Thursday, August 27, 2015

Do Not Forget State Inheritance-Estate Tax In Your Estate Planning

The primary death tax concern in most estate planning situations is the federal estate tax.  Generally speaking, federal estate tax is based on the dollar value of the trust-estate of the decedent, is due nine (9) months after the date of death, and is taxed at a forty percent (40%) tax bracket.  The good news is that the federal estate tax equivalent exemption for deaths occurring in the 2015 calendar year is Five Million Four Hundred Thirty Thousand Dollars ($5,430,000.00).  In other words, if the net taxable estate is Five Million Four Hundred Thirty Thousand Dollars ($5,430,000.00) or less, there is no federal estate tax.  Also the federal estate tax equivalent exemption is indexed for inflation, so theoretically the amount of the exemption should increase each calendar year.  Because of the large dollar amount of the exemption, federal estate tax is oftentimes not a major factor in the estate plan of many people.

However, there is a potential second death tax when a person dies.  Some U. S. states levy their own death tax called an inheritance or estate tax.  Currently six (6) states have an inheritance tax, fifteen (15) states have an estate tax, and two (2) states have both.  Most eastern states have an inheritance or estate tax, while most western states, including Nevada, have no inheritance or estate tax.  The two (2) western state exceptions are Washington and Oregon.

Unlike the federal estate tax, state inheritance tax is based on the amount a beneficiary inherits and the beneficiary’s relationship to the decedent.  Also inheritance tax is usually the personal liability of the beneficiary.  With inheritance tax, there are often different rates and different exemption amounts for spouses, children or siblings.  State inheritance or estate tax rates are lower than the federal estate tax rate of forty percent (40%).  The state with the highest maximum estate tax rate is Washington at twenty percent (20%) followed by eleven (11) states with a maximum rate of sixteen percent (16%).  Nebraska has the highest maximum inheritance tax rate of eighteen percent (18%) followed by Kentucky and New Jersey at sixteen percent (16%).

What happens if the decedent dies a resident of the state of Nevada where there is no inheritance or estate tax, but the beneficiary is a resident of New York where there is estate tax?  Which state law controls, Nevada or New York?  With one exception, the state law of the residence of the decedent at the time of death, not the state law of the residence of the beneficiary, controls as to the applicability of state inheritance or estate tax.  In the above example, Nevada law controls since it was the residence of the decedent at the time of death so there would be no state inheritance or estate tax.  The one exception is real estate located in another state.  In the above example if the decedent owned real estate in New York or some other state that has an inheritance or estate tax, the state law where the real estate is located would control at least as to that real estate.
John R. Mugan, Esq.

In summary, although federal estate tax is oftentimes not a major estate planning consideration due to the amount of the federal estate tax exemption under current federal law, one must not overlook possible state inheritance or estate tax.  This is particularly true if one owns real estate outside the state of Nevada.  

Thursday, August 6, 2015

Do I Really Need An Attorney To Prepare My Estate Plan?

Friends and family often ask me if they really need an attorney to prepare the estate planning documents.  There are many forms on the Internet or online services that offer do-it-yourself planning.  I admit, these forms are services are much cheaper than paying for an attorney…at least on the front end.
The problem with doing your own estate planning documents is that you lack the legal advice that comes with estate planning documents.  This legal advice is an important part of your estate plan; it ties all the legal documents and assets together into an integral, working plan.  If you make a mistake in your estate planning documents or in how your assets are held, those mistakes cannot be fixed once you are deceased. 
I will admit that, as an attorney, I am biased in writing this post; however, as the attorney in the office that handles most of the probate cases, this year I have seen an increase in awful estate planning documents.  Its only August and I have already seen a large number of invalid or incorrect wills, incorrect deeds and invalid trusts.  I may be biased, but when mistakes are made, I end up fixing them on the back-end.  These errors lead to very expensive probates and often times assets passing to unintended beneficiaries. 

Here is a list of the top mistakes I have seen this year:
  • Improper witnessing of the will (missing language the Nevada law requires to admit the will to probate)
  • Improper titling of real property between spouses
  • Failure to designate beneficiaries in the will or trust
  • Beneficiaries acting as the witnesses the will
  • Failure to fund a trust
When a person has a serious illness, they go to a doctor.  Everyone accepts that fact that you need medical advice (not from google) to make sure you get the proper medical treatment.  Estate planning is similar, if you choose to do-it-yourself you may end up doing more harm than good.  You need an attorney to draft proper documents, integrate assets into those documents and to make sure all the pieces fit together properly.   Make sure your documents can speak for you when you can no longer speak for yourself.

Attorney – Corey J. Schmutz

Wednesday, July 29, 2015

Avoiding Family Disputes: Utilizing Lists Disposing of Personal Property in Your Estate Plan

Oftentimes the most treasured pieces of property in an estate are those items which you do not hold formal legal title to. Unlike a car or home where ownership is evidenced by a title or deed, there are typically no such records for family heirlooms such as china dishes, jewelry, photo albums or vinyl records signed by the Beach Boys.

When the owner of these personal property items dies, the items are generally given to the beneficiaries named in the owner’s will or trust. But oftentimes the items are given by way of general provisions. For example, a will may provide that half of a person’s entire estate will go to Son and the other half will go to Daughter. In that case, half of the personal property items will go to Son and half will go to Daughter. The executor ultimately decides how to allocate the personal property items between Son and Daughter ,which may cause a rift between Son and Daughter if they do not see eye to eye on who gets what. They may ultimately decide to go to court to resolve their dispute, which costs time and money. The person creating the will or trust could specifically designate which items of personal property will go to Son and which will go to Daughter to avoid this outcome; however, this can be difficult because people collect, lose, and gift personal property items to family and friends throughout their lives. Thus, what a person owns in terms of personal property is not static. Because of this, drafting a specific provision for each personal property item in a will or trust would likely be inefficient, as the document would need to be continually updated to reflect a current inventory and disposition of that inventory.

Fortunately, Nevada law does not require this kind of drafting and instead offers an alternative, which allows a will or trust to reference another document known as a "List Disposing of Tangible Personal Property". This list is legally binding and can govern the disposition of personal property items.

To be legally binding, the list must contain the following:

1. The date the list is executed;
2. A title on the document indicating its purpose (such as, "List Disposing of Tangible Personal Property");

3. A reference to the will or trust to which it relates;
4. A reasonably certain description of the item to be disposed of and the beneficiaries; and

5. The handwritten or electronic signature of the person disposing of the property.

This list may be prepared before or after a will or trust is executed and it can be altered or amended at any time.

To take advantage of this statutory provision that allows for the disposition of tangible personal property by list contact one of our attorneys and we can help you to create a comprehensive estate plan where these most treasured items will be disposed of according to your wishes, thereby reducing the potential in-fighting among your beneficiaries.


Wednesday, July 22, 2015

Marriage Equality Creates Estate Planning Opportunities and Consequences

The recent decision of the U.S. Supreme Court in Obergefell v. Hodges  made clear that same-sex couples have the right to marry nationwide.  In so holding, all states must formally recognize same-sex marriages that were legally entered into in other states.  In addition, states cannot deny applications for marriage licenses for individuals of the same gender.
The ruling clarifies that same-sex married couples now have the same legal rights that are enjoyed by opposite-sex couples.  It allows same-sex married couples to take advantage of estate planning techniques historically afforded only to husband and wife.  At the same time, it also raises issues concerning the property rights and obligations of same-sex couples who have already been married for a number of years.
While marriage equality may now be universally recognized across the nation, state laws of descent and distribution are no substitute for creating a customized estate plan that clearly reflects one’s wishes. State laws often produce undesired or unintended results, especially in an area where legal rights have only just been pronounced and may apply retroactively.  Good reasons apply equally to all persons to proactively plan for the orderly distribution of their estate in documents that will be legally respected in the event of death or incapacity.
Please contact us for a free 30 minute review of your estate plan to make sure it follows your wishes.

Wednesday, July 15, 2015

The Necessity of a Will In Estate Plans With A Revocable Living Trust

The main component of the estate plan for most people is a revocable living trust that they establish during their lifetime. The terms of the revocable living trust control the disposition of any asset titled in the name of the trust.  Trust assets can include real estate, investment accounts, financial accounts, stocks and bonds, certificates of deposit, vehicles and other personal property.  The revocable living trust can also be the joint owner of an asset, most commonly with an individual.  When the individual dies, the revocable living trust becomes the sole owner of the asset and the asset is subject to the terms of the trust.   The revocable living trust can also be the designated beneficiary of an asset such as a life insurance policy, a retirement plan and an annuity.  The proceeds are payable to the trustee of the revocable living trust, and again the ultimate disposition of these proceeds are controlled by the terms of the trust.  An asset can also contain a payable on death (POD) designation wherein the asset is payable to the trust upon the death of the owner.  So why should one have a last will and testament if they have established and funded a revocable living trust? 
Even when a person establishes a revocable living trust, unfortunately periodically one or more of the person’s assets such as a vehicle or a bank account or even real estate does not get properly re-titled into the revocable living trust for whatever reason.  In this situation, when the trustor dies the vehicle or bank account or real estate is in the name of the deceased trustor alone and the disposition of the asset is controlled by the terms of the last will and testament of the decedent.  Accordingly, even an estate plan that has a revocable living trust always includes a last will and testament.  The will is oftentimes referred to as a “pourover will”, as it provides that any asset is “poured over” into the revocable living trust to be held in trust and disposed of pursuant to the terms and conditions of the revocable living trust.   
In summary, one’s estate plan should always include a last will and testament even though the person has established a revocable living trust.  Although the goal is to never have to use the last will and testament, it is a safety net, providing that an asset not properly titled in the name of the revocable living trust at the time of death shall pass to the trust to be disposed of pursuant to the terms and conditions of the revocable living trust.   

-Attorney John R. Mugan


Tuesday, July 14, 2015

Burr, Mugan listed in 2015 Mountain States Super Lawyers Magazine

Congratulations to Jeffrey Burr and John Mugan for once again being name in the 2015 Mountain States Super Lawyers Magazine.  Read more here:

Jeffrey L. Burr
John R. Mugan

Friday, July 10, 2015

Suggestions to Simplify and Strengthen Your Existing Estate Plan

If you have been keeping up on the reading of our newsletters, blog posts, and other mailers, you might have noticed that we have been urging our clients to review their current estate planning documents with their estate planning attorney.  Undoubtedly, it is very likely that if your estate plan has not been updated prior to 2009, that updates to your existing plan are warranted.  Either changes in the laws governing your estate planning documents or changes in your life or the lives of your beneficiaries’ are the catalyst for these necessary updates.

Many clients are surprised to learn that their current trust may be unnecessarily complex given some not-so-recent changes to the federal estate tax laws.  Since 2011, a feature of the new estate tax laws is the concept of “portability” of the federal estate tax exemption between married couples.  In simple terms, portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use of all of the deceased spouse’s federal exemption from estate taxes, then the amount of the exemption that was not used for the deceased spouse’s estate may be transferred to the surviving spouse’s exemption so that he or she can use the deceased spouse’s unused exemption plus his or her own exemption when the surviving spouse later dies.  Even more simply stated, portability provides relief from the complex A-B trusts that were commonly drafted prior to 2011.  Relief from the complex A-B trust structure means that your spouse will not have to be subject to onerous and unnecessary complexity that involves significant time and expense upon your death; but requires an update to your existing trust if it still contains the A-B trust provisions.
In 2009, laws at the state level were overhauled in the areas affecting your general durable power of attorney and health care power of attorney.  Failure to update these documents may potentially cause unnecessary delay, during what can already be a very difficult time, while you are incapacitated.

It has been our experience in reviewing existing estate plans with our clients that certain life events have caused their plans to become ineffective or inconsistent with their present intents and desires.  It is important that you take an inventory of your assets while checking title on these assets.  If you have sold or refinanced your home or opened new financial accounts, then you may want to verify that title is held by your trust.  It would also be prudent to verify the beneficiary designations on assets like life insurance policies and IRAs or other qualified accounts.  The underlying purpose of these suggestions is to ensure that your estate does not become subject to probate upon your death.

In addition to a change in a client’s asset inventory, certain life events such as the death of a loved one, children reaching adulthood or the birth of grandchildren may cause you to reevaluate your existing estate plan and consider other updates.  Lastly, there are a number of other important considerations that may cause you to strongly consider updating your existing plan.  The following is a short list of such considerations:

  • Trusteeship – Many clients with outdated plans have other family members or corporate trustees appointed to serve as a Successor Trustee of their current trusts which might have been the chosen route when the children were still minors.  Upon review, many clients discover that the person currently nominated as trustee in the trust is not needed to serve in this capacity because the children have now reached a point of maturity that they can now be trusted to serve in this capacity.  In the alternative, you may want to consider the appointment of a professional trustee to avoid argument and contention amongst your children.
  • Divorce Protection – It is an unfortunate reality that a child’s marriage may end in divorce.  What may be more unfortunate is that the inheritance that you may have provided for that child might become subject to the divorce settlement if not protected ahead of time.  While you may not be able to accurately predict whether a child’s marriage will end in divorce, by updating your trust with “divorce protection provisions” you can have added peace of mind that regardless of the success of a child’s marriage the inheritance left to him or her will be protected.
  • Asset Protection for You – Do you have concerns about your estate being eroded away due to potential frivolous lawsuits or other unforeseen liabilities?  Nevada is recognized as the leading jurisdiction in the legal area of asset protection.  Please be aware that to achieve asset protection through the use of a trust may require the creation of an additional trust that is commonly referred to as a Nevada Asset Protection Trust. 
  • Asset Protection for Your Heirs – Do you have concerns that the inheritance you will be leaving behind to your heirs may become subject to the claims of their creditors?  Your trust can be updated to incorporate provisions that would be designed to provide substantial asset protection for the benefit of your heirs.  Unlike providing asset protection for you, you may be able to update your existing trust to provide these protections.

A. Collins Hunsaker
If it has been years since you have had your estate plan reviewed by your estate planning attorney or you have concerns that your existing plan may not be designed to meet your present intents and desires, we strongly encourage you to call our office to schedule a consultation for a review.