Wednesday, July 21, 2010

Preventive Medicine - No Contest Clauses

If you anticipate the probability of someone challenging the validity of your Trust and/or Will, what can you do? For example, you desire to disinherit or greatly reduce the inheritance of a child, but you believe if you do so, the child will almost certainly challenge the validity of the Trust and Will in a Court of law. There are a number of preventive things you can do, but one of the most common estate planning tools in this situation is a “no contest clause”. A no contest clause is a provision in a Trust and Will that essentially provides that anyone challenging the validity of the terms of the Trust and Will shall be disinherited and shall receive nothing. Nevada Courts recognize the validity of a no contest clause; however, Nevada Courts, as Courts in most states, will not enforce a no contest clause if the Court finds that the challenge was made in good faith based on probable cause. The Court realizes that there will be cases where in fact there are legitimate challenges questioning whether the person making the Trust and Will had the ability (testamentary capacity) to do so, whether the person was under the undue influence of someone at the time, et cetera.

You should always state in the Trust or Will that you are intentionally omitting a person as a beneficiary if that person is someone who would be considered a natural object of your bounty such as a child. However, it is usually not a good idea to explain why you are disinheriting or reducing the share of the person in the provisions of the Trust or Will. An example would be to state that the person uses or is addicted to illicit drugs or is addicted to gambling. This opens the door to the argument that the person was not using or addicted to illicit drugs or addicted to gambling and that you made the Trust or Will based on this incorrect belief (often referred to as an “insane delusion”), or the argument that the person is no longer using or addicted to illicit drugs or gambling at the time of your death, or similar arguments.

One thing to keep in mind is the old axiom that “greed can be a wonderful thing” in certain situations. Needless to say, someone who is completely disinherited has nothing to lose in challenging the validity of a Trust or Will. On the other hand, a person who is left something, even if minimal, under the terms of the Trust or Will potentially can lose it all in bringing a Court challenge. This, at a minimum, tends to give one pause in bringing such an action.

The attorneys at Jeffrey Burr Law Office have many years of experience in not only planning your estate in this situation, but also in upholding your wishes as expressed in your Trust and Will once you are gone.

 - Attorney John Mugan

Monday, July 19, 2010

August 2010 AFRs Announced

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

For this same period, the Section 7520 Rate will be 2.6%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-19.pdf.

Thursday, July 15, 2010

Another Estate Tax (Homerun) Victory

It feels like it’s been a while since any of us at Jeffrey Burr, Ltd., have posted anything about the 2010 estate tax repeal. It could be because there’s still not much to say, aside from speculation, about what the future may hold for the federal estate tax. I know that we’ve made a conscious effort to stay away from the topic in fear of boring our loyal followers … “Gee whiz, another post on the estate tax repeal!”

This week’s death of George Steinbrenner, the owner of the New York Yankees, is a reminder of the impact of the repeal to those with extra-large estates. According to the New York Times, Mr. Steinbrenner’s estate is reportedly worth an excess of $1.5 Billion. Nobody aside from his family and their professional advisors really know what planning may have done to help prepare for what was a great potential estate tax bill. Nevertheless, if nothing was done, Mr. Steinbrenner would have had an estate tax bill of nearly $700 Million, had he died in 2009, and the liability would be even greater in 2011 with the potential tax rate reaching 55%.

You and I may have already had this thought, but Sen. Jim Bunning (R-KY.) put actual words to the thought and made the following statement today regarding George Steinbrenner’s death: “Because he was smart enough to die in 2010, there is zero tax liability on the estate tax…” (The Hill.com). Apparently the comment was made during a Senate Finance Committee hearing on the expiring Bush tax cuts which includes the unexpected repeal we are experiencing today in 2010.

For the rest of us that are not ship-building and sports-team billionaires, we can still take a moment to audit whether our current estate plans are in proper order for 2011 to arrive. Most plans drafted during the Bush tax cut years probably have the proper language allowing for credit shelter trusts, etc. But the planning was probably conceived based upon higher exemption rates; therefore, additional planning may be necessary to ensure that your estate pays the lowest amount of tax possible.

-Attorney Jason Walker

Wednesday, July 7, 2010

"WHAT IS GIFT PLANNING?" - ARTICLE BY DAVID GRANT

Estate planning attorney David M. Grant, who is also a member of the Vegas PBS Planned Giving Council, recently wrote an article for the July 2010 issue of the Vegas Source Magazine, entitled “What is Gift Planning?”. In his article, Mr. Grant explains the benefits of planning for charitable gifts. He says too many people make gifts “…on the spur of the moment, under the impulse of peer pressure, or for very narrowly understood reasons.” He goes on to state that “gifts made with a plan, on the other hand, ensure that both the giver and the receiver realize their goals in a meaningful way,” and that “through effective planning, your gifts can:
  • Be larger than you thought possible;
  • Increase your current income;
  • Help you satisfy the financial needs of a spouse or loved one;
  • Provide inheritances for your heirs at a reduced tax cost;
  • Reduce your income tax liabilities and/or avoid capital gains tax;
  • Diversify your investment portfolio;
  • Assist in the transfer of your business; and
  • Leave a charitable legacy for, and demonstrate your values to, future generations.”
Members of the Vegas PBS Planned Giving Council are community leaders with integrity and professional expertise in the areas of tax law, investments, and charitable transfer techniques. A full copy of David’s article can be found at the following link: http://bit.ly/aaoDqA.

--JB

Important Factors in Your Estate Planning

With the current uncertainty on the estate tax front, some people feel frozen in place in their estate planning. But regardless of the outcome of estate taxes, there are many other issues that we want our clients to be aware of and which have very little to do with how the estate tax law finally settles out. Following is a list of important factors in your estate planning which may require changes in your existing plan. We recommend you keep this list handy so as life changes, you will know your estate plan must be modified to best deal with changing circumstances.

1. Estate taxes are important, but minimization of taxes should not be the driving factor in any plan.

2. Has your net worth changed significantly since your last meeting with your advisor?

3. Are your documents up to date for changes in your current health status? As clients age, they may want to consider adding a capable family member or friend as a co-trustee. Is everything in place to deal with coming incapacity or known illness?

4. Have your ideas changed with regard to leaving some of your estate for charitable purposes? Have your favored charities changed?

5. Do you have any heirs or potential heirs who have disabilities or handicaps? Are you sure your plan will not negatively impact any benefits they may be receiving? Even a small inheritance can upset a person’s benefits.

6. For our clients who have moved out of Nevada, although your trust and will are valid in any state, we recommend that you have health and asset powers of attorney which comply with the law in your primary state of residence. We have health power of attorney forms for some states; for other states we recommend you contact a local attorney to get the most up to date forms.

7. Have there been marriages or divorces among any beneficiaries or yourself? Many of our divorced clients have not yet removed ex-spouses from their power of attorney designations. Although a divorce automatically voids any bequest under a will or trust in most cases, it is still good to make sure this is done properly. Also, divorce does not void beneficiary designations of retirement accounts, life insurance and so forth.

8. Does your plan do the best it can to eliminate potential conflicts among heirs. Too often important things, like who inherits family heirlooms, are left to chance, setting up the possibility of expensive and divisive family lawsuits.

9. Has a change in the value of your estate negatively affected the prospects for the surviving spouse? Some plans call for the survivor to make distributions of the estate upon the first death. These distribution requirements may have been reasonable when the plan was first drawn up, but we sometimes see cases where the amounts designated to pass upon the death of the first spouse to die may cause hardship for the surviving spouse.

10. We have many clients these days who wish they had taken advantage years ago of our recommendations to set up an asset protection Nevada onshore trust. These trusts may not protect you from a lawsuit which is threatened or already in progress, but it’s still a good idea to plan for future problems. At least 12 states now have asset protection trust laws, so the concept is gaining more of a following all the time.

11. Have you chosen the correct trustee? Is the son or daughter you have appointed really capable and will they be fair, or does their appointment set up a strong potential for conflict? Perhaps an independent trustee, such as a bank or trust company, would be a safer choice. With all the services provided by banks and trust companies in trust administration, we think they are one of the best bargains around.

12. Have you designated your beneficiaries of retirement accounts properly, e.g. for IRA’s, qualified plans, deferred compensation, etc? These assets form a large part of many estates and it is vital that beneficiary designations be done properly.

13. Are your assets properly assigned to your trust?

Estate planning is not static; it is a dynamic process. Pay attention to changes in family circumstances and be sure to contact your advisor to be sure your plan is set up properly to deal with the changes in life which inevitably come to us all.

- Attorney Mark Dodds