, an NJSA can be used to modify the terms of an otherwise irrevocable trust if all of the interested parties are in agreement.  The agreement can cover a wide range of issues as long as it does not violate the “material purpose of the trust” and the agreement covers those issues that could “be properly approved by the court” if the matter were brought before the Nevada probate court.

Those matters that may be resolved by an NJSA include the investment or use of trust assets; the addition, deletion or modification of a trust term or condition; clarification of a trust term; to approve a Trustee’s accounting; to approve the action of a Trustee or prevent a Trustee from acting; the merger or division of trusts; or the termination of a trust, among many others.

It is often the case that a trust has become irrevocable and has outlived its intended purpose.  If that is the case, the beneficiaries can get together and agree to terminate the trust.  Again, this requires the consent of all “indispensable” parties.  Nevada statute defines an indispensable party as an interested person; that is, a person whose right or interest under the trust may be materially affected by the action being taken.

There are often many times when the terms of the trust are not exactly clear in a given situation.  Clarification is needed for the Trustees to know how to administer the trust properly.  This, too, is a great situation in which to use a non-judicial settlement agreement.

Using the NJSA can save considerable time and money by allowing the parties to a trust to resolve whatever issues may arise concerning the trust without having to resort to court.  If you think that an NJSA may be beneficial in a situation that has arisen regarding a trust in which you are involved, please feel free to call our firm for a free initial consultation to discuss how the matter might best be resolved.

August 19, 2016 By JRL, Esq.

As you may know, the annual gift tax exclusion is currently $14,000 per person, per year.  However, due to the estate tax lifetime exemption amount of $5,450,000 (for 2016), the gift and estate tax has become either irrelevant or arbitrary for 99% of Americans.  The estate tax simply does not affect too many people anymore.  Thus, the $14,000 gift tax exclusion is arguably irrelevant economically speaking.

For those of greater wealth, a new endowment type model of gift planning may be superior to the traditional transfer tax-oriented model.  When projecting long-term financial security, oftentimes a Monte Carlo simulation is used.  By incorporating a line item for gifting, whether to a charity, heirs, or for additional luxury purchases, into the Monte Carlo simulation, it may be that you come to a better threshold analysis for determining appropriate gifts from an economic perspective.  In other words, you will better determine what can be given away in any given year without undermining your long-term financial objectives.  Once the economic parameters are set, you can then better evaluate exactly how the gift transfers can be made from a tax perspective.

To implement this perspective of gift planning, the following five steps may be undertaken:

1. Determine the percentage likelihood that you want for financial comfort.  In other words, when running the financial projections, are you comfortable with an 80% probability of not running out of funds by age 95 in order to maximize current economic gifts to your children?  Or perhaps you are someone who is willing to give your entire estate to charity, in which case you may prefer a higher 90% probability that you will not run out of assets.

2.  After the percentage is established in Step 1 above, you are able to determine by simulation the maximum economic gift that would be prudent without jeopardizing your financial security and goals.  This is referred to as the “economic cap.”

3.  Once the economic cap is determined, e.g., the sustainable economic gifts, you can then decide if for personal reasons that gift amount should be restricted.  Just because a particular gift amount may be affordable, it does not mean that a gift of such an amount would necessarily be in the donee’s best interest.  Consequently, personal reasons for restricting the gift may be referred to as the “personal cap.”

4.  Try to determine whether the donee would likely spend the funds or invest them.  If it is intended that a portion of the funds would be invested, from a pure tax perspective, it is likely preferable to hold those funds in an irrevocable grantor trust so that you, as the grantor, can pay the income tax on the income earned by the investments.  This will further reduce your estate by reason of the income tax “burn” on the income earned by the grantor trust.

5.  The lesser of the gift amount limited for personal considerations, or the sustainable gift, becomes the maximum determined gift.  This should then be evaluated for gift and estate tax consequences.

If you are in the habit of making annual gifts to your heirs, you may consider including a clause in your revocable living trust or durable power of attorney which allows the continuation of such gifts on your “historical pattern of gifts.”  If you have undergone an endowment approach to annual gifting such as that discussed above, you should have well-documented support for your annual gifting program.  Such a pattern and corresponding support will likely be appreciated by the Successor Trustee or Agent under your power of attorney.

August 15, 2016 By JRL, Esq.

When dealing with living trusts, the focus is often on what happens when the settlor passes away.  But what if one of the beneficiaries of the living trust that you have set up dies?  Do you need to amend the trust?  Well, as you might expect, it depends.

If the trust was drafted with all of the proper contingencies, nothing may need to be done if a trust beneficiary dies.  For example, if you have named a beneficiary to receive a specific bequest (a gift of a specific amount of money or a specific item) and that beneficiary dies, you may have simply allowed the bequest to lapse.  In such a case, the bequest would simply pass to the residuary beneficiaries.  Or, you may have stated in the bequest that if the beneficiary dies, the bequest passes to his or her children.  In either situation, nothing may need to be done.

However, I have seen situations in which there is no alternate distribution provided in the event of a beneficiary’s death.  This often is the case in “do-it-yourself” living trusts.  The person using the DIY trust kit simply lists the person’s name as the beneficiary and does not think about providing for an alternate distribution plan in the event of the named beneficiary’s death.  This can often end up in probate court to resolve the issue.

If your living trust fails to provide for an alternate distribution plan, whether you created the trust yourself or you had an attorney draft it, and that beneficiary dies, you will need to amend the trust to provide for new beneficiaries.  You may want to review your trust as soon as you can to ensure that such contingent distribution plans are provided for, especially if you drafted the trust yourself from a do-it-yourself living trust kit.

August 8, 2016 By JRL, Esq.

Good communication between a trustee and the trust beneficiaries is crucial to the smooth administration of the trust.  Thus, while trustees should stay in contact with beneficiaries, there are times when a Trustee either should or must provide notification to the beneficiaries of certain trust matters. This article discusses when notifications and accountings are required and when they are not.

If you have created a revocable living trust and are the trustee and beneficiary, you are not required to provide accountings nor notifications to any other beneficiaries.  While you are alive and competent, you can amend or revoke the trust at any time.  Remainder beneficiaries, those who become beneficiaries after you pass away, are not entitled to any information about the trust.

However, once the settlor of the trust passes away, and the trust becomes irrevocable, beneficiaries are entitled to certain information and notifications.

120 Day Notice of Irrevocability

First, it is recommended that a 120-Day Notice of Irrevocability be provided to the beneficiaries.  Under Nevada statute, a trustee may notify trust beneficiaries when the trust changes from being revocable to irrevocable.  The notification must include certain key information.  And any beneficiary that receives such a notice who was thinking about contesting the trust’s validity must do so within the 120 days.  This notice essentially forces such a beneficiary to either do so or live with the trust as written.

Annual Accountings

Nevada trust law also requires that the trustee provide beneficiaries with an annual accounting.  The accounting notifies the beneficiaries of the status of the trust assets and what income and expenses have occurred during the year.

Notice of Proposed Action

A third type of notice that a trustee may consider giving beneficiaries is a Notice of Proposed Action.  In the event that a trustee is planning to take any significant action that will affect a beneficiary’s interest, it is recommended that the trustee provide the affected beneficiaries a 30-Day Notice of Proposed Action.  In the event the beneficiaries do not object in writing within 30 days, they are deemed to have consented to the proposed action.

Notice to Creditors

A fourth notification that Trustees should consider following the death of the trustor is a Notice to Creditors.  While not a notice to beneficiaries, this notice puts potential creditors on notice that they have 90 days in which to file a creditor’s claim, or they are forever barred from collecting such claim.  While creditor notices are required in probate proceedings, they are optional in a trust administration.  Nevertheless, to put finality to the issue of potential creditors’ claims, it is recommended that such a notice be provided.

Trustees have a fiduciary duty to the trust beneficiaries, which must always be top of mind.  Part of fulfilling one’s fiduciary duty to the beneficiaries  is providing information about the trust to the beneficiaries as it affects them.  The notifications discussed herein play a key role in keeping beneficiaries properly informed.

August 2, 2016 By JRL, Esq.

I recently published a series of blog posts on the importance of considering your digital assets in your estate planning. Well, if you are an executor or successor trustee and are trying to find a decedent’s assets or determine if a young trust fund beneficiary is telling you the truth about their dire conditions and how badly he needs a distribution, you might want to do what some savvy investigators are doing. Check social media.

“Cashed-up parents are getting caught by the law thanks to their social media-loving kids, who aren’t so savvy when it comes to keeping a low profile online. Instagram has become the site of choice for children of wealthy parents to flaunt their cash, expensive toys and luxury lifestyles. But the naive children are exposing their parents to fraud investigators and criminals, London‘s Telegraph reports. . . .

Top cybersecurity firms said they were using evidence from social media in up to 75 percent of their litigation cases.

Oisín Fouere, managing director of K2 Intelligence in London, said social media was its “first port of call” when examining the transactions of the super-rich.

In one debt recovery case, a man claimed to have no items of significant value, but one of his children exposed that lie by posing on the family’s $22 million yacht in the Bahamas.

. . .

Andrew Beckett, managing director of cybersecurity and investigations at Kroll, said the firm found multimillion-pound hidden assets in a divorce case last year where a husband had claimed he was almost broke.

They found the hidden money and assets by monitoring the location of his children’s social media posts, The Telegraph reports.” Rich parents blindsided after kids out them on social media

As a fiduciary, don’t forget about the information that people put online. It may help you to locate assets. Or as mentioned above, such digital information may expose a beneficiary in his or her lie.

And when it comes to asset protection, some people go about it all wrong. Proper asset protection planning is not about hiding assets, but rather structuring assets in legitimate legal structures that have recognized protection under the law.  Nevertheless, some people insist on hiding assets and then claiming poverty, even though they continue to live a lifestyle that is not consistent with being out of money. And how might you know? Just like the investigators above, check on the kids’ Instagram, Facebook, or Twitter accounts. You are likely to learn a lot about how the family is really doing.

July 28, 2016 By JRL, Esq.

Have you received your Welcome Letter from the Nevada Department of Taxation yet?  The letter is to inform businesses about the requirement to file the new Commerce Tax return. Even though no tax is owed if your gross revenue is under $4,000,000, a Commerce Tax return is still required. And the problem is that the State can only send the Welcome Letter to those businesses that it knows about – those that have registered with the Secretary of State. In fact, many people, sole proprietors and rental property owners, for example, will be required to file the return and may not even know because they did not receive the Letter.

What is the Commerce Tax?

A tax imposed on the right to “engage in business” in Nevada.  And businesses subject to the commerce tax include limited liability companies, corporations, and other entities registered with the Nevada Secretary of State, as well as sole proprietors and any person filing a schedule E, part 1 on their 1040 income tax return.

“Engaging in Business”

The definition of “engaging in business” not only applies to business conducting or continuing a business in Nevada, but also includes “commencing” a business in Nevada.  You are also required to file a return even if you are a sole proprietor that is exempt from the Nevada Business license or even if you just have a single rental property. Under this new tax, rent is not considered passive.

Even if your corporation is registered with Nevada but makes $0 revenue, you still need to file the return.  “Commencing” a business in Nevada includes registering the business with Nevada’s Secretary of State. So, unless your entity falls within a specifically exempt category, just the fact that it is registered with the State means a return is requires.

When is the Commerce Tax Return Due?

Since the State legislature couldn’t wait for the end of the calendar year, which most businesses use, they made the fiscal year for the Commerce Tax run from July 1 through June 30. The return is due 45 days following the close of the tax year, so that is August 15, 2016 for this first year.

There is a potential 6 month grace period for this first year. But this waiver is available if the failure to file occurred even though you exercised ordinary care and the failure to file was not intentional or due to willful neglect; in other words, excusable neglect.  A request for the waiver is reviewed on a case by case basis.

What if Your Gross Revenue is Less Than $4,000,000?

You still must file the commerce tax return. But compliance is fairly simple. Just log into the Nevada Tax Center system and do the following:

• Select the tax year you are filing for
• Select the proper NAIC code category (there’s a drop down menu)
• Check the box for “under $4,000,000”
• Check the “under penalty of perjury” box
• Submit the return

Don’t get caught unaware of this new business tax and the need to file a return even if your business won’t owe any tax. Failure to file the return could result in penalties and interest. To learn more, go to Nevada’s Department of Taxation website where they post a series of frequently asked questions.