Wednesday, June 30, 2010

Forum Shopping for Favorable LLC Law: Make Sure the Charging Order is the Exclusive Remedy Available to Creditors

LLCs are currently a very popular form of legal entity largely due to its flow-through partnership taxation feature coupled with its corporation-like limited liability protections. As most LLC owners know, LLCs provide significant liability protection from the threat of “inside liabilities” provided the proper formalities are adhered to and the separate entity status of the LLC is maintained . Inside liabilities are the types of debts and obligations that arise during the course of the LLC’s business and operations.

What many LLCs owners may not know is that LLCs can also provide significant liability protection from “outside liabilities.” Outside liabilities are any other type of liability an LLC owner may incur as a result of non-LLC related activities. For example, if an LLC owner is sued as part of a personal injury claim that has nothing to do with the LLC’s operations, the owner could potentially face a liability that has originated outside the scope of the LLC if a judgment is awarded against him. However, such an award may be of little use to a judgment creditor if the LLC owner established his LLC in a state with favorable LLC laws.

In general, a state with favorable LLC laws is one that provides the charging order as the exclusive remedy available to judgment creditors attempting to attach an LLC owner’s interest in his LLC. A charging order is a judicial remedy that allows a judgment creditor to act as an assignee of the LLC interest he is attempting to attach. As such, the judgment creditor does not receive any ownership or managerial rights in the LLC, thus, rendering him incapable of forcing distributions from the LLC or seeking judicial liquidation in an effort to satisfy the award. Consequently, the judgment creditor is essentially forced to wait for distributions to be made from the LLC which he can then try to intercept as payment in satisfaction of the award.

As can be seen, the LLC is capable of providing powerful asset protection features especially if formed in a jurisdiction that limits the available remedies against an LLC for outside liabilities to a charging order. However, not all jurisdictions provide for such exclusivity. Nevada is an example of a state that does provide the charging order as the exclusive remedy. Nevada’s LLC statutes contain sole remedy charging order language in NRS 86.401(2)(a) (This section [p]rovides the exclusive remedy by which a judgment creditor of a member or an assignee of a member may satisfy a judgment out of the member’s interest of the judgment debtor).

States that do not have exclusive remedy language can potentially result in forced judicial liquidations of LLC assets or forced partnerships that were clearly never intended to be. Therefore, it is advisable to seek out a jurisdiction that expressly limits a creditor’s remedy for an outside liability to a charging order. As an example, in Florida, the state’s Supreme Court recently decided (Shaun Olmstead, et. al., v. The Federal Trade Commission) that charging order protection did not apply to an LLC because the LLC statute regarding charging orders did not expressly state that the charging order was the exclusive remedy available. Consequently, the LLC owners did not receive the degree of asset protection they thought they were receiving when establishing their LLC in Florida. Thus, the importance of “sole remedy” language is apparent in this situation which indicates that one must be very selective in deciding which jurisdiction to use in establishing limited liability entities so as to achieve maximum asset protection.

Tuesday, June 29, 2010

Can I Be Buried on My Own Property?

Before death, one has the decision of what to do with the remains of his/her body. The normal avenues are deciding whether to cremate the body or in which cemetery the body will be buried. There are, however, other choices that can be made. One such decision is to be buried on one’s own property if local laws allow it. Many states are silent on the issue of burial meaning being buried on one’s property is not out of the question in those jurisdictions. Other states, like Nevada, do not completely disallow it, but limit one’s ability to do this.

Nevada allows people to be buried on their own property but limits where such burials are allowed. Under Nevada law, the board of county commissioners may create ordinances that allow burial on private property but only if the county has less than 50,000 people in its population. This part of the law excludes Clark County from allowing burial on private property. In counties where it may be allowed, the area must be designated as a family cemetery and no fee can be collected for family to be buried on the property. Before the first interment in such a cemetery, a family member or representative must notify the Health Division of the Department of Health & Human Services of the specific location of the burial site on the land owned by the family.

Thus, while Nevada law allows for the burial in one’s private property, it is not regulated directly by state law and requirements may vary depending on the county and may not be allowed by county ordinance.

- Attorney Robert Morris

Wednesday, June 23, 2010

Jeffrey Burr and James M. O'Reilly Law Firms Merge

The Nevada estate planning and probate law firm of Jeffrey Burr, Ltd., and the elder law firm of James M. O’Reilly, LLC., announced they are joining together to better serve their clients with an expanded list of services and capabilities. The merger will create a new elder law services division within the Jeffrey Burr firm to complement its estate and tax planning practices. The merger is effective June 1, 2010.

According to Mr. Burr, the firm’s founder, the merger is a natural extension for the firm. “The law firm of Jeffrey Burr has a long tradition of assisting families with their tax and estate planning needs. The establishment of an elder law services division within the firm will enable us to offer a more comprehensive spectrum of services to our clients. I have known James O’Reilly for 20 years. I have the greatest professional respect for him and his firm, and am proud to partner with him as we reach this next level.”

Mr. O’Reilly adds, “I believe this merger will take this law practice to the forefront of the legal community with our combined abilities to provide extraordinary service in these important and evolving areas of the law.”

The firm will continue to be known as the Law Firm of Jeffrey Burr, Ltd. The firm has offices at 2600 Paseo Verde Parkway in Henderson and at 7881 West Charleston Boulevard in Las Vegas.

Tuesday, June 22, 2010

Distributions to Beneficiaries - Show Me the Money!

When someone is the beneficiary of a Trust or Estate, one of the first questions the Trustee of the Trust or the Personal Representative of the Estate is asked is “When will I receive my money?” Human nature being what it is, most people want their share of the Trust or Estate “yesterday” or as soon as possible. Oftentimes the beneficiary making the inquiry is related to the Trustee or Personal Representative, and this places the Trustee or Personal Representative in a difficult position. What factors should the Trustee or Personal Representative consider before making any distributions?

A major factor to consider is possible creditor claims. A Trustee or Personal Representative does not want to distribute the Trust or Estate monies to third party beneficiaries only to discover later that the decedent or the Trust is legally indebted to a creditor. In such a situation, the creditor oftentimes will pursue the Trustee or Personal Representative for the amount of claim, and the Trustee or Personal Representative is left trying to seek reimbursement from the beneficiaries. Unfortunately, once the monies are distributed, the monies are usually “gone” from a practical point of view and it is very difficult to recover the reimbursement from the beneficiaries. The law recognizes this quandary, and furnishes the solution for the Trustee or Personal Representative by way of a notice to creditors and a limited time period for filing claims procedure. For example, under Nevada law a Trustee or Personal Representative can publish a Notice To Creditors once each week for three (3) consecutive weeks and mail a Notice to known or readily ascertainable creditors. Notice must also be given to the Department of Health and Human Services if the decedent received public assistance during his or her lifetime. A creditor having a claim due or to become due then has ninety (90) days from the first publication date and ninety (90) days from the mailing date as to those creditors to whom notice must be mailed in which to file a written claim (some creditors have the later of ninety (90) days from the first publication date and thirty (30) days from the mailing date). If the creditor fails to file a written claim within the applicable time period, generally speaking the creditor is forever barred from enforcing the claim even though it was a legally owed debt on the date of the death of the decedent. Accordingly, once notice is given and the applicable time period for filing claims has passed, the Trustee or Personal Representative can be reasonably assured that there are no unknown claims lurking.

Two exceptions to the rule are mortgages-deeds of trust and income taxes. Mortgages-deeds of trust are recorded with the County Recorder and a matter of public record, so the holder of the mortgage-deed of trust need not file a written claim in order to perfect its lien against the real estate. Normally the Trustee or Personal Representative is aware of the mortgage-deed of trust as a result of a review of the financial affairs of the decedent which discloses monthly payments to the holder of the mortgage-deed of trust. Also a search by a title company of the public records regarding any real estate owned by the decedent will disclose any mortgages-deeds of trusts of record.

Income tax reports of the decedent or the trust or the estate can be audited by the IRS (or by a state if state income tax involved), possibly resulting in additional tax, penalties and interest owed. This potential problem is solved by holding back a sufficient amount of money from the distributions to pay any such additional tax, penalties and interest.

There are a number of other significant factors to be considered before making beneficiary distributions such as potential legal challenges to the validity of the Will or Trust of the decedent, priority of payments, terms of the Trust or Will, et cetera. Accordingly, a Trustee and Personal Representative should always consult a knowledgeable estate and trust attorney before making distributions. At Jeffrey Burr Law Office, our trust administration and probate attorneys have assisted numerous individual and corporate Trustees and Personal Representatives in performing their duties, including being the bearer of bad news to the beneficiaries as to why a distribution cannot be made immediately.


Thursday, June 17, 2010

July AFRs Announced

For the month of July 2010 the Applicable Federal Rates (AFRs) are as follows:

For this same period, the Section 7520 Rate will be 2.8%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-18.pdf.

Robert Morris to Present at NBI Seminar June 21st

Attorney Robert Morris will be presenting on June 21st at the Gold Coast for the National Business Institute.  The topic of the one day seminar is  Estate Administration Procedures:  Why each step is important.

For more information on this seminar go to http://www.nbi-sems.com/.

Tuesday, June 15, 2010

Jeffrey Burr, Ltd. Names Mark Dodds and David Grant Partners

NEWS RELEASE:  The estate planning firm of Jeffrey Burr, Ltd., announced that it has named Mark Dodds and David M. Grant its newest partners. Dodds serves as the firm’s chief financial officer and Grant serves as its director of legal services. In addition, both attorneys handle estate planning and asset protection strategies for a variety of clients. The promotion is effective immediately.

Firm founder and CEO Jeffrey Burr comments, “In addition to being very talented estate planning attorneys, Mark and David each bring great strengths to our team. Mark is experienced at implementing even the most sophisticated strategies and David is a noted spokesperson on trusts and estates, taxation and asset preservation. I’m delighted to welcome them as partners.”

Dodds earned a Bachelor of Science degree in accounting, cum laude, and a Juris Doctorate, cum laude, from Brigham Young University. He also holds a Master’s of Law in Taxation from the Denver University School of Law. He is a certified public accountant, and previously worked for the international accounting firm of Deloitte & Touche. He is a member of the Nevada and Clark County Bar Associations and the Southern Nevada Estate Planning Council. In addition, Dodds is a member of the Finance and Investment Committee of the Clark County Public Education Foundation. A frequent speaker to civic groups and professional associations on estate planning issues, Dodds also has authored numerous articles on industry issues and has served as an expert witness in cases involving trust litigation. He is licensed to practice law in Nevada and Utah.

Grant is a graduate of Southern Utah University, where he earned a Bachelor of Science degree, magna cum laude, in accounting. He holds a Master of Professional Accounting degree from the University of Utah, and was awarded his JD degree from the University of Houston. He is licensed to practice law in Nevada and Utah, and is a member of the Southern Nevada Estate Planning Council and the Society of Financial Service Professionals. His previous experience includes working as an accountant for Deloitte & Touche and as a controller for Megasync Corporation. He is a fluent Spanish speaker and committed to being active in the community. He serves on the Board of Trustees for the Henderson Community Foundation, is chair of the Roundtable Committee for the Nevada Bar Probate and Trust Section, is a Board Member of the Nevada State College Foundation, and has served in many capacities as a youth leader for Boy Scouts of America.

Monday, June 7, 2010

Estate Tax Exemptions: Past, Present, and Future

In the 1980’s and 1990’s, planning to minimize estate taxes was all the rage because people’s estates were growing rapidly due to rising stock and real estate prices, while at the same time, the estate tax exemption was fixed at $600,000. Many of our clients set up family partnerships, put stocks and real estate into them, and then made annual gifts of shares in the family partnership to their children or trusts established for their children (and often grandchildren as well), keeping the gift under the annual exclusion amount, which was then set at $10,000 per individual per year.

In the late 90’s and into the 2000’s, the estate tax exemption increased from $600,000 all the way to $3.5 million in 2009. That increase in itself led to less need for estate tax planning because of the relatively few estates which exceeded the $3.5 million limit (which could usually be a combined $7 million limit for a married couple who planned their estate using a proper trust). Furthermore, the precipitous decline in real estate values in the past three years had reduced many estates even more, and stock prices, though fluctuating wildly, have ended up now about where they were 12 years ago, as measured by the Standard and Poor’s 500 Index.

With year 2011 now just seven months away, there is a good chance the estate tax exemption will scale back to $1 million per person. If Congress does not enact any estate tax law changes, effective January 1, 2011 and thereafter, estates exceeding $1 million after deductions will be at risk. And the top tax rate will be back up to 55%.

With this tax regime on the horizon, it is advisable for many people to revisit the use of family partnerships, family limited liability companies, and gifting trusts to mitigate the impact of the estate tax. If you have more than $1 million, or if you are married and together have more than $2 million and already have a proper living trust in place, you may want to consider putting a cap on your estate through use of the family partnership or LLC and annual exclusion gifting. Recent case law has tightened up the rules in these areas, but with proper, up-to-date planning, you can take advantage of these time-tested planning strategies to preserve more of your estate from the tax man.

- Attorney Mark L. Dodds

Thursday, June 3, 2010

Follow-up to Personal Relationship Contracts: United Asset Protection

In conjunction with the exercise of putting in place a prenuptial, postnuptial, or cohabitation agreement, (collectively “personal relationship contracts”) an additional measure that would be recommended by savvy legal advisors would be the use of asset protection strategies to shore up the contract. In most, if not all cases, the personal relationship contract is put in place for the main purpose of preserving certain assets of one or both parties as items of “separate property.” This intent as provided in the contract should generally be honored and would withstand the scrutiny of a court or judge so long as the contract was not unconscionable, provided for adequate disclosure of both parties’ assets, and each party had an opportunity for separate legal counsel to review the agreement.

However, what better way to shore up such an agreement than to definitively segregate items of separate property into a trust? And what better trust is available for residents of Nevada (and others) than a Nevada On-Shore Trust ? (Self settled spendthrift trust or domestic asset protection trust - NRS 166).

A spouse, partner, ex-spouse or ex-partner has the ability to become a creditor when a disagreement arises regarding a personal relationship contract. If, however, the separate property assets in question have been properly funded into a Nevada On-Shore Trust, and the statutory period of two years time has elapsed (and such funding is not deemed to be a fraudulent transfer), the assets in the trust should be adequately protected from the spouse or partner creditor. At the very least, this additional step would give the spouse- or partner-creditor a reason to second-guess any dispute or lawsuit attempting to collect against the assets intended to be held as the sole and separate property of the party that established and funded the trust.

- Attorney Jason C. Walker