Tuesday, November 24, 2015

AFRs for December 2015

The Section 7520 rate is 2.0%

Annual Semi-annual Qtly Monthly
are as follows
Short-term 0.56% 0.56% 0.56% 0.56%
Mid-term 1.68% 1.67% 1.67% 1.66%
Long-term 2.61% 2.59% 2.58% 2.58%

Friday, November 13, 2015

A Trust Offers Flexibilty And Certainty Where Other Planning Techniques Fall Short

The question I am often asked is "do I really need a trust?" This is usually followed by a statement along the lines of "I have named beneficiaries to receive all of my accounts and the only other asset I own is my house." The short answer is: an estate of any size can benefit from a trust. Simply put, having a trust allows you to decide who will receive your assets, when they will receive your assets, and the manner in which your assets will be distributed to them.

Most people understand that a trust is preferable to a will in that a trust avoids probate. Of course, assets titled in joint tenancy and assets having a beneficiary designation will also avoid probate. Both of these techniques will result in a property automatically passing to the surviving beneficiary without probate. If, however, your joint tenant and/or designated beneficiary should predecease you, then any such property becomes subject to probate once again unless and until you take further action with respect to the ultimate disposition of the property.

A beneficiary, pay-on-death (POD) or transfer-on-death (TOD) designation will cause the timing of the distribution to occur upon an account owner’s death. Joint tenancy is also widely used as a tool to pass property upon a person’s death. The designation of joint tenancy, however, brings with it much more than simply being a gift upon death. Adding someone as a joint tenant to your property, gives that person present access to your property up to the whole thereof. For this reason, care should be taken in setting up joint tenancy unless you intend for your joint tenant to receive current rights in your property or you trust the person implicitly to carry out your wishes with respect to the disposition of such property both during your life and upon your death.

Assuming your joint tenant and/or named beneficiary survives you, the whole of the subject property will pass to such person upon your death. In other words, these probate avoidance techniques do not allow you to direct the timing or the manner of the distribution. For example, you cannot provide that the property be paid out to them over time or upon attaining certain ages, etc. In addition, should your joint tenant and/or designated beneficiary be a minor, he or she is unable to receive the property until someone takes steps to have a formal guardian of such minor appointed through the court.

If real property is indeed the only asset that is left for you to make provisions for upon your death, Nevada law allows for the execution and recordation of a deed upon death.  While this may seem like a quick and easy solution to provide for the disposition of real property, it also carries with it certain drawbacks. The way the law is currently written, creditors reserve the right to assert claims against the property for 18 months following death. Consequently, a beneficiary of a deed upon death is realistically precluded from transferring or selling the property for a minimum of 18 months since title companies have been reluctant to insure title until after the creditor period has fully run.

While one or more probate avoidance techniques may be useful for certain assets in specific instances, there is simply no other estate planning technique that affords the same level of flexibility as a trust. A trust lets you determine the exact moment of when the desired gift will be made to the intended recipient. It allows you to give property outright or to maintain property in trust to be gifted out over time as you may direct. In the case where a beneficiary should predecease you, the trust can provide for any number of successive beneficiaries.  It provides for orderly administration and distribution under the care of the person you appoint to act as your trustee.  In short, a trust provides a canvas for you to design a plan to accomplish all of your estate planning objectives without the unintended consequences and/or pitfalls associated with other planning techniques.  Thus, there is no real substitute for setting up a trust.

Wednesday, November 4, 2015

Happily Ever After… Round Two.Estate Plan Considerations for Blended Families

According to the U.S. Census Bureau, blended families now outnumber traditional families. Blended families come in all shapes and sizes, where at least one spouse has at least one child from a prior marriage or relationship.  Due to the variety of situations and dynamics of each unique blended family, a cookie-cutter estate plan will not suffice to accomplish each individual family’s goals.  It is important to discuss your family situation with an estate planning professional who can personalize a plan for you and your family which will enable you to meet your family’s needs and address any concerns you may have.  For blended families, below are several items to consider as you and your loved ones plan for the future and preserve your legacy.

Questions you may ask yourself when creating a new estate plan for your blended family may include:
·         1.  How can I provide for my children from a previous relationship and for my new spouse?
·         2.  How do I ensure my children’s inheritance is protected?
·         3. Am I bringing significant separate property into the marriage that I want to keep apart from my community estate?

In creating your new estate plan, it is important to evaluate your goals and priorities regarding how (and to whom) you want to distribute your assets after you are gone.  An individual may leave their assets however and to whomever they please.  In our experience, clients typically want to provide for their children and spouse.  Providing for both in a blended family setting however can be complicated.

Our experience is that in many cases a surviving spouse of a blended family ends up re-designing or amending the estate plan for only his or her children’s benefit.  The only way to get around that is to leave assets in trust.

In addition to deciding how and to whom you would like to gift your estate, it is necessary to decide who would be best to serve as your trustee, executor, agent, etc.  If your children and spouse get along, nominating a child and the spouse to serve together in these capacities may be a good option.  However, if you think tensions will arise, nominating an independent third party (an impartial corporation, professional, or non-family member friend), will eliminate any potential friction caused by naming one or the other member of your family as trustee, agent or executor.

For blended families it is essential to create a comprehensive and integrated estate plan where trusts, powers of attorney, last wills and testaments, life insurance beneficiary designations, and retirement plan beneficiary designations all align so that your wishes will be followed when you are gone.

We strongly suggest that you plan ahead in some fashion so that when these documents speak for you when you can no longer speak for yourself, your wishes are carried out and all of your loved ones are provided for in an orderly fashion.  If you wish to discuss your priorities and goals in creating an estate plan for your family, please call us for a free 30 minute in office consultation.

-Attorney Rebecca J. Haines

Wednesday, October 28, 2015

Equitable Remedies and Judicial Activism: A Dangerous Combination

Legal remedies are judicial remedies that parties have by right as set out in law and statutes. These remedies are based on the law and statutes.  A judge simply enforces the right as established by law.

In contrast to legal remedies, equitable remedies are remedies, usually non-monetary, which a court fashions when the judge believes existing legal remedies do not adequately redress the injury or situation. Equitable remedies were developed at the time of King Henry VII in order to provide more flexible responses to changing social conditions than possible in existing laws and statutes. Equitable remedies are based on concepts of fairness and equity as determined by the judge.  Such a determination oftentimes is largely dependent on the judge's personal beliefs and attitudes.

The traditional role of a court is to interpret and enforce the Constitution and valid laws as written. The court was not to rewrite the law or impose the court's personal viewpoints regarding the law, but to take the law as written and apply it to the case as long as the law was not unconstitutional.  Federal and state legislatures created the laws; courts interpreted and enforced them. Judicial activism is the belief that judges can and should creatively reinterpret the Constitution and laws to meet the vital needs of society when the federal and state branches of government and legislatures fail to do so.  Again, this is based on the personal beliefs and viewpoints of the court as to what the vital needs of society are and how they should be met. Judicial rulings in cases of judicial activism are oftentimes based on the personal or political considerations of the judge rather than on existing law.

Unfortunately, the combination of a court having the right to fashion an equitable remedy and judicial activism can prove to be a potentially dangerous combination, especially in estate planning. A decedent does not want a judge to substitute what the judge personally believes is a fair living trust or will. For example, a decedent may have 4 adult children and leave his or her assets to the children equally; however, the trust provides that 3 of the children receive their shares immediately while the share of the 4th child remains in trust for the child's benefit.  A judge may believe it is not "fair" that the 3 children receive their shares outright while the 4th child does not. Fortunately, there is a legal principle that the intent of the decedent as expressed in the complete trust agreement or will must be followed.  Nonetheless, the combination of equitable remedies and judicial activism opens the door to judges inserting their personal beliefs and considerations into a myriad of cases.

Monday, October 12, 2015

Estate Planning Mistakes to Avoid

As an estate planning attorney, I often find it of interest to read about a celebrity’s estate plan.  Celebrity estate plans can provide both good and poor examples of what should and should not be done by all of us.  Recently, I came across an interesting article entitled “7 Estate Planning Lessons from Celebrities” which brought focus to this very topic.  I would recommend reading it as the lessons provided are applicable to those with significantly less wealth than the celebrity examples found in the article.  To bring focus to just two of the seven lessons provided in the article, I would like to focus on the estate plans of Philip Seymour Hoffman and Heath Ledger.  

Philip Seymour Hoffman didn’t want his children to become “trust-fund kids.”  However, it is reasonable to conclude that Hoffman had a desire that his children’s reasonable needs be met with his wealth.  Against the advice of his attorneys, Hoffman’s estate plan was to leave his entire estate to his long-time girlfriend Mimi O’Donnell.  It was Hoffman and O’Donnell’s mutual understanding that she would use his wealth to provide financially for the children, in her absolute discretion.  This plan had two significant flaws.  First, because Hoffman and O’Donnell were not married, the transfer of Hoffman’s estate to O’Donnell was taxable for estate tax purposes.  Second, without proper instructions and guidelines as would typically be found in a trust agreement, there is no guarantee that O’Donnell will use Hoffman’s wealth in a manner that Hoffman would have approved of in relation to the upbringing of his children.  Lesson to be learned from Hoffman’s estate plan is to not leave your estate to one person without proper guidelines and instruction in a legally enforceable document like a trust.

Although quite young at the time of his death, the 28 year-old actor Heath Ledger had a will when he died in 2008.  Apparently, Ledger had drafted his will previous to the birth of Ledger’s daughter leaving his entire estate to his parents and sisters.  Fortunately, Ledger’s family did the right thing by allowing the entire estate to pass to his daughter.  The result of Ledger not taking the time to update his will after the birth of his child could have been ugly with the worst case scenario of Ledger’s daughter receiving nothing from her father’s estate.  The lesson to be learned from Ledger’s estate is that as certain life events occur, a review and update of your estate plan should take place.

Wednesday, September 23, 2015

AFRs for October 2015

The Section 7520 rate is 2.0%
October 2015  Annual Semi-annual Quarterly Monthly
Short-term 0.55% 0.55% 0.55% 0.55%
Mid-term 1.67% 1.66% 1.66% 1.65%
Long-term 2.58% 2.56% 2.55% 2.55%

Wednesday, September 16, 2015

Tom Clancy’s Estate and the Importance of Planning for Blended Families

Tom Clancy, renowned author, died on October 1, 2013. Tom died with an estate worth approximately $83 million. Tom was survived by his wife, Alexandra Clancy, a daughter born to Tom and Alexandra and four adult children from Tom’s prior marriage.

When Tom died, he left a Last Will and Testament (“Will”) that governed the disposition of his probate assets. The Will provided that his probate estate is to be divided into thirds – one-third to his wife in trust (the “Marital Trust”), one-third to his wife and all of his children in trust (the “Family Trust”) and one-third to his children from his prior marriage in trust (the “Children’s Trust”).

Due to the size of Tom’s estate and his estate planning elections, Tom’s estate is required to pay a significant amount in estate taxes, apparently approximately $16 million. Tom’s personal representative (aka executor) allocated a portion of the taxes owed to Alexandra’s inheritance. Alexandra objected and claimed that based on a codicil that Tom executed, which amended the terms of his Will, Tom’s intent was that no portion of her inheritance would be responsible for the estate taxes. Rather, Alexandra claims the entire burden should be borne by the portion going to Tom’s four adult children from his prior marriage.

As a result of Alexandra’s claim, a dispute ensued between her and Tom’s adult children. On August 21, 2015, a Baltimore judge ruled in favor of Alexandra, a decision that is likely to cause a protracted legal battle.

This case provides a prime example to blended families of the importance of engaging in appropriate estate planning. Relationships can be finicky, especially relationships between a child and his or her step-father or step-mother. Estate planning should not be a straw that breaks the camel’s back and ruins that relationship. Not only that, disputes between children and their step-parents can erode the hard-earned estates of the deceased parent through legal fees, which could be avoided with appropriate planning. 

If you have a blended family and do not have the appropriate estate planning in place, please contact our offices to further discuss your situation.