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.