Tuesday, August 30, 2011

Trying to Protect Your Assets: Why Giving Money To a Family Member Does Not Work

With the current state of the housing market, many of us know of a friend, family member, or neighbor who is contemplating walking away from their home. Whether that person decides to enter into a short sale agreement or let the home fall into foreclosure, he or she may be aware of the potential liability associated with either decision. In an effort to avoid losing one’s assets due to such liability, a common scheme employed by the homeowner usually involves gifting large sums of cash or other valuable property to a trusted family member – spouse, adult child, parent, etc. Many are mistakenly led to believe that by giving the asset away that such asset becomes unreachable by the person’s creditor(s). Unfortunately, this scheme is what the law calls a fraudulent transfer/conveyance. What is more unfortunate is that this is such a common scheme that the creditor’s attorneys often begin their search for transfers such as these to successfully get those assets into their clients’ hands to satisfy outstanding liabilities.

There are two types of fraudulent transfers: (1) those made with the actual intent to defraud and (2) those made under circumstances that constitute constructive fraud. Actual fraud exists when the debtor accomplished the transfer with the actual intent to hinder, delay or defraud a creditor. A debtor’s intent is often established indirectly by what are known as the “badges of fraud.” A partial list of such badges of fraud, found both in the Nevada Revised Statutes (“NRS”) and in common law, is as follows:

• Transfer was to an insider ( e.g., a family member);

• Debtor retained possession or control of the property transferred after the transfer (ex. Debtor transferred title to his home to a family member or entity but continued to reside in the home);

• Transfer was undisclosed or concealed;

• Before the transfer was made, the debtor had been sued or threatened with a suit;

• Transfer constituted substantially all of the debtor’s assets;

• Debtor absconded (ex. Debtor fled to an offshore jurisdiction);

• Debtor removed or concealed the assets (ex. Debtor puts assets in an anonymous “private vault”);

• Debtor was insolvent or became insolvent before or shortly after a substantial debt was incurred;

• Transfer occurred shortly before or shortly after a substantial debt was incurred; or

• Debtor transferred the essential assets of the business to a lienor, who transferred the assets to an insider.

With constructive fraud, the debtor does not have to have had the intent to hinder, delay, or defraud his or her creditors. A creditor most often proves constructive fraud simply by demonstrating that the transfer was made when the debtor was insolvent or became insolvent as a result of the transfer.

The determination of insolvency is the most important factor in determining whether a transfer is voidable as either actual fraud or constructive fraud. Determination of insolvency generally rests on whether a debtor’s liabilities exceed his assets. In determining insolvency, a mistake made by debtors, and at times by professional advisors, is the inclusion of assets that are not available to satisfy creditors’ claims because such assets are otherwise exempt from execution. Thus, transfers made as part of a comprehensive asset protection plan may sufficiently reduce a client’s assets so as to render the client insolvent. Such assets that would not be included in the determination of insolvency due to the exempt nature of the asset include but are not limited to:

• Exempt property such as an interest in a spendthrift trust;

• Property transferred, concealed or moved to defraud creditors; and

• Exempt property under Federal or state law (e.g., IRA’s, homesteads, etc.; see NRS 21.090 for Nevada state specific exempt assets).

Although the stumbling block to asset protection planning known as the fraudulent transfer may seem great, at Jeffrey Burr, Ltd, we have the knowledge necessary to assist our clients with an effective asset protection plan which significantly reduces or even negates the power of the fraudulent transfer attack.

 - Attorney A. Collins Hunsaker

Friday, August 26, 2011

Providing Long-term Healthcare Assistance for Loved Ones in Tough Economic Times

Earlier this year, A study done by Genworth Financial, Inc. reported that nursing home costs in Nevada are more than $4,000 a year above the national median. In Nevada, a private room in a nursing home carries a median rate of $82,125 per year.* Given the current economic situation in Nevada, expensive nursing home costs can be devastating for families. Families are forced to balance a desire to provide quality care for a loved one with the economic realities of high healthcare costs and a depressed economy.

Loved ones must be cautious as high healthcare costs can deplete savings in a short period of time. Fortunately, there is help. Families can find some relief through Medicaid where the family is unable to bear the costs to provide for a loved one. However, families should be aware that applying for state assistance can be complicated. Medicaid has specific rules and requirements that must be satisfied in order to receive aid.

Family members providing long-term healthcare assistance for other family members in these tough economic times must also remember to take care of themselves. Providing care for an ageing or disabled family member is not only financially draining, but can also be emotionally draining. Family members, especially spouses, must not attempt to do more than is physically possible. This can lead to financial ruin or physical exhaustion. It is often not possible to provide adequate care alone. Even though economic times are tough, it is important to seek help.

Jeffrey Burr Ltd. has a full service Elder Law division that is available to assist you in helping you with all your Medicaid and long-term health care assistance. We are happy to answer any questions you may have.

*Source: Genworth Financial Press Release, Home Care Costs in Nevada Rising Faster than Nationally, Finds Genworth's Annual Cost of Care Survey, Genworth Financial, Inc., May 10, 2011.

 - Attorney Corey Schmutz

Wednesday, August 24, 2011

September AFR's Announced

September 2011

Applicable Federal Rate

Annually, Semi-Annually, Quarterly, Monthly

Short-Term 0.26, 0.26, 0.26, 0.26
Mid-Term 1.63, 1.62, 1.62, 1.61
Long-Term 3.57, 3.54, 3.52, 3.51


http://www.irs.gov/pub/irs-drop/rr-11-20.pdf

Tuesday, August 23, 2011

Delaying Estate Planning - It's Not Really That Bad

Recently, it seems that I’ve lost more than my share of clients. Death is a part of our business, but it still troubles me sometimes. Two clients in particular come to mind that recently passed unexpectedly. One client was living in life’s sunset and he certainly experienced a full life. The other died very prematurely leaving young children and unfinished business.

In all cases, I am glad that the client found the time and allocated their resources to come in and prepare an estate plan. I hope that our work will make things easier for their families. It makes me wonder if I would have a Will in place if I could not easily prepare my own?

I feel like I am always borrowing something for my blog posts from other sources – but I found this blog post from CNBC about people procrastinating about preparing a Will. The numbers that were shared were surprising, even to me:

• In a recent survey, only 57% of people surveyed have Wills in place.

• For individuals under 35, only 10% of people have a Will.

• For individuals between 45 and 64, only 44% of people have a Will.

• And for individuals over age 65, the survey found that 20% of respondents still did not have a Will.

The best part of the blog discussing the survey stated that one in three of the respondents would rather experience the following instead of creating a Will: 1) Prepare a tax return 2) have a root canal 3) give up sex for a month.

So, for you faithful readers of the Jeffrey Burr Blog (all seven of you), statistically at least a few of you do not have a Will. So, let’s get it done, but let’s also not ignore our dental health, tax deadlines, and consortium.

 - Attorney Jason Walker

Monday, August 8, 2011

Specific Bequests: Potential Ademption Problem

Trusts and Wills often provide that a particular asset pass to a certain beneficiary. Such a bequest is a “specific bequest” in that it is satisfied only by receipt by the beneficiary of the specific, particular property identified in the Trust and Will. For example, a person leaves “100 shares of my Apple, Inc. stock to my daughter, Kathryn.” What happens if at the time of death, the decedent or his or her Trust no longer owns any Apple stock? Generally speaking, if specifically bequeathed property, such as the Apple stock in this example, is not in the decedent’s Trust or estate at the time of death, the bequest is adeemed, the bequest fails and the beneficiary receives nothing. This is known as “ademption”, namely the failure of a bequest because the property is no longer in the decedent’s Trust or estate at the time of his or her death. In this example, Kathryn would receive nothing. It is essential that if the decedent does not wish the bequest to adeem, the Trust or Will must clearly indicate this intent. An example of such stated intent would be:

“In the event I no longer own any shares of Apple, Inc. at the time of my death, this bequest shall not adeem but my daughter, Kathryn, shall receive in cash an amount equal to the closing value of 100 shares of Apple, Inc. as of the date of my death or as of the most recent trading day preceding my death.”

Other questions could arise even with the inclusion of the above language. For example, what if Apple, Inc. or its assets are acquired by a separate corporation prior to the date of death in such a fashion that the corporate entity Apple, Inc. no longer is in existence on the date of death? Does the bequest then adeem, or does Kathryn receive in cash an amount equal to 100 shares of the corporation that acquired Apple or its assets? Again, the Trust or Will needs to clearly state the intent of the decedent in the event of such contingencies.

Contrast this with a general bequest of a specific dollar amount such as where the Trust or Will provides for a bequest of “Thirty-five Thousand Dollars ($35,000.00) to my daughter, Kathryn.” In this latter situation, it makes no difference whether the decedent still owns any Apple stock or not as the general bequest of Thirty-five Thousand Dollars ($35,000.00) to Kathryn will be satisfied out of the cash or liquid assets of the Trust or Estate or by the sale of other general assets of the Trust or Estate. However, although Kathryn would receive the general bequest of Thirty-five Thousand Dollars ($35,000.00), she would not share in any appreciation (or depreciation) in the value of Apple, Inc.

Accordingly, it is important that an estate planner insure that the client fully understands the pros and cons of providing for a specific or a general bequest. It is most important that the client’s Trust and Will clearly state his or her intent so that such wishes and desires are not defeated by future events arising after the Trust and Will is executed but prior to the date of death.

Wednesday, August 3, 2011

Federal Benefits Paid Electronically or by Debit Card

The Treasury Department now requires all future federal benefits, including Social Security and VA, to be paid electronically.

If you already receive electronic federal benefit payments, there is nothing further you need to do. You will continue to receive your benefit payments on your payment date as previously scheduled.

However, if you presently receive a federal benefit by way of a paper check, you will have only until March 1, 2013, to switch to an electronic payment option - meaning your benefit payments will be made by an electronic direct deposit to your designated bank account.

But what if you don’t have a bank account, or you don’t make a timely designation of your preferred account? In that event, effective March 1, 2013, you will receive your benefit payments via a Direct Express Debit MasterCard© card. Direct Express© is a pre-paid debit card. Your benefit payments will simply be credited to your debit card on your payment day each month. There will be no sign-up fees and no monthly service fees. However, if you sign up for elective optional services, these additional services will be subject to monthly service charges.

If you now wish to convert your paper checks to electronic direct deposits to your bank account, you may:

• Call the US Treasury Processing Center at (800) 333-1795

• Sign up on-line at www.GoDirect.org

• Visit your bank or credit union. Most financial institutions can now initiate your direct deposit agreement with the Treasury Department