Jeffrey Burr

February AFR's Announced

2012-01-20T10:41:00.000-08:00

Series Limited Liability Company with a Nevada On-Shore Trust

2011-12-22T10:45:00.000-08:00

Here in Nevada, we are lucky. First, as far as natural disasters, we don’t have to worry about hurricanes, tsunamis, blizzards (at least here in Las Vegas). Tornados are highly unlikely and we have no track record of regular earthquakes. Second, we’re blessed with pretty decent weather most of the year. Last but not least, we have the best domestic asset-protection trust statutes in the country!

We’ve talked at length on our blog about the Nevada On-Shore Trust. Please take a minute to look at our newly revised website www.nevadaonshoretrust.com and tell us what you think.

I really wanted to take a minute and talk about an option that we have used to accompany the Nevada On-Shore Trust. We regularly team one or more limited liability companies (LLCs) with the Nevada On-Shore Trust to maximize the protection we are seeking for our clients. For clients with multiple investment properties, or for clients with a broad range of investments that deserve isolation of risk, we have often opted to utilize a Nevada series LLC with the Nevada On-Shore Trust.

A series LLC can be illustrated by the following example: Imagine the series LLC as a building with four walls and a roof. Within that building, one could build out individual rooms. Each room can contain furniture and the furniture in one room does not belong to another room.

The series LLC is like the building. There is one LLC that is formed with the Nevada Secretary of State, this is sometimes called the “container” LLC. This means that there is one initial filing fee, and one annual fee. Within the “container”, one can then begin to create the “series.” The statutes authorize additional companies to be created and each series is a separate and distinct entity. The assets and liabilities of each series is separate and apart from the other companies. Each series must maintain its own separate books and records, should have a separate bank account, and each series is provided its own operating agreement.

The primary advantage to the series LLC is that one can accomplish the goal of having a separate LLC for individual assets (such as investment rental properties) while saving money on state filing fees that might otherwise be prohibitive.

The one down-side to a series LLC is that, from our experience, it is best to keep the series operating only in the State of Nevada. Perhaps the series LLC would work in other states without too much effort if it is another state that recognizes series LLCs, such as Utah. But it has proven difficult to achieve foreign LLC status in states that are unfamiliar with the series LLC. This is because each series does not have its own record with the Secretary of State; therefore we cannot obtain a certificate of good standing for each series. The only proof of existence is for the entire “container.” But for clients that have limited their investments to Nevada alone, the series LLC is a nice option when a large number of LLCs has been recommended by counsel.

- Attorney Jason Walker

46th Annual Heckerling Institute on Estate Planning

2011-12-14T10:32:00.000-08:00

Jeffrey L. Burr and Jason Walker will be attending the Heckerling Institute on Estate Planning in January. This is the nation's leading conference for estate planners.

The firm of Jeffrey Burr will also be hosting a booth at the conference to spread the word on Nevada's Domestic Asset Protection trust - what we call the "Nevada On-Shore Trust."

Irrevocability - Not What You Might Think

2011-12-08T11:26:00.000-08:00

There are many types of Trusts that exist under the law. Trusts can be either revocable or irrevocable. A revocable trust allows the Grantor of a trust to transfer property into the trust with the unrestricted ability to undo such transfer by transferring the property from trust and even terminating such trust. In other words, the Grantor is not required to permanently part with ownership and control of property transferred into the trust. In fact, the trust terms can be amended by the Grantor as he or she deems necessary from time to time.

With regards to an irrevocable trust, once the Grantor has transferred property into the trust, the Grantor no longer retains the unrestricted right to remove such property or terminate the trust. The Grantor is unable to amend the terms of the trust.

A very powerful asset protection planning technique involves the use of the Nevada On- Shore Trust (sometime referred to as the Nevada Asset ProtectionTrust or the Nevada Self- Settled Spendthrift Trust) The Nevada On-Shore Trust is an irrevocable trust. For some, the concept of irrevocability causes some hesitations in proceeding with implementing the Nevada On-Shore Trust as part of their asset protection planning. The most often asked question by a person being introduced to the Nevada On-Shore Trust is whether or not the terms of the agreement can be amended from time to time. The answer to such question is “yes.” Although irrevocable and otherwise not amendable by the Grantor, the trust agreement usually allows for amendments or restatements to the trust agreement, including its dispositive and administrative provisions. However the Grantor is unable to make such changes directly, and most often calls for a Trust Protector to effectuate an amendment to the Trust.

A Trust Protector can be any person or institution. However, this person or institution cannot be anyone who has ever made a transfer to the trust. Thus, the Grantor cannot be his or her own Trust Protector. The Trust Protector’s powers are usually outlined with the trust agreement itself and, by way of example, often include such powers:

· The ability to remove and appoint a Trustee;

· The ability to change the location or governing law of the trust;

· The ability to remove from the trust agreement any provisions which are no longer operative in the ongoing administration of such trust due to changed circumstances;

· The ability to amend or restate the trust agreement to cope with changes in tax laws to achieve a more favorable tax status; and

· The ability to terminate the trust.

Although a trust may be irrevocable, the Trust Protector’s role affords the Grantor the ability to have a trust agreement that can change and evolve to meet the changes both to the law and changes in the Grantor’s life.

- Attorney A. Collins Hunsaker

Nevada Passes Legislation to Protect the Elderly

2011-11-29T09:38:00.000-08:00

Nevada recently passed legislation to protect the elderly from exploitation on transfers of property after death. Unfortunately, the elderly are often targets of financial exploitation. We often hear tragic stories of caregivers or others deceiving the elderly by fraud or undue influence and convincing them into leaving the exploiter a large inheritance. In its most recent legislative session, Nevada passed a law to protect the elderly from certain types of fraud and undue influence relating to transfers occurring after death.

The new law creates a presumption that a transfer occurring after the date of death is void if the recipient is:

a) The person who drafted the transfer document;

b) The transferor’s caregiver;

c) A person who paid or arranged for the drafting of the document; or

d) A person who is related to, affiliated with, or subordinate to anyone described in (a), (b), or (c).

The law provides that the presumption does not apply where the transfer does not exceed what the recipient would have received if the decedent died intestate or without a will. The presumption that the transfer is void can be overcome if a court determines by clear and convincing evidence that the transfer was not the product of fraud, duress, or undue influence.

We think the new statute is a positive change and we hope this new law will play a large role in protecting the elderly in the state of Nevada.

- Attorney Corey Schmutz

Gift Tax Opportunity...For a Limited Time Only!

2011-11-21T10:06:00.000-08:00

This is not a sales advertisement. There are no echoing voices, special interest rates, nor any free no-name flat screen TV’s – but the ability to gift up to $5 Million is truly (probably) a limited opportunity.

The changes to the Federal estate and gift tax that were passed in late December, 2010, re-unified the estate tax and gift tax exemption amounts at $5 Million through the end of 2012. In 2013, the estate and gift tax exemption amount will return to $1 Million unless Congress changes the exemption prior to December 31, 2012. We have heard recent rumors that the Joint Select Committee on Deficit Reduction of Congress (the so-called “Super Committee”) may have suggestions for reducing the gift tax exemption from its current $5 Million level. This could happen before the end of the year in theory. If so, the change would be one year earlier than expected.

So what we thought was a limited opportunity to make lifetime gifts in excess of $1 Million may really be shorter than even originally expected.

But Why Should I Give Assets Away During Life?

Transferring assets with a lifetime gift is more favorable from a net tax perspective than relying upon transfers occurring upon death. This is because gift tax is calculated on the net value of the assets transferred (exclusive of the gift tax paid) while the estate tax is calculated by including all assets transferred including the money that will be used to pay the tax (tax inclusive). The uncertainty of the current exemption amount ($5 Million) and its duration makes today a unique opportunity that may not last.

Please consult with an experienced attorney for advice on how to make completed gifts to family members or friends within the confines of a trust in order to prevent unrestricted use of the gifted assets. There are also tax implications of the gift, such as the requirement of filing a gift tax return, that should be discussed with an attorney or CPA. When a lifetime gift amount is accompanied by other advanced estate planning techniques that our attorneys can assist you with, it is possible to greatly reduce or eliminate estate tax upon your death.

- Attorney Jason Walker

December AFR's Announced

2011-11-18T09:19:00.000-08:00

December Mid-Term AFR - up from 1.20% in November.

Nevada Legislature Expands Applicability of "No Contest" Clauses

2011-11-02T13:05:00.000-07:00

No contest clauses in a Trust and Will have been discussed previously in this blog. A no contest clause is a provision in a Trust or Will that provides that any beneficiary challenging the validity of the terms of the Trust or Will shall have his or her share reduced or eliminated. Nevada law has recognized the validity of no contest clauses with certain exceptions.

Along with these legal exceptions, many courts in the past have held that the actions of the beneficiary must directly relate to the Trust or Estate itself and/or an actual lawsuit must be filed in court in order for a no contest clause to be enforceable. The last session of the Nevada Legislature has expanded the existing law to make it clear that, with certain important exceptions, a beneficiary’s share may be reduced or eliminated under a no contest clause by conduct contrary to the express wishes of the Decedent as set forth in the Decedent’s Trust or Will. Under the new law, which is effective October 1, 2011, conduct by a beneficiary that could trigger a no contest clause may include, without limitation:

1. Conduct other than formal court action; and

2. Conduct which is unrelated to the Trust or Estate itself, including, without limitation:

a. The commencement of civil litigation against the Decedent’s Trust or probate Estate or family members;

b. Interference with the administration of another Trust or Estate or a business entity;

c. Efforts to frustrate the intent of the Decedent’s power of attorney; and

d. Efforts to frustrate the designation of beneficiaries related to a nonprobate transfer by the Decedent by operation of law or by operation of contract such as joint tenancy, payable on death designations, and contractual beneficiary designations.

However, the new law specifically states that a no contest clause will not be enforced if the beneficiary seeks only to:

1) Enforce the terms of the Trust or Will, any document referenced in or affected by the Trust or Will, or any other Trust or Will related document;

2) Enforce the beneficiary’s legal rights related to the Trust or Will, any document referenced in or affected by the Trust or Will, or any other Trust or Will related document;

3) Obtain a court ruling with respect to the construction or legal effect of the Trust or Will, any document referenced in or affected by the Trust or Will, or any other related Trust or Will.

Also a no contest clause is unenforceable, notwithstanding its terms, if the court finds that the challenge to the Trust or Will, any document referenced in or affected by the Trust or Will, or any other Trust or Will related document was made in good faith based on probable cause.

Except for these four exceptions, it is now clear under Nevada law that a beneficiary could see his or her share of the Trust or Estate reduced or eliminated via a no contest clause even though the actions of the beneficiary do not directly relate to the Trust or Estate itself and/or the beneficiary does not bring a formal action in court challenging the validity of the terms of the Trust or Will.

- Attorney John Mugan

Who Is Going To Make Your Decisions?

2011-10-27T08:38:00.000-07:00

If you had a car accident or a medical emergency and were unable to talk, who would make medical decisions for you? Does this person know what types of life support or end-of-life care you want? Have you memorialized your decisions in writing? Does your family know where to find these documents? And does your physician know of your wishes?

Most families will at some time need to make medical decisions concerning the continuing care of an incapacitated family member. Documenting your medical, legal and spiritual decisions is an essential part of your estate planning. Your family should have powers of attorney for health care, living wills, wallet cards, and your medical documents should be on file with your physician and registered with the Nevada Secretary of State.

At Jeffrey Burr, our experienced attorneys can assisted you and your family through all aspects of medical decisions and will memorialize your family’s care plans with the most current and up to date governmental documents. With proper planning, you can be assured that your end of life wishes will be honored.

Call us, we are here to help.

- Attorney James M. O'Reilly

Jeffrey L. Burr Speaking at ASDO Annual Conference-October 26th

2011-10-25T12:53:00.000-07:00

Attorney Jeffrey L. Burr will be speaking at the Annual Conference of the Aging Services Directors Organization (ASDO) on Wednesday, October 26th. The conference title is "Helping Caregivers - Legally, Medically, and Safely." The conference is being held at the United Healthcare offices on North Tenaya.

October ARFs Announced

2011-09-28T13:51:00.001-07:00

Tax-free IRA Charitable Gift Rollovers

2011-09-06T15:45:00.000-07:00

The IRA rollover was first enacted in 2006 as part of the Pension Protection Act. The provision allows individuals aged 70 ½ and older to donate up to $100,000 from their Individual Retirement Accounts (IRAs) to public charities without having to count the distributions as taxable income. As part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the IRA Charitable Rollover has been reinstated through the end of 2011. Because the legislation expires on December 31, 2011, donors only have a few more months to take advantage of this opportunity.

You should consider this opportunity if:

- You are age 70 ½ or older;

- You have a traditional or Roth IRA (other plans such as 401(k)s, 403(b)s, SEP, KEOGH, and SIMPLE IRAs do not qualify);

- You do not need the assets currently held in your IRA(s);

- You would like to make a large one-time gift to charity;

- You are subject to the 2% floor on their itemized deductions;

- You do not itemize your deductions at all; or

- You plan to leave part or all of their IRA to charity upon your death.

What you should remember:

- You must be 70 ½ or older to qualify

- Only a direct transfer of the funds to the charity will work (ask the custodian of your IRA account for the appropriate form to request a direct transfer to charity)

- You can only give up to $100,000

- If you have not yet taken your Required Minimum Distributions, you may be able to partially or wholly satisfy that requirement through this type of gift

- There is no separate charitable deduction for this type of gift because of the income tax avoidance already occurring. The usual ceilings on charitable deductions (50% of adjusted gross income for cash, and 30% of adjusted gross income for capital gain assets) do not apply.

- The gift must be an outright gift to the charity. Donors cannot receive any personal benefit from the gift, and planned gifts like charitable remainder trusts or gift annuities do not qualify.

New legislation has been introduced to make the IRA charitable rollover permanent and to expand it such that the $100,000 limit would be lifted, and gifting could begin as early as age 59 ½. Additionally, the requirement that the gift be outright may also be lifted, allowing for gifts through charitable remainder trusts, etc. However, according to the law as it currently stands, the opportunity to make a direct gift from an IRA to charity without taxable income is only available through the end of this year, and you should consult with your attorney or tax advisor to determine whether this would be a good option for you.

- Attorney Serena Baig

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

2011-08-30T13:38:00.000-07:00

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

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

2011-08-26T08:57:00.000-07:00

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

September AFR's Announced

2011-08-24T10:16:00.000-07:00

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

Delaying Estate Planning - It's Not Really That Bad

2011-08-23T16:11:00.000-07:00

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

Specific Bequests: Potential Ademption Problem

2011-08-08T10:12:00.000-07:00

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.

- Attorney John Mugan

Federal Benefits Paid Electronically or by Debit Card

2011-08-03T10:47:00.000-07:00

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

- Of Counsel Attorney James M. O'Reilly

News from Jeffrey Burr

2011-07-17T10:25:00.000-07:00

There are a lot of changes here at Jeffrey Burr.

First for the good news, we are excited to announce the addition of three new attorneys to our firm. They are Craig D. Burr, Collins Hunsaker and Corey Schmutz.

Craig is a long time Nevada attorney who was the head of our Probate and Guardianship Department for several years ending in 2005. He has decided to rejoin us to again lead our Probate and Guardianship Department.

Collins Hunsaker is a licensed Nevada attorney who obtained his Juris Doctor Degree and his Masters of Law in Taxation (L.L.M.) from Chapman University. Collins will be working as an Estate Planning Attorney.

Corey Schmutz is a licensed Nevada attorney who obtained his Juris Doctor Degree from the University of Nevada, Las Vegas, and his Masters of Law in Taxation (L.L.M.) from the University of San Diego. He is a former Judicial Extern to Wesley Yamashita, the Clark County Nevada Probate Commissioner. Corey will be working mainly in the Probate, Elder Law and Guardianship areas.

They are all quality individuals and have the background we expect our attorneys to have.

Now for other news, three of our attorneys, David M. Grant, Mark L. Dodds and Robert M. Morris have left the firm to start their own law firm. We thank them for their efforts here and wish them well in their new endeavor. All of their cases have been assigned to other competent attorneys at our firm.

One benefit you enjoy by selecting the firm of Jeffrey Burr is knowing that regardless of a transition in personnel, we will always have several experienced, qualified attorneys and a knowledgeable, friendly staff who will be here to assist you with your vital estate planning and probate needs.

As you may know, the firm of Jeffrey Burr has been serving the Southern Nevada community since 1981. We currently have 22 staff members and 9 attorneys – many of whom, in addition to being an attorney, are either a certified public accountant or have an advanced tax degree.

We thank all of our clients and referral sources for the confidence you have placed in us to meet your estate planning and probate needs. We look forward to continuing to provide exemplary services to our valued clients.

- Jeffrey L. Burr

Asset Protection and Divorce

2011-06-30T14:13:00.000-07:00

If any of you are going through the unfortunate process of a divorce, it’s important that you preserve any asset protection planning you have done with our office by having special language included in the Marital Settlement Agreement and Divorce Decree regarding your Nevada On Shore Trust. Here is some sample language that we’ve used in the past:

“It is the intent of the parties to maintain, to the extent practicable, the integrity and the enforceability of the [NAME OF NOST], an irrevocable trust, for their mutual benefit. The parties acknowledge and understand that to effectuate the provisions of this agreement it may be necessary to effectuate trustee to trustee transfers between the above referenced trust rather than to either party individually under the terms of the respective trust, including but not limited to the specific section of the trust entitled “Trustee Actions”. The parties hereby agree to jointly seek an appropriate order from the Court authorizing such distribution to themselves as trustees.”

- Attorney Jeffrey L. Burr

July AFR's Announced

2011-06-23T16:21:00.000-07:00

New Updates to the Self-Settled Spendthrift Trust Laws:

2011-06-22T09:37:00.000-07:00

Nevada’s self-settled spendthrift trust laws have long been considered the most favorable of the thirteen states allowing these types of trusts. (See NRS 166 for the laws pertaining to the “Nevada On-Shore Trust,” as we like to call it, or “NOST”). This is because Nevada has the shortest statute of limitations period and has no statutory exceptions allowing certain creditors such as divorcing spouses, preexisting tort creditors, etc. to pierce the trust.

On June 4, 2011, Governor Sandoval signed SB 221 into law, which makes our spendthrift trust laws even stronger. The changes to the statutes, which are discussed in further detail below, will become effective on October 1, 2011.

1. Expansion of the types of trusts that qualify

Under the new language, a charitable remainder trust, a grantor retained annuity trust, and a qualified personal residence trust all qualify as a NOST.

2. Clarification of settlor’s ability to use property owned by the NOST

If a NOST owns real or personal property, the settlor is now explicitly permitted to use that property without decreasing the protection offered by the NOST.

3. Tacking of statute of limitations period for trusts changing situs to Nevada

If a non-Nevada spendthrift trust is domiciled in a state with substantially similar spendthrift laws to Nevada’s, and the trust’s domicile is properly changed to Nevada, the statute of limitations period does not have to be restarted. The transfer date will be deemed to date back to the actual date of transfer to the trust, or the date on which the laws of the non-Nevada jurisdiction became substantially similar to those of Nevada.

This new provision will allow individuals who have established asset protection trusts in other states with less favorable laws to change the situs to Nevada without restarting the statute of limitations.

4. Trustee liability limited

Currently, Nevada law already protects an advisor to the settlor or trustee of a spendthrift trust from claims unless the claimant can prove by clear and convincing evidence that the advisor knowingly and in bad faith violated Nevada law, and that his actions directly caused damage to the claimant. The new legislation now also protects the trustee of a spendthrift trust unless the claimant can make the same showing as to the trustee.

5. “Last in, First Out”

The new laws clarify that, when a settlor makes more than one transfer to the NOST, a more recent transfer will not result in the earlier transfers becoming accessible to creditors if they would otherwise be protected due to the statute of limitations.

Additionally, any distributions made from the NOST will be considered to have come from the most recent transfer, leaving older “seasoned” transfers in the trust and protected.

6. Decanting Spendthrift Trusts

Under the new law, the trustee of a NOST may decant the trust into another spendthrift trust without affecting the statute of limitations period applicable to the assets in the original trust.

7. Limitations of actions against a spendthrift trust

Until now, it was unclear whether Nevada’s four year Statute of Limitations period for fraudulent transfers would negate the favorable two-year rule under Nevada’s spendthrift trust provisions. Now, it is clear that no action may be brought against the NOST’s trustee at law or in equity if, at the date the action is brought, an action by a creditor with respect to a transfer to the NOST would be barred.

Additionally, in order to bring an action as to a transfer to a NOST, the creditor will have to prove by clear and convincing evidence that the transfer (i) was a fraudulent transfer, or (ii) violates a legal obligation owed to the creditor under a legally enforceable contract or valid court order.

8. Unauthorized agreements by Trustee are void

The new legislation clarifies that the settlor only has rights and powers conferred specifically in the instrument, and any agreement between the settlor and trustee attempting to grant or expand those rights is void. This provision strengthens the use of the NV self-settled spendthrift trust as a completed gift trust, which will bolster its use as an estate tax savings tool for some clients.

- Attorney Serena Baig

Mark's Theory of Large Numbers

2011-06-20T12:57:00.000-07:00

Through years of working with people in their estate planning and financial matters, I have come to conclude that we as humans may understand that the number 1,000,000 is a fairly large number; however, when we see the number 10,000 we think that is a large number as well. We see them both as large numbers and so often do not appreciate the extent of the difference between the two. For example, if I explain that my fee for an estate plan which is designed to save $1,000,000 in taxes will cost $10,000, the prospective client will just see the fact that 10,000 is a large number and, although $10,000 spent with an expected return in tax savings of $1,000,000 seems a good return on one’s investment (i.e. 100 to 1), often the client will decline the services on the basis that $10,000 is a big number and not on the basis that it is small in comparison to the expected tax savings.

It seems our misunderstanding of the significance of large numbers carries over into our reactions to our ever-escalating federal budget deficit. There was a time when $1,000,000 seemed like a pretty significant amount of money. However, these days, when speaking of budgets, the only number that gets anyone’s attention is a number with “trillion” after it. There was a time, not long ago, when we were aghast at the prospect of a deficit of, say, $50 billion. In the month of February, our deficit exceeded $50 billion PER WEEK. But what’s the difference now, billions or trillions, it’s just another very large number that we don’t fully understand. We can see it on paper, but we cannot comprehend the difference between a billion versus a trillion. A few years ago the president challenged his cabinet to come up with savings of $100,000,000 from their budget requests. $100 million seems like a lot. But in fact, $100 million is equal to 16 hours of interest on a $1 trillion deficit (and our deficit is about $14 trillion). The federal government cutting its budget by $100 million is like a family earning $75,000 cutting its annual budget by about $1.75. It’s the equivalent of telling your spouse to buy the generic box of Cocoa Puffs instead of the name brand and calling it a year for budget balancing!

Maybe comparisons like this can help us understand a little better the difference between millions, billions and trillions. Who would have ever thought we would see S & P cut the federal government’s AAA borrowing rating from “stable” to “negative” but this is what happened today. Someone in Congress better learn to understand the significance of large numbers.

- Attorney Mark Dodds

Planning Considerations for Families with Special Needs

2011-06-09T09:32:00.000-07:00

Part of any effective estate plan is considering the possibilities of special needs of immediate or extended family member.

Did you know:

One out of 9 children under the age of 18 in the US today receive special education services;
Out of 72.3 million families included in the 2000 Census, about 2 in every 7 reported having at least one member with a disability;
20.9 million families have members with a disability;
Of the 20.9 million families reporting at least one member with a disability, 5.5 percent have both adults and children with a disability;
One in every 26 American families reported raising children with a disability;
One in every three families with a female householder with no husband present reported members with a disability;
An estimated 2.8 million families were raising at least one child aged 5 to 17 with a disability.*

* Source: “Disability and American Families: 2000”, US Census Bureau, July 2005 Report.

With data like this, it is extremely important to consider the current and future needs of potential estate beneficiaries. Often this will include the creation of an independent special needs trust or a special needs trust as a sub trust of a larger estate plan.

To distinguish a special needs trust, a first party special needs trust is one that is created with the special needs individual’s own funds and with court approval. A first party special needs trust will require a state Medicaid payback upon the death of the beneficiary. In contrast, a third party special needs trust is created with a third party’s funds (e.g. parent, grandparent) and does not require court approval nor a state Medicaid payback, as long as the trust corpus is not considered a countable resource for needs based state assistance.

Care should be taken in the preparation of any special needs trust to insure if necessary that court approval is sought. In cases where court approval is not necessary, proper planning will insure that the trust corpus does not become a countable resource for state and federal benefits that may be available for those with special needs.

Jeffrey Burr Ltd. has a full service Elder Law division that is available to assist you in proper special needs planning and is happy to answer any questions you may have.

- Attorney Robert Morris

SPOTLIGHT Senior Expo - June 3rd

2011-06-02T09:49:00.000-07:00

Jeffrey Burr Elder Law Services will be attending the SPOTLIGHT Senior Expo on Friday, June 3rd from 9:00 am - 1:00 pm at Spring Valley Hospital Medical Center. We will have a table setup and available to answer any questions you may have on estate planning and elder law services.

Top 5 Reasons To Use An Attorney

2011-06-01T10:09:00.000-07:00

The following posting is borrowed from the May 2011 issue of Vegas PBS Source Magazine, as written by Attorney David M. Grant:

“It can seem daunting when beginning the process of making out a last will & testament, revocable trust, and powers of attorney. As one starts down this important, yet often intimidating course, increasingly people are wondering if they can do it themselves or should they use an attorney. Here are the top 5 reasons why you should use an attorney:

1. Experience. An attorney experienced in estate planning can tell you what to expect in terms of timelines, costs, taxes, and family issues that could arise.

2. Objectivity. On your own, it can be almost impossible to remain objective since estate planning decisions are so fraught with emotion.

3. Special skill. Estate planning specialists are specially trained in what they do. They understand important legal nuances and are able to bring together complex federal and state laws to make your plan work.

4. Protection. Doing it yourself, often leads to the payment of higher taxes, expensive probate proceedings, litigation and fighting between heirs, and increased opportunities for creditors attack. Don’t be “penny wise and pound foolish.”

5. Peace of mind. Knowing your financial affairs will be handled correctly leads to a profound sense of “inner peace.”

Morris and Grant to Present at Upcoming Seminars

2011-05-25T10:09:00.000-07:00

Attorneys Robert L. Morris and David M. Grant will be presenting at the following legal seminars:

June 6th - “Trust Termination & Legal Ethics,” National Business Institute Seminar on Trust Administration and Preventing and Litigating Fiduciary Liability, to be presented in Las Vegas, NV on June 6, 2011. For more information go HERE.

June 24th - “Estate Planning in Light of Recent Tax Law Changes & Nevada Legislative Update,” State Bar of Nevada 2011 Annual Meeting, to be presented in Kauai, HI on June 24, 2011. For more information go HERE.

Just for Vets ~ Non-Service Related Pensions

2011-05-23T09:37:00.000-07:00

Two little-known benefits available to vets or their widows are the Improved Pension and the Aid and Attendance Program.

The Improved Pension is an asset and income based program available to vets or their widows whose assets and income are below certain levels as adjusted annually for inflation.

The Aid and Attendance Program provides additional benefits if the vet or widow is age 65 or older and is permanently and totally disabled. Anyone requiring nursing home care is automatically considered disabled for purposes of qualifying for this program.

Eligibility for either program requires the vet to have served 90 days of active service with at least one day of service during wartime with no dishonorable discharge. Vets who entered service after September 8, 1980, may have a longer minimum period of service.

The benefit levels for 2011 are as follows:

Up to $1,644 per month for a single veteran
Up to $1,949 per month for a married veteran or a veteran with one dependent
Up to $1,057 per month for an unmarried widowed surviving spouse

These are valuable benefit programs for American vets. If you or someone in your family is eligible for these enhanced VA benefits, the VA will assist in helping you qualify.

For more information, go to www.vba.va.gov/

- James M. O'Reilly, Certified Elder Law Attorney

June AFRs Announced

2011-05-19T14:39:00.000-07:00

Nice little drop...For the month of June 2011 the Applicable Federal Rates will be as follows:

In June the 7520 rate will drop to 2.8% from 3.0% where it was in May. To go directly to the IRS' publication of these rates, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-11-13.pdf.

Comparison of Portability and Exemption Trust

2011-05-18T13:00:00.000-07:00

Last week, I prepared and gave a presentation to the Financial Planning Association of Nevada on some of the details of the 2010 Tax Act and its impact on estate planning. One interesting thing that I came across in preparing my presentation was a comparison of an estate relying on the new portability provisions versus utilizing an “A-B”, “Bypass”, or “Credit Shelter trust. “

The assumptions are as follows:

• Married Couple with a $10 Million estate
• Husband dies in 2011
• Wife dies in 2019
• 2% rate of inflation
• 5% return on assets

The original source of the chart and calculations may be found here on page 40-42.

This example shows the power of capturing the appreciation of the assets in the credit shelter trust. Of course, various factors could affect the calculations, including inflation rate, changes in the Capital Gains rate, and an assumption that the Estate Tax rate will remain at 35%.

- Attorney Jason C. Walker

Jeffrey Burr Named as Preferred Estate Planning Firm

2011-05-11T16:33:00.000-07:00

We are pleased to announce that the law firm of Jeffrey Burr has been selected by Legacy Quest as its preferred estate planning provider. Attorneys at Jeffrey Burr were selected by Legacy Quest, from among their competitors, based upon the firm’s long-running reputation for providing high quality, specialized services in the estate planning area.

Legacy Quest offers the Legacy Planner, a system for preserving and shaping a person’s legacy. The Legacy Planner is a first-of-its-kind planning tool used to assists individuals in better organizing their personal and estate information. It provides a structure for helping record personal histories, memories and letters, and includes a system for assembling genealogical information, final plans and directives, and other important financial and estate documents. Legacy Quest was started in 2009 by Hyrum Smith, one of the founders of Franklin Covey, the company behind the Franklin Day Planner.

It is truly an honor for our firm to be recognized as the preferred estate planner by the renowned people behind this innovative company.

Disposition of Tangible Personal Property By List or Statement - What Is "Tangible Personal Property"?

2011-05-09T16:29:00.000-07:00

Nevada, like most states, permits a person’s Last Will And Testament and Trust to refer to a separate, written statement or list to dispose of “tangible personal property” not otherwise specifically disposed of by the terms of the Last Will And Testament or Trust. In this regard, the question often asked is “What is tangible personal property that can be disposed of by such a written statement or list?” The applicable Nevada statute attempts to answer such question by defining certain tangible personal property that cannot be disposed of by such a written statement or list, namely “money, evidences of indebtedness, documents of title, securities and property used in a trade or business.” NRS 133.045. Accordingly, a person should never attempt to dispose of “money, evidences of indebtedness, documents of title, securities and property used in a trade or business” via a written statement or list. Examples of these items are cash, financial accounts, promissory notes, deeds of trust-mortgages, stocks, bonds and real estate.

Common examples of tangible personal property that can be disposed of by such a written statement or list are furniture, furnishings, rugs, pictures, books, silver, linen, china, glassware-crystal, objects of art, wearing apparel, jewelry and guns. One of the most common examples of property disposed of by a written statement or list is the wedding and engagement rings of the testator passing to a particular daughter or granddaughter.

Some of the advantages of using such a written statement or list are that it can be prepared before or after the execution of the Last Will And Testament and Trust, and it can be altered by the testator after the list has first been prepared. However, one must be careful to abide by the legal requirements of a valid written statement or list under Nevada law such as the statement or list must contain the date of its execution, the statement or list must contain a reference to the Last Will And Testament or Trust, et cetera.

The attorneys at Jeffrey Burr Ltd. have many years of experience in estate planning, and always inform clients of their option of disposing of part or all of their “tangible personal property” via a written statement or list. In the event a client wishes to utilize such a written statement or list, we insure that such statement or list is valid, enforceable, and carries out the wishes of the client.

- Attorney John Mugan

What Is a Trust?

2011-05-04T08:16:00.000-07:00

Stupid question, right? Everyone knows what a trust is…or do they? Some people wrongly assume that a trust is an entity, like a corporation or limited liability company. While many states do recognize an organized business trust entity, the vast majority of trusts are not technically recognized as entities by the state. Simply stated, a trust is an agreement whereby property is held and administered by one person for the benefit of another.

There must be at least three parties to every trust agreement: the settlor, the trustee, and the beneficiary. The settlor is the person who forms the trust by contributing property to the trust agreement. Such property is known as the trust corpus or trust res. Sometimes a settlor is also referred to as a trustor, grantor, donor or creator. The trustee is the person who holds the trust corpus for the benefit of another. The beneficiary is the one for whom the trust corpus is held, and the one to whom distributions are made.

On a more academic level, a trust is created (or settled) when the title to property is split into two parts: legal title and beneficial title. Legal title refers to the ownership interest of a trustee. One who has legal title to property has the right to hold, possess, and deal with such property. Beneficial title, on the other hand, refers to the ownership interest of a beneficiary. One who has beneficial title has the right to enjoy the benefits of the property. Before the trust is ever formed, and title is thus bifurcated, the settlor will generally possess both legal and equitable title, or absolute title.

In common law jurisdictions, trust agreements are governed by the terms of the trust document, or trust indenture as they are sometimes called. The trustee is obligated to administer the trust in accordance with those terms as well as in accordance with governing law.

Common law trust doctrine first developed in the 12th and 13th centuries when landowners leaving England to fight in the Crusades would convey ownership of their land to a friend or family member, with the understanding that title would be conveyed back upon the Crusader’s return. Today, trusts are commonly used as testamentary devices (e.g., living trusts) or as tools to achieve one’s tax planning and asset protection objectives. Whatever a person’s legal needs may be with respect to property, it is almost certain that solutions can be found through the use of trust agreements.

- Attorney David M. Grant

Large IRAs and Portability Under the 2010 Tax Act

2011-05-02T09:22:00.000-07:00

Owners of large IRAs prior to the 2010 Tax Act generally had to decide between the income tax benefits of leaving the IRA to his or her spouse and the potential estate tax benefits of leaving some or all of the IRA to a credit shelter trust or a trust for children or grandchildren. Now, portability may allow owners of large IRAs to name the spouse as the beneficiary of the IRA while still preserving the owner’s unused estate tax exempt amount to be transferred to the surviving spouse.

Rules for IRAs with the Surviving Spouse as Beneficiary

When an individual with an IRA dies, leaving the surviving spouse as the beneficiary, the survivor has three options, all of which could have positive income tax results:

1. Roll the IRA into his or her own IRA, which allows the survivor to wait until he or she reaches the age of 70 ½ before having to take minimum distributions.

2. Keep the IRA as an “inherited IRA,” which allows the survivor to wait until the deceased spouse would have reached 70 ½ before taking distributions.

3. Convert the IRA to a Roth IRA, which has no required distributions during the lifetime of the survivor.

The problem with these options is that, if the survivor is the named beneficiary of the IRA, and the deceased spouse does not have sufficient assets to maximize his or her estate tax exemption, the exemption of the first spouse to die could be wasted.

Maximizing the exemption before the 2010 Tax Act

In order to avoid wasting the exemption, many couples were either naming another individual as a beneficiary of their IRAs, or they were leaving all or a portion of their IRAs to a credit-shelter trust in order to preserve the exemption of the first spouse to die.

A number of disadvantages and complexities arise when leaving an IRA to a trust, such as:

1. If you are only leaving a portion of the IRA to a trust, preparing a formula beneficiary designation is complicated and may not be accepted by the IRA custodian.

2. The IRA benefits will have to be paid over the life expectancy of the oldest beneficiary of the trust, which is usually the spouse. If the payments are distributed to the spouse, they will be included in the spouse’s estate. If they are distributed to other beneficiaries, the spouse will not benefit from the IRA. If they are accumulated, the compressed income tax rates applicable to trusts will apply.

Another option would be to name the family trust as the primary beneficiary, allowing the survivor to disclaim the proceeds to a disclaimer trust at the first spouse’s death. However, the spouse would have to decide whether to give up the potential estate tax benefits of fully funding the credit shelter trust and disclaiming the IRA and giving up the income tax benefits of the spousal rollover. Additionally, the spouse would not be able to have any power of appointment over the disclaimer trust.

After the 2010 Tax Act

Now, with the 2010 Tax Act allowing for a $5 million exemption per person, the unused portion of which can be transferred to the surviving spouse, the problems set forth above may be largely solved. The IRA owner can name the spouse as the beneficiary, with all the income tax benefits which come with that option. Any amount of unused estate tax exemption will be transferred to the survivor to use upon his or her own death. Not only will this preserve the estate tax benefits which were only previously preserved by the methods outlined above, but the planning will also be simplified for owners of large IRAs who do not have sufficient other assets to fully fund a credit shelter trust.

As we know, portability is only in effect for 2011 and 2012. In the event that portability is not extended or made permanent, the other methods to preserve the first spouse’s exemption will have to be revisited. For the next two years, however, IRA owners without sufficient nonretirement assets to fully utilize their estate tax exempt amounts should consider whether it would be desirable to name the spouse as beneficiary in light of the availability of portability.

- Attorney Serena Baig

May 2011 AFRs Announced

2011-04-20T06:25:00.000-07:00

Very little change will be seen from April to May in the federal AFR. For the month of May 2011 the AFRs will be as follows:

In May the 7520 rate will remain unchanged at 3.0%, for the third month in a row. To go directly to the IRS' publication of these rates, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-11-11.pdf.

Change Social Security?

2011-04-12T12:44:00.000-07:00

It's official: High unemployment and a resulting decline in payroll-tax collections have taken a toll on the Social Security program. Benefits exceeded revenues for the first time in 2010–six years ahead of previous projections–according to the Social Security Trustees' 2010 report. But the nation's vital retirement program is expected to slip back into the black–at least temporarily–when the economy recovers, before posting increasingly larger deficits as more baby-boomers reach retirement age.

Projections suggest that there will still be plenty of reserve funds to continue paying full benefits for nearly 30 years. But without reform, the trust fund is projected to run dry around 2037, when tax revenues may only be sufficient to pay only about three-fourths of promised benefits. "The sooner action is taken, the more options will be available and the fairer reforms will be to our children and grandchildren," said Treasury Secretary Timothy Geithner in response to the trustees' report.

Reform proposals include raising the retirement age for full benefits to age 70, changing the formula for calculating annual inflation adjustments of benefits, and lifting the cap on the amount of wages subject to Social Security tax–currently $106,800–to upwards of $185,000. While each of these proposals would effectively equate to a “disguised cut” to our Social Security benefits, it is clear that something must be done, sometime, to improve the long-term health of our county’s social insurance system. The only question facing this eventuality is whether the political commitment to make these necessary changes yet exists?

- James M. O'Reilly, Certified Elder Law Attorney

Contest of Will or Trust

2011-04-06T11:45:00.000-07:00

There’s a funny commercial on TV lately. It involves a wealthy family gathering for a reading of the Will. If I recall correctly, most of the estate goes to the new (blonde and young) companion. But the only son of the Testator gets the satellite/cable TV package so that he can stream movies and TV shows directly to his television. He then goes berserk with joy. (view commercial here)

That commercial got me thinking about contests or challenges to established planning. Most clients want to avoid their heirs fighting over the estate or having to defend the estate from an unintended heir. It can be a financial and emotional drain on the beneficiaries of the estate. Estate Planners try to do their best to ensure that the formalities are followed when estate planning documents are signed and that the person executing the documents has capacity and understands the effect of the documents.

I recently read an interesting article on this topic. (A Will and a Way, WALL STREET JOURNAL, by Anne Tergesen) The article points out that Nevada (among a handful of other states) now allows for pre-mortem probate. What this means is that a person can present his or her planning documents to the court and require a contesting beneficiary to present his challenges to the court before the Testator (person who signed the Will or Trust) passes away. The advantage is that the best witness for the court is still alive to defend his or her actions. The disadvantage is that the client must disclose his or her documents with the court and make the contents known to the beneficiaries. The result is that if the person later changes his or her Will or Trust, then the process must occur again. It’s an interesting idea and I don’t know if our firm has handled a case like this in our local probate court. But as a planner, it’s important for me to know that this is available.

The article points out some other tools that estate planners may use to prevent a challenge to a Will or trust after the client passes away:

1. Use a video message from the Testator to explain provisions of the Will. This may soften the blow to beneficiaries, but might also backfire if the Testator says something inconsistent with the Will.

2. Include a no-contest clause. We do this at our firm, and they are fun to talk about and point out to the client, but are not always enforceable and would not be enforceable if there was a genuine concern that the Testator had capacity or was subject to undue influence.

3. Provide a gift of cash or other property to a person that is suspected to challenge the Will. (I’ve never heard of this one and it made me chuckle). If the person accepts a gift from the Testator at that time, it will be difficult for the person to claim that the Testator was incapacitated at the time of the gift.

Other standby techniques not discussed in the Wall Street Journal article include:

1. Making a specific bequest to a potential challenger which then gives the no-contest provision some effect (they stand to lose something if they challenge and lose).

2. Contract around the challenge: use a family settlement agreement (signed by all family members including potential challengers).

3. Leave the person the satellite/cable TV package so that they can stream hundreds of movies and TV shows directly to their TV. (Probably won’t work).

- Attorney Jason C. Walker

Bequests - What Happens When the Beneficiary Predeceases?

2011-03-31T09:35:00.000-07:00

An often asked question regarding the administration of Trust or Estate after a death occurs is:

1) What happens if the beneficiary predeceased the decedent?

In this age of longevity, it is not uncommon for a beneficiary named under the terms of a Trust or a Last Will and Testament to predecease the individual creating the Trust (the “Trustor”) or the individual creating the Last Will and Testament (the “Testator”). When this occurs, what happens to the bequest? For example, a Trustor provides that a specific bequest of $50,000.00 be given to her son, Joseph. However, Joseph predeceases the Trustor. When the Trustor dies, what happens to the bequest? Does it lapse and become null and void? Or is it still legal effective? The answer is it depends on the terms of the Trust or Will and the facts of the situation. Nevada has an anti-lapse statute which provides that a bequest is saved and does not lapse if the predeceased named beneficiary is a child or other relation of the Trustor-Testator and the beneficiary left lineal descendants who survived the Trustor-Testator, unless the Trust or Will provides otherwise. NRS 133.200 provides as follows:

“When any estate is devised to any child or other relation of the testator, and the devisee dies before the testator, leaving lineal descendants, those descendants, in the absence of a provision in the will to the contrary, take the estate so given by the will in the same manner as the devisee would have done if the devisee had survived the testator.”

In our example above, the predeceased beneficiary, Joseph is a child of the Trustor-Testator. If Joseph left lineal descendants (child, grandchild, et cetera) and the Trust or Will does not provide otherwise, the $50,000.00 bequest will not lapse but will pass to Joseph’s lineal descendants. This may or may not be what the Trustor desires. When one creates a Trust or Will, one should always discuss and consider the possibility of a beneficiary predeceasing. If one does not want the bequest to pass to Joseph’s lineal descendants, the Trust or Will should specifically state that in the event Joseph predeceases, the bequest shall lapse or shall pass to some other beneficiary.

At the Jeffrey Burr law office, we have many years of experience in assisting clients in their estate plans through the drafting and execution of their Trusts/Wills. As part of this service, we go to great lengths to determine exactly what the client desires, including the client’s wishes in the event a named beneficiary predeceases the client.

- Attorney John Mugan

Using 30 Year's Experience to Predict the Future of the Estate Tax Exemption

2011-03-29T16:19:00.000-07:00

During the two years before expiration of the “Bush Tax Cuts” (which, from enactment, were set to end on December 31, 2010) tax attorneys expected something to come out of Washington which would provide clarity going into 2010, the year in which the estate tax was fully phased out, and for 2011, the year in which the estate tax was set to come roaring back with the full 55% top rate and an estate tax exemption reduced to $1 million, from the $3.5 million exemption available to estates of decedents dying in 2009.

By the end of 2010, most estate planning professionals guessed that a deal was not going to happen and that the 55% rate and $1 million exemption would come back in 2011, but like the U. S. Cavalry in a John Wayne movie coming to the aid of the settlers, Congress acted just in time, December 17, 2010, to increase the estate exemption to a full $5 million per person with a top estate tax rate of “just” 35%. This law is set to expire on December 31, 2012, and if not extended, will put us back to the 55% rate and $1 million exemption, so we could go through this exercise again in less than two years. The fact that we could end up with a reduced exemption in 2013 has prompted some advisors to suggest caution about using the $5 million exemption for gifts and general planning considerations.

The writer of this blog has been involved with the estate tax for 30 years now and during that time, despite all the rhetoric and hand-wringing, the estate tax exemption has never been reduced, other than through the 2011 repeal of the repeal of the estate tax. Before November 1981’s Economic Recovery Tax Act (“ERTA,” we affectionately called it; funny how those acronyms usually work out) the maximum exemption was only $60,000 as I recall, and with ERTA, it immediately jumped to $200,000 and then grew each year to be $600,000 per person. Then in the late 90’s the exemption was increased from $600,000 to $675,000 and then to a full $1 million at the turn of the millennium. (I have been waiting for the right time to use that phrase, “Turn of the millennium.”) Then with the Bush Tax Cuts, the exemption grew steadily from $1 million, to $1.5 million, to $2 million and finally to $3.5 million in 2009, which brought us to full repeal for those heirs lucky enough to inherit from decedents dying in 2010. So ignoring the repeal year of 2010, the exemption amount has now grown from $3.5 million to $5 million per person. What’s more, “portability” now exists between spouses, meaning that a surviving spouse basically “inherits” the right to use the unused exemption of their last deceased spouse.

With a history of 30 years and no reduction in the estate tax exemption over that time, what are the chances Congress will cut back the existing exemption from $5 million to something less? This blogger sees that as doubtful. Some might argue that Congress will try to raise revenue on the backs of the “rich” and will reduce the $5 million exemption. While this is possible, such a move would be more cosmetic than anything else because, even when the rates were higher and the exemptions lower, the estate tax has normally provided only about 2% of federal revenues. Therefore, barring a demagogic move at raising the estate tax, it is likely the exemption will remain at $5 million, at least. It is, therefore, this blogger’s opinion that clients should make their plans based upon the expectation that the $5 million exemption is here to stay.

- Mark L. Dodds

April 2011 AFRs Announced

2011-03-18T16:03:00.000-07:00

It's going to be a mixed bag this coming month. While short- and mid-term rates are both rising slightly, the long-term Applicable Federal Rate (AFR) will be a touch lower in April than it has been in March. For the month of April 2011 the AFRs will be as follows:

In April the 7520 rate will remain unchanged at 3.0%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-11-10.pdf.

Social Security and Remarriage

2011-03-11T10:03:00.000-08:00

It is common in our law practice to visit with individuals contemplating a second marriage. Often one of the parties will have a higher Social Security earnings record from a spouse from an earlier marriage. The questions is, if you remarry, how will your earnings record and Social Security benefits be determined?

Generally, if you remarry prior to age 60, you are not eligible for benefits based upon your former spouse’s earning record. However, if you divorce after 10 years of marriage, and your second marriage ends before you turn 60, your benefits based upon your first spouse’s earnings record will be restored. Further, when you reach age 62, you can choose to collect a “spousal benefit” based upon your new spouse’s earnings record or receive a benefit based upon your own earnings, whichever is the larger amount.

Remarry after age 60, and you will be eligible to receive a spousal benefit based on the earnings record of a deceased spouse, the spousal benefit of your current spouse, or a benefit based upon your own work record, whichever is highest.

What happens if your new spouse dies? You will be eligible for a spousal benefit if you are at least 60 years of age (or age 50 if disabled) as long as the marriage lasted at least 9 months, or your spouse had an accidental death, or you had a child (including adoption) together. You must be unmarried at the time of your application.

Social Security has an excellent website that is well organized. Answers to most of your Social Security questions can usually be found within just a few minutes. For more information, go to http://www.ssa.gov/.

- Attorney James M. O'Reilly

Obama's Budget Would Weaken the 365-Year Nevada Dynasty Trust

2011-03-08T05:42:00.000-08:00

He’s made a move—President Obama’s recently submitted 2012 budget proposal would limit the existence of Dynasty Trusts to 90 years. Obviously, trusts could still go on longer; however, under this new proposal federal transfer tax exemptions would be lost after 90 years.

A Dynasty Trust, often called a Legacy Trust or a Generation Skipping Transfer (“GST”) Trust, is a special type of irrevocable trust settled for the benefit of one’s descendants. Because of certain federal tax exemptions and estate planning techniques now available, these trusts can be established so that assets placed within them will never be subject to federal estate, gift, and GST tax again. In Nevada, such trusts can exist for up to 365 years.

If someone would like to set up a Legacy Trust, it’s time to move quickly. President Obama’s proposal would affect new transfers to Dynasty Trusts, but not trust fundings that have occurred prior to enactment. That is to say, if someone sets up and funds a Nevada GST Trust before the law is passed, such trust would be “grandfathered in” and therefore be exempt from the payment of transfer taxes for the next 365 years.

Remember, with estate planning the key words are “sooner versus later” and “old and cold”. The time to act is now! For a more in depth review of Obama's proposal, see the Wall Street Journal article by Laura Saunders, http://on.wsj.com/dLAb3u.

Nevada: a pretty good place to die (if there is such a thing)

2011-02-22T07:48:00.000-08:00

The following snippet was taken from Bill Bischoff's article as published in the Wall Street Journal's Market Watch web page on February 16, 2011.

"16 States and DC Have Estate Taxes

"The sixteen states and the District of Columbia, which impose their own estate taxes (as opposed to inheritance taxes, which I will explain later) base their taxes on the entire value of an estate in excess of the applicable exemption.

"The exemptions vary from a low of $338,333 to a high of $5 million. Specifically:

* Three states have exemptions of less than $1 million (Ohio at $338,333; New Jersey at $675,000; and Rhode Island at $850,000).

* Six states have $1 million exemptions (Maine, Maryland, Massachusetts, Minnesota, New York, and Oregon), and so does D.C.

* Three states have $2 million exemptions (Illinois, Vermont, and Washington).

* Two states have $3.5 million exemptions (Connecticut and Delaware).

* Two states have $5 million exemptions (Hawaii and North Carolina).

"The lowest tax rates are 7% (Ohio) and 12% (Connecticut). The highest is 19% (Washington). The other 13 states and D.C. all charge 16%.

"6 States Have Inheritance Taxes

"The inheritance tax exemptions are zero or negligible--except in Tennessee which has a $1 million exemption.

"The tax rates are 9.5% in Tennessee, 15% in Iowa and Pennsylvania, 16% in Kentucky, 18% in Nebraska, and 20% in Indiana.

"Worst Case: 2 States Have Both

"Maryland and New Jersey raise confiscation to a higher level by charging both an estate tax and an inheritance tax. In Maryland, the inheritance tax exemption is a whopping $150 and the tax rate is 10% (in addition to the 16% estate tax rate). In New Jersey, the inheritance tax exemption is zero and the tax rate is 16% (in addition to the 16% estate tax rate).

"The Other 28 States Have No Estate or Inheritance Taxes

"The 28 states NOT listed above[, including Nevada,] have no estate or inheritance taxes. They are better places to die."

See the full article here: http://bit.ly/fC4571.

March 2011 AFRs Announced

2011-02-18T08:04:00.000-08:00

They're going higher yet again...for the month of March 2011 the Applicable Federal Rates (AFRs) will be as follows:

In March the 7520 rate will be 3.0%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-11-06.pdf.

February 2011 AFRs Announced

2011-01-20T07:57:00.001-08:00

Higher still...For the month of February 2011 the Applicable Federal Rates (AFRs) will be as follows:

In February the 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-11-04.pdf.

Free tax update - Be one of the first to study the new tax bill from an estate planning perspective

2010-12-23T05:47:00.000-08:00

$5 MILLION EXEMPTION, 35% RATES, PORTABILITY AND MORE...Congress recently passed the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” The provisions in this new law will usher in an unprecedented estate, gift, and GST tax regime for 2011 and 2012.

Join us for a review of the new laws and an interactive discussion on how to best serve our clients in light of the changes. Jeff Burr will be joining us real time from the University of Miami’s 45th Annual Heckerling Institute on Estate Planning to relay the latest planning tips and ideas as presented by the industry’s best and brightest.

Wednesday, January 12:
11:30 am - 12:00 pm: Registration
12:00 pm - 1:00 pm: Lunch and Presentation
7881 W. Charleston Blvd., Las Vegas 89117
or
2600 Paseo Verde Pkwy., Henderson 89074

Lunch will be provided. Those in attendance will receive an updated Estate Planning Checklist to use during client meetings. Please RSVP to Jamie Spring at 433-4455 or jamie@jeffreyburr.com.

___________________________________

Those in attendance maintaining their CPA certification are eligible to receive 1 hour of CPE credit.

January 2011 AFRs Announced

2010-12-22T13:07:00.000-08:00

Looks like rates are heading back up. For the month of January 2011 the Applicable Federal Rates (AFRs) are as follows:

In January the 7520 rate will be 2.4%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-2010-31.pdf.

On to Obama for Signing--House Passes the Tax Bill!

2010-12-17T06:51:00.000-08:00

HOUSE PASSES "THE TAX RELIEF, UNEMPLOYMENT INSURANCE REAUTHORIZATION, AND JOB CREATION ACT OF 2010": WE ARE ON THE PRECIPICE OF AN UNPRECEDENTED ESTATE AND GIFT TAX REGIME

Late Thursday night House Democrats joined Republicans in staving off an attempt from Liberal Democrats to amend the bill passed by the senate yesterday and usher in an unprecedented estate and gift tax regime. The bill is now on its way to President Obama for his signature.

These changes are certain to have a profound effect on existing estate plans and clients currently considering putting plans in place. With a reduced estate and gift tax rate about to become law, coupled with all time high exemption amounts, the next two years stand to provide huge opportunities in terms of incorporating tax efficient wealth transfer planning strategies. Based on the new laws, as described below, clients may be staring at a limited window of opportunity to drastically reduce estate and gift tax exposure in very simple ways.

The following is a summary of some of the estate and gift tax provisions in the bill and the tax year to which they relate:

2010

1. Estates will be able to elect to be taxed at a 35% rate with a $5 million estate tax exclusion with a step-up in basis and $1 million gift tax exclusion.

2. Estates also have the option to forgo estate tax treatment and elect carryover basis.

3. Estate tax returns will be due no earlier than nine months from the date of enactment.

2011 and 2012

1. The estate and gift tax exclusion amount will be unified at $5 million and the maximum rate for both will be 35%.

2. Portability of the exclusion for individuals dying during 2011 and 2012 will be available to surviving spouses. The exclusion is only available from the last deceased spouse. (Might this create a new market for marriage?)

3. Step-up in basis returns, but assets placed in a by-pass trust will not receive an extra step-up in basis at the surviving spouse's death (but appreciation will be take place outside of the estate).

The increased exclusion amounts for lifetime gifts, along with the potential application of valuation discounts where appropriate, will give clients the ability to transfer significant amount of value out of their estates by simply gifting assets to loved ones. Where some clients may currently have sophisticated and complex planning in place, as deemed helpful under previous tax regimes, these new laws may provide significant opportunities to build on such prior planning.

As we head into a new year with a new set of estate and gift tax laws, now is an ideal time for us to sit down with our clients to reevaluate their current estate plans and see what possibilities exist to further reduce estate and gift tax exposure. Let's all make the most of the next two years!

Senate Passes Tax Bill

2010-12-15T13:46:00.000-08:00

Here we go...by a vote of 81 to 19, the Senate voted today to lower the federal estate tax rate to 35 percent and to raise the applicable exemption to $5 million per person.

Now on to the house where Democratic leaders are debating among themselves on how to handle the estate tax. Many of such leaders say it should be 45 percent on estates worth more than $3.5 million. This could be their "bone," as discussed in yesterday's posting.

See: http://www.foxnews.com/politics/2010/12/15/tax-passes-senate-hits-hurdle-house/; http://www.smartmoney.com/personal-finance/taxes/tax-package-includes-favorable-estate-tax-changes-1292368597065/; and http://money.cnn.com/2010/12/15/news/economy/tax_deal_what_is_in_bill/.

--Attorney David M. Grant

The Built-in “Bone” of the Bill

2010-12-14T10:42:00.000-08:00

I’m going to go out on a limb and say that the estate tax rate will ultimately reset a little higher than 35% and the exemption amount will come in lower than $5 million. Seems like the $5 million and 35% are just too good to be true (now this is just my gut). Obviously I could be wrong, but my feeling is that Obama and the Senate built in a “bone” to throw at the House, so that when they reduce the bill’s exemption amount and raise its rate they will look like fighters to their constituents.

Take a look at the “tea leaves” quote from Fareed Zakaria in a recent CNN interview. He said, “I think, in the end, [Obama will] get through the broad outline of the deal that he's struck with the Republicans. I think that there will be some changes, but I don't think they'll affect the broad outline. At least that's my sense right now.” The CNN interview can be read in full at http://bit.ly/gwupHz.

--Attorney David M. Grant

The Latest on Estate Tax Legislation

2010-12-13T04:59:00.000-08:00

The State Column: “Rep. Chris Van Hollen: Tax compromise will pass, Estate Tax may not” – See http://bit.ly/fGxwUO

The Hill: “Van Hollen: Tax deal will come to floor, but estate tax is sticking point for Dems” – See http://bit.ly/g4eYqs

The Washington Times: “Democrats not pleased with deal on estate taxes” – See http://bit.ly/gZ5d1P

The Wall Street Journal: “The State of the Estate Tax: At Long Last, It Appears That Washington Has Agreed on New Estate-Tax Rules. Here's What You Need to Know” – See http://on.wsj.com/fTcxli

Forbes: “Weak Estate Tax Could Derail Tax Deal” – See http://bit.ly/gh0v6I

Mr. Reid Makes a Move (along with Mr. McConnell) on the Estate Tax

2010-12-10T16:41:00.000-08:00

Just yesterday, our Senator from Nevada (who also happens to be the Senate Majority Leader), introduced legislation to extend the Bush Tax Cuts through 2012. The bill submitted by Mr. Reid, along with Senate Minority Leader Mitch McConnell, would provide, among other tax changes, the following:

The proposal would reunify the gift and estate tax exemptions at $5 million per person or $10 million per couple;

It would also set a $5 million generation-skipping transfer (GST) tax exemption going forward and zero percent rate for 2010;

The bill would decrease the top transfer tax rate to 35% for estate, gift and GST taxes beginning 2011;

While the proposed bill would be effective January 1, 2010, it would allow for an election to choose no estate tax and modified carryover basis for estates arising in 2010;

It would allow for portability of any unused exemption to a surviving spouse, based upon the election of the deceased spouse’s executor; and

It also appears to leave unchanged the laws relating to Grantor Retained Annuity Trusts and Valuation Discounting.

--Attorney David M. Grant

The Federal Estate Tax - How Much Does it Mean?

2010-12-09T10:07:00.000-08:00

This week, especially, there is a lot of discussion about taxes in general. Part of the discussion for the “Bush tax cuts” is the Estate and Gift Tax and the changes in rates and lifetime exemption amounts that have occurred since 2001. Although Estate taxes are exciting to the attorneys at our firm, and they have a daily impact on the planning that we do, there is an argument that the Estate Tax is not all that important. (That argument hurts our feelings).

Whether that argument advances the side pushing for reduction or total repeal, or whether that strengthens the argument for regression and reduction of the exemption amount to 2001 levels is not my place to say. However, it is interesting to see how much (or how little) of a benefit the Federal Government does receive from the Estate and Gift tax program.

Federal Receipts for 2001 under the Estate and Gift Tax program resulted in $28.4 Billion.* (I look at 2001 because it was a year prior to effective changes to the Estate Tax). That number sounds large; extremely large. Until compared to the total receipts under the Individual Income Tax, Corporate Income Tax, Employment Tax, etc. The Estate Tax produced only 1.43% of the Treasury’s receipts for 2001. With the decrease in Estate tax rates and increase in lifetime exclusion amounts, this figure was reduced to $23.4 Billion, and 1.11% of the Federal receipts.

In conclusion, whatever the result is this week with the debate on taxes, and despite the publicity afforded the Estate Tax; it is interesting to see that it is actually a very small player in income received by our government.

* This figure, and the figures used to generate the chart below come from p. 66 of the Presentation prepared by the Staff of the Joint Committee on Taxation and was presented to the Senate Committee on Finance on December 2, 2010. http://finance.senate.gov/imo/media/doc/120210tbtest.pdf

- Attorney Jason Walker

Another Estate Tax News Flash

2010-12-07T08:14:00.000-08:00

It was reported this morning by Tara Siegel Bernard of the New York Times that President Obama and Republican leaders have struck a deal that “would ultimately set an exemption of $5 million per person and a maximum tax rate on estates of 35 percent — a higher exemption and far lower rate than many Democrats wanted.”

While we are hopeful that this deal might have “legs”, whether democratic congressional leaders will accept President Obama’s bargaining is really another question.

See the New York Times article here: http://bucks.blogs.nytimes.com/2010/12/07/what-the-tax-deal-means-for-you/?scp=1&sq=35%%20tax&st=cse

--Attorney David M. Grant

Recent Bill May Provide Insight on Future of Transfer Tax Law

2010-12-06T08:25:00.000-08:00

Although the recent amendment to H.R. 4853 appears to be dead on arrival in the Senate, this bill, as introduced by Montana Senator Max Baucus on December 2, 2010, did provide some insight as to where transfer tax laws might end up. Following is a quick summary of the bill’s points:

Use of 2009 Rates & Exemptions. The bill would have reinstated the 2009 estate, gift and GST tax law, with an estate exemption of $3.5 million, indexed for inflation beginning in 2011. The top estate, gift and GST tax rate would have been 45%.

Unification of Exemptions. The estate tax and gift tax exemptions would have become unified at $3.5 million, beginning in 2011.

Portability Would have been Available. The bill would have allowed the executor of a deceased spouse’s estate to transfer any unused estate tax exemption to the decedent’s surviving spouse.

Special 2010 Dispensation for GST Transfers. GST transfers made in 2010 (before the date of the bill’s introduction) would have been taxed at a zero GST tax rate.

Farmland Deferral. Estate tax payments on farmland would have been deferrable until such farmland was sold or transferred outside the family, or until it was no longer used for farming purposes.

Changes to GRAT Law. This bill would have provided that (1) GRATs would have a required minimum ten-year term; (2) that the annuity amount could not decrease in any year; and (3) that the remainder interest would need to have a value greater than zero as determined at the time of the transfer to the GRAT.

--Attorney David M. Grant

Creditors of a Trust or Estate: Who To Pay

2010-11-18T13:00:00.000-08:00

Unfortunately in this time of economic turmoil, the assets of a Trust or an Estate, such as real estate, deeds of trust, stocks and bonds, can significantly decrease in value from the time the Trust was established or the Last Will and Testament was executed and the date of death. Accordingly, an all too often problem in this day and age facing the Successor Trustee or the Personal Representative is which creditors of the Decedent to pay? In the event the Trust or Estate ultimately does not have sufficient assets to pay all of the creditors, a Successor Trustee or a Personal Representative could be held personally liable for failing to pay a creditor and/or improperly paying a creditor.

Under Nevada law, the debts and charges of a Trust or Estate are ranked in order of priority for payment. For example, the highest priority for payment is the trust or estate administrative expenses, followed next by funeral expenses, then followed by last illness expenses and so on. One must be careful to strictly follow this statutory order of priority if there is a chance there will not be sufficient funds to pay all creditors. If a Successor Trustee or a Personal Representative pays a lower priority creditor and then does not have enough funds to pay a higher priority creditor, the Successor Trustee or a Personal Representative will have to personally pay the higher priority creditor and then attempt to seek reimbursement from the lower priority creditor who was paid.

A related problem is what to do if, after proper payment of some creditors, there are not enough funds left to pay all of the members of the next priority class. An example of this would be to pay all administrative expenses and funeral expenses in full, but then not have enough funds to pay all of the expenses related to the decedent’s last illness. In this situation, the last-illness creditors should be paid on a pro-rata basis.

At the Jeffrey Burr law office, our attorneys have many years of experience guiding Trustees and Personal Representatives in properly carrying out their administrative duties, such as dealing with creditor claims and the proper payment of such claims.

- Attorney John Mugan

December 2010 AFRs Announced

2010-11-18T06:26:00.000-08:00

Mid- and short-term rates continue to fall, long-term rates increase. For the month of December 2010 the Applicable Federal Rates (AFRs) are as follows:

Furthermore, in December the 7520 rate will drop to 1.8%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-29.pdf.

The Return of Estate Tax Planning

2010-11-03T11:53:00.000-07:00

For the past 10 years we have seen the estate tax exemption increase from $600,000 to $675,000, then to $1,000,000, then to $1.5 million, then $2 million, then $3.5 million in 2009 and finally in 2010, the one-year repeal of all estate taxes.

Over the last thirty years we have seen many changes in the estate and gift tax. In the 1990’s, with the upward climb in the stock market and real estate values, and with the estate tax exemption frozen at $600,000, we saw the growth of many estates far outstrip the exemption. For married couples, the A-B trust planning technique, which required at the first death between spouses that the joint estate be divided between the survivor’s trust and the exemption trust (the exemption trust also known as the “B” trust, or as the unified credit trust) would allow avoidance of estate taxes on a full $1.2 million at the second death. But if the estate exceeded the $1.2 million, there was the looming prospect of the heirs paying upwards of 55% tax on the estate in excess of the $1.2 million exemption.

In response to this concern about estate taxes, many people utilized family limited partnerships to put a cap on the growth in their estates. Taking advantage of the annual gift tax exclusion of $10,000 per donor, per donee (i.e. if there were two parents and three children, then the total number of exclusions was six, three for each parent, and even more if parents wanted to make gifts to children’s spouse or to their grandchildren) but not wishing to actually give money to these people, parents would create the family partnership, fund it with a parcel of real estate (or other types of assets) and then give children, grandchildren and even sons- and daughters-in-law shares of the family partnership. The result was that Mom and Dad’s estate was reduced by the value of the gifts of shares in the family partnership transferred to the heirs while allowing Mom and Dad to maintain control of the family wealth.

The IRS fought this planning technique but the IRS attacks were generally rebuffed by the courts as long as certain formalities in the formation and administration of the partnership were followed.

Due to the increase in the estate tax exemption in 2007 to $2 million per individual (hence $4 million for husband and wife using an A-B trust) and increasing to $3.5 million per person in 2009, the need for estate tax planning was curtailed except for those persons having what most of us would consider to be significant wealth (i.e. more than $7 million for a married couple).

But here we are now with the prospect that the estate tax exemption will drop back to $1 million per person in 2011. There is always talk of legislation which would increase the exemption beyond the $1 million, but for now, prospects do not seem especially good for any such increase. So with the drop in the exemption back to $1 million, many people who thought their heirs would be free from paying the estate tax are once again facing the likelihood of a significant portion of their estates being taken by this confiscatory tax.

If you, the reader, feel that paying taxes is your civic duty, and if you believe the government will make better use of your estate than will your heirs or charities, then there is no point in trying to plan around this tax. But if it bothers you that you have spent your entire life paying taxes and are concerned that what you have worked a lifetime to acquire and save is once again at risk of confiscation by a government which seems to have no limits on its ability to consume and redistribute, then maybe it is time to start thinking about estate tax planning the way it was done back in the 1990’s. If so, you might want to give us a call. If you are not concerned, then we thank you in advance for your contribution to the public weal.

- Attorney Mark L. Dodds

November 2010 AFRs Announced

2010-10-19T12:19:00.000-07:00

Going lower...yet again. For the month of November 2010 the Applicable Federal Rates (AFRs) are as follows:

Interestingly enough, even though the short-term rates have again fallen, in November the 7520 rate will remain unchanged at 2.0% and the long-term rates will bump up, ever so slightly. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-26.pdf.

Short Sale vs. Foreclosure - Taxation Issues

2010-10-11T09:59:00.000-07:00

In the wake of the real estate market meltdown, homeowners are often left singed with unexpected tax consequences from a foreclosure or short sale. Here are a few issues you may want to address if you, like many others, are left with a home that is “upside down” and are trying to determine your best course of action.

Tax treatment of foreclosures and deeds in lieu of foreclosure.

Foreclosure is the legal process whereby a lender obtains a court-ordered termination of a delinquent borrower’s interest in the borrower’s mortgaged property by forcing the sale of that property. The property is sold under the court’s supervision, with the proceeds going first to satisfy the mortgage, then other lien holders, then the borrower. In the current economic climate, of course, the fair market value of the property is likely to be lower than the amount borrowed to purchase that property. In that case, the proceeds are still applied first to the mortgage; however, an amount remains due on the loan. Depending on the type of promissory note signed by the borrower, the lender may have an action against the debtor personally for the balance.

If the debt is only secured by the real property, the debtor is not personally liable for the deficiency between the principal amount of the mortgage and the fair market value or sales price of the property, and the debt is referred to as a “non-recourse” debt. If the debt is "recourse," the debtor is personally liable for the debt above and beyond the value of the real property securing the debt. In Nevada, most mortgages in the residential context are recourse, and debtors are personally liable for any unpaid loan amounts on their mortgages after a foreclosure sale.

The tax treatment of a foreclosure also differs based on whether the debt is non-recourse or recourse. When a foreclosure (or deed in lieu of foreclosure) takes place in the recourse loan context, the debt is satisfied up to the fair market value of the property, and the transaction is treated as a sale. If the lender forgives the balance of the mortgage, the IRS treats the amount forgiven as ordinary income, which is reported to the borrower on “Form 1099-C Cancellation of Debt,” which must be reported as income on the borrower’s income tax return in the year of forgiveness. Hence the borrower is left homeless and may be taxed for the forgiveness of the debt above the fair market value of the house. There are certain exceptions that may apply, and you should consult with your tax advisor with the specifics of your situation.

When a nonrecourse mortgage is foreclosed, the property is treated as being sold for the balance of the mortgage regardless of whether the sale price equals or exceeds the amount borrowed. The balance of the loan above the fair market value of the home is not treated as income to the borrower; thus, the borrower is not taxed on any type of “forgiveness of debt income.”

Taxation of short sales.

A “short sale” is similar to a foreclosure in that the sale proceeds fall short of the balance owed on the property’s loan. It differs from a foreclosure because, in a short sale, both the lender and the borrower agree to sell the property at a loss in order to avoid foreclosure.

In a recourse debt scenario, even if the bank agrees to a short sale of your residence, the debt is not necessarily cancelled. Therefore, any debt not satisfied with the sale proceeds would be taxable as cancellation of debt income similar to the foreclosure situation above, with a few exceptions. For non-recourse debt, the seller and buyer can require the lender to cancel the debt as a condition of the short sale. In that case, the debt cancellation is included in the sale proceeds; therefore, it is not taxable as income to the seller.

A short sale can be a viable alternative to a foreclosure for debtors with nonrecourse debt and who qualify for certain exclusions. Be aware, however, that the lender has up to 6 years in the short sale context to try to recover a deficiency from the borrower compared to only 6 months in a foreclosure.

- Attorney Robert Morris

Gifting in 2010 - A Potential $13,462 Trap!

2010-10-06T15:08:00.000-07:00

We’re already in the fourth quarter of 2010. For me that means gift planning time!

I know, I know, all tax and financial planning professionals already know the drill. Donors can make their $13,000 annual exclusion gifts, and additionally can even gift up to an aggregate amount of $1,000,000 during their lifetimes through the exemption amount of the unified credit. Simple, right? It may not be as simple as you think, at least in 2010, the year that all things strange come out to haunt in the realm of transfer tax law.

While most planners are aware that the gift tax rate has been reduced to 35% in 2010 and that the largest possible exemption equivalent of the unified credit remains at $1,000,000, many do not understand that the unified credit amount may effectively decrease from $345,800 to $330,800. This potential decrease in the unified credit amount may occur because gift tax rates on gifts over $500,000 exceeded 35% for periods prior to 2010.

Because of this change, any taxpayer who has made gifts prior to 2010 of more than $500,000 but less than $1,000,000, may find that some of their unified credit has been lost due to the change in rates. For such individuals, the exemption equivalent may now be as low as $961,538, producing a potential additional gift tax of up to $13,462 for the unwary. With all that said, the issue may not yet be on the “radar” of the IRS, so we are not really sure if our interpretation will be applied or if the Service might provide some relief for this possible trap.

Remember, there is a difference between the “unified credit” and the “exemption equivalent of the unified credit amount.” The devil is surely in the details, so stay tuned. Happy Halloween!

- Attorney David M. Grant

To File or Not to File: Is it Necessary to File a Federal Estate Tax Return This Year?

2010-09-23T08:25:00.000-07:00

We are now nine months into 2010 and many of the same questions facing estate planners and their client earlier this year in January are still unanswered.

Will we see estate tax legislation prior to 2011 preventing a return to a pre-EGTRRA tax regime?

Will that legislation affect the current estate tax environment and provide for the retroactive installment of an estate tax?

How do I handle this carryover basis business?

What federal estate tax form should be filed for persons dying during 2010?

Thus, with these and other unanswered quizzical queries floating around the estate tax world, what’s an estate planner to say at the next neighborhood BBQ when his/her clients, tax preparing colleagues, and/or the throngs of interested parties and neighborhood children are almost certain to ask if a 706 needs to be filed during 2010? Unfortunately, as far as we can tell, these and many similar questions are no closer to being answered today than they were at the beginning of the year. And with a pivotal election season on the horizon, it’s unlikely we’ll see any resolution on the estate tax front before November. That being said, there are some hints of guidance and forthcoming information in the area of estate tax return compliance which we are wont to share with you, our readers, as expressed below:

First, Internal Revenue Code Section 6075 addresses the time for filing an estate tax return. Section 6075 states that those required to file estate tax returns are required to do so by the due date on which the final federal income tax return the decedent would have filed, i.e. April 15, 2011. At this point, you might be saying, “That’s great! But, on what form do I report the pertinent information, and how do I file it, seeing as how there is no IRS Form 706, United States Estate (and Generation- Skipping Transfer ) Tax Return for 2010 available?” To which I would reply, “See my second point below.”

Second, the word on the street is that the IRS will not be releasing a traditional Form 706 for 2010. Rather, the Service will be providing a new type of return meant to address the carryover basis provision of the 2010 estate tax law as well as the accompanying allocation of stepped-up basis allowances ($1.3 million to anyone and $3 million going to a spouse or QTIP-like trust) feature. Apparently the new return will require that within 30 days of its due date, each person receiving property as part of the administration of the trust/estate is to receive the basis information being reported on the return. Additional information from the IRS supports the rumor that the death of the 706 for 2010 is not exaggerated seeing as how an attorney for the IRS (Patrick Leahy) publicly stated that it is not necessary to file a Form 706 this year and that if one is filed, it will be returned to the party that filed the form. Consequently, in an estate tax world of many uncertainties, at least three things are quite certain: (1) The IRS will provide a mechanism to report the allocation of stepped-up basis on inherited assets for 2010; (2) the tracking of this basis will likely be the bane of many a CPA’s existence for years to come; and (3) whatever you do, don’t file a Form 706 for 2010.

Third, if new estate tax legislation is not put in place in the near future, the estate tax regime formerly known as a “55% rate and a $1 million exemption”s will be making an encore appearance come 2011. In the event of such an occurrence, rest assured, one more thing is relatively certain: enough federal estate tax returns will be filed for deaths taking place in 2011 to more than make up for the dearth of such filings this year.

Fourth, plan accordingly.

- Attorney Jeremy Cooper

October 2010 AFRs Announced

2010-09-20T12:09:00.000-07:00

Lower...yet again...for the month of October 2010 the Applicable Federal Rates (AFRs) are as follows:

For this same period, the Section 7520 Rate will be 2.0%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-24.pdf.

The Value of Retaining an Experienced Tax Professional

2010-09-14T14:18:00.000-07:00

An interesting case recently was reported concerning valuation of assets within a corporation upon a person’s death and the estate tax deduction applicable to the taxes which the heirs will ultimately pay upon the sale of those assets.

Here’s the problem: When a person dies with a corporation which has assets, e.g. real estate, equipment, etc., that are worth more than the depreciated basis, if those assets are sold, there will be a big capital gain or ordinary income tax to pay. So even though you may inherit assets worth $100,000, if the subsequent tax on sale of those assets will be $25,000, and if there is nothing you can do to avoid that tax on sale, you are really getting something less than $100,000 because of this built-in tax.

A federal court recently ruled that the estate would receive a dollar-for-dollar estate tax deduction for each dollar of tax related to the built-in gain which the heirs would have to pay if the properties were sold. The IRS, as one might imagine, opposed this deduction, but the judge held for the taxpayer in granting a substantial estate tax deduction because of this built-in gains tax. There were numerous legal theories discussed by the judge in his opinion, which are beyond the scope of this blog at this time. The important thing to take from this is that there are many creative techniques available to estates if you obtain competent counsel who are aware of these opportunities. We often see people who choose to “go it alone” in their tax filings, and yes, they are probably saving some money up front, but it is likely they will never know how much they gave up on the back end by not taking advantage of the opportunities which an experienced tax professional can provide.

- Attorney Mark L. Dodds

Grant Named to List of "Legal Elite"

2010-09-09T16:23:00.000-07:00

The Nevada Business Magazine named Attorney David M. Grant its list of the 2010 Legal Elite. The “Legal Elite” represent the top attorney’s in Nevada as selected by their peers. Out of the 10,360 licensed attorneys in Nevada, 125 are honored as this year’s top attorneys. Through the same balloting process David was also named as one of the “20 Best Up & Coming Attorneys” in Nevada. To see the full article and list please visit http://www.nbj.com/issue/0910/1/2287.

Mr. Grant is a Partner as well as the Director of Legal Services at Jeffrey Burr, LTD. In addition to handling the estate planning needs for some of Nevada’s wealthiest families, Mr. Grant also regularly speaks and writes on the topics of trusts and estates, federal tax law, and asset preservation. He graduated from Southern Utah University (B.S., Accounting, Magna Cum Laude), the University of Utah (Master of Accountancy), and the University of Houston (J.D.). Before attending law school, he worked for the international accounting firm of Deloitte & Touche. Mr. Grant serves as Chairman of the Roundtable Committee for the State Bar of Nevada Probate & Trust Section and sits on the boards of the Southpac Offshore Planning Institute, the Nevada State College Foundation, the Southern Utah University School of Business National Advisory Council, the Henderson Community Foundation, the Vegas PBS Planned Giving Council, and the Gift Planning Advisors.

Congratulations, David, on this honor!

- The Jeffrey Burr Blog Team

Danger to Trustee: Potential Challenge to Validity of Trust

2010-09-02T09:47:00.000-07:00

Most people in this day and age establish a revocable trust during their lifetime that becomes irrevocable upon their death. When the Trustor dies, beneficiaries of the Trust, of course, want to receive their share of the Trust as soon as possible after the death occurs. However, the Trustee obviously does not want to distribute the assets of the Trust to the beneficiaries per the terms of the Trust agreement only to then face subsequent litigation contesting the validity of the Trust agreement. What, if anything, can a Trustee do if the Trustee anticipates that someone may contest the validity of the trust?

Nevada law, namely NRS 164.044, furnishes one solution. Under this Nevada statute, the Trustee may provide written notice to any beneficiary of the Trust, to any heir of the Trustor, or to any other interested person within 90 days after the Trust becomes irrevocable (the date of death of the Trustor). The recipient of the notice must bring an action to contest the validity of the Trust within 120 days of the notice being served upon him or her. If the recipient fails to bring an action within such 120 day period, they are barred from doing so later on. Accordingly, once the 120 day period passes without the commencement of litigation, the Trustee can feel relatively safe in making the Trust distributions and not facing subsequent litigation.

A Trustee should also always require a beneficiary to sign a written Receipt and Release in which the beneficiary acknowledges receipt of all property that he, she or it is entitled to under the Trust and the beneficiary releases the Trustee from any and all liability as Trustee. This signed Receipt and Release should be obtained prior to, or contemporaneous with, the Trust distribution to the beneficiary. A Trustee does not want to make a Trust distribution to a beneficiary only to have the beneficiary use the distribution to hire an attorney and initiate litigation against the Trustee and the Trust.

At Jeffrey Burr, our attorneys have many years of experience assisting Trustees in the administration of a Trust after the death of a Trustor and protecting them from the potential pitfalls in serving as a Trustee.

- Attorney John Mugan

Zero-tax Planning

2010-08-26T15:27:00.000-07:00

I find myself very fortunate to have worked on some very exciting and complex estate plans. We have great clients with complicated estates, and for a tax-geek like me, it is a lot of fun to be able to put in place complicated trusts and engage in interesting family transactions. This week, I was able to pull myself away from tax geek stuff in order to spend a few personal minutes surfing the internet (during lunch, of course). Many of you may have seen that it was discovered this week from tax records that the late Johnny Carson (late-night comedy show host and predecessor to Jay Leno) had transferred more than $150 Million to a private Foundation bearing his name. (CNN/Money) Two weeks ago there was an announcement that several billionaires in the U.S. had joined Bill Gates and Warren Buffett in pledging to give away a significant portion of their estates to charity. (The "giving pledge" list - AP News) Despite books, treatises, articles, and seminars providing instructions and examples of intriguing and sexy methods to reduce a taxable estate, there is actually a very easy way for a wealthy person to pass away with a zero-tax estate. The key ingredient is charity.

We have had clients choose this method for their final planning. Here’s how it typically works: the client selects a moderate sum to pass to their children or loved ones. (Last year for a married couple this could be up to $7 Million without paying tax). Then, the rest of the estate is directed to pass to charity. The charity can be a private family foundation, allowing the children, family members, or friends to become involved in family philanthropy after the parents’ death (Such as Johnny Carson and Bill Gates). Or, the charity could be an outside organization, such as a church, school, or welfare organization, etc. The result: zero estate tax. Fascinatingly easy.

-Attorney Jason Walker

Planning Opportunities Still Available for 2010

2010-08-24T12:57:00.000-07:00

Here we are, into the second half of 2010, and still no legislation dealing with the estate and gift tax. As most of our readers know, the Bush tax cuts of 2001 provided for a full repeal of the estate tax, but only for the year 2010. Back in 2001 it was assumed that Congress would act before 2010 to do something other than 1) allow the estate tax to actually be repealed for 2010 and 2) allow the old law prior to 2001 to come back into effect in 2011, with the estate exemption dropping back from $3.5 million in 2009 to $1.0 million in 2011. As the days of 2010 wind down, the chances seem to be increasing that the above unexpected scenario will actually play out, with some estates winning the timing lottery due to a 2010 death, resulting in no estate tax, versus the “losers” (yes, it may be crass to put it that way) who don’t die until 2011 or thereafter and who are faced with a much smaller estate tax exemption and, hence, a bigger estate tax.

One good reason why Congress may not be too concerned about the estate tax repeal for just one year is the fact that repeal eliminated the basis step-up which has accompanied inheritances for many years. Thus, while in prior years there was a large estate tax bill, at least the heirs received a tax basis in their inherited assets equal to the value of the property on the decedent’s date of death, thereby avoiding the capital gain taxes associated with the difference between the deceased taxpayer’s cost basis and the date of death value. Except for an exemption of $1.3 million of capital gain for all estates, and another $3 million of exemption of capital gain for assets passing to a spouse, the rest of the estate will carry over the decedent’s tax basis, which will ultimately lead to more capital gains down the road.

So is there anything you can do to take advantage of 2010, short of dying before year end? If you are single and your estate is under $1 million, or if you are married and your estate with your spouse is under $2 million, and you are not expecting a big increase in the value of your estate over the next few years, then you should probably sit tight and do nothing. But if you are in a position where you have more than sufficient resources to see yourself through to the end of your days, it may be worthwhile to take advantage of the reduced gift taxes for gifts completed in 2010. The reason for this is that, although there is no estate tax, there is still a gift tax, but the top gift tax rate is only 35%. Comparing the gift tax with the estate tax, next year the estate tax will once again have a top rate of 55%. So you think you are saving 20% by using the gift tax rate instead of the estate tax rate, which is pretty good. But the actual difference is even more because the estate tax rate is “tax inclusive” which means the estate tax is imposed on what passes to the heirs, including the portion of the estate used to pay the estate taxes, whereas with the gift tax, as long as you survive three years after making the gift, the gift tax rate is “tax exclusive” which means the gift tax paid is excluded from the estate, thereby reducing the future estate tax, meaning that you don’t pay tax on the tax, so to speak. Very simply, the effective top gift tax rate this year is only about 26% when compared with the top estate tax rate of 55%, which is a difference of a whopping 29%. Also, if you wait until 2011 to make the gift, the top gift tax rate goes back up to 55%. So gifts in 2010 are definitely worth thinking about if you have the resources to part with some of your estate.

At Jeffrey Burr, for twenty-five years we have been helping clients structure their gifts in ways to maximize the gifting and to also allow our clients to retain a significant amount of control over the assets gifted. If you feel you should not let this opportunity to transfer wealth at a lower tax rate pass you by this year, give us a call to see how our various gift planning techniques might be incorporated into your future plans.

- Attorney Mark L. Dodds

September 2010 AFRs Announced

2010-08-19T09:11:00.000-07:00

The rates just keep falling...for the month of September 2010 the Applicable Federal Rates (AFRs) are as follows:

For this same period, the Section 7520 Rate will be 2.4%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-20.pdf.

The Win-Win Trust: Nevada Codifies Unitrust Conversion

2010-08-11T07:33:00.000-07:00

Nevada Revised Statutes 164 was amended last year to allow for a trustee of an income trust to convert such a trust into a unitrust. A unitrust is a type of trust that allows for a trustee to distribute a percentage of total trust assets as opposed to all of the income. The advantage of a unitrust is that occasionally current income beneficiaries and remainder principal beneficiaries will be different individuals or entities. As such, the dichotomy of beneficiary classes can result in competing interests over how the assets should be invested: current income versus long-term growth. For instance, it is not farfetched to assume that each class would prefer that the assets be invested in a manner that will maximize their return, which isn’t always possible.

For example, income beneficiaries likely want the trustee to invest in more aggressive assets that may maximize income but put underlying principal at risk. On the other hand, the remainder principal beneficiaries will typically prefer a more conservative asset mix invested for growth to maximize their return; but, this form of investment typically results in a lower income yield. By allowing the trustee to distribute a share of the total assets regardless of income earned or principal growth, the trustee can invest the assets in a way that benefits both classes. Moreover, a unitrust arrangement provides for a reduced degree of scrutiny from the previously competing interest beneficiaries, thus, making it easier for a trustee to make investment decisions.

Special attention should be paid to NRS 164.797-799 to ensure that the proper legal formalities are adhered to in converting an income trust to a unitrust. For instance, if trust agreement strictly prohibits such a conversion, it is not allowed. On the other hand, if the trust instrument is silent on the matter, conversion is allowed. Both beneficiaries and trustees are able to initiate the process of conversion. Thus, given the new language codified in NRS 164, it may be appropriate to review your or your clients’ trust documents to determine whether conversion to a unitrust is appropriate. However, keep in mind that if a conversion is done that doesn’t resolve beneficiary discord, NRS 164 also allows for a unitrust to be reconverted back into a non-unitrust trust (NRS 164.799).

- Attorney Jeremy Cooper

Defense of Marriage Act Held Unconstitutional in Massachusetts Federal District Court

2010-08-04T08:53:00.000-07:00

Two Federal District Court cases held the Defense Of Marriage Act (hereinafter referred to as “DOMA” or the “Act”) to be unconstitutional. One found it violated the Fifth Amendment’s due process clause (Gill v. Office of Personal Management), and the other held that it violated both the Tenth Amendment and the Constitution’s spending clause (Massachusetts v. U.S. Department of Health and Human Services).

Enacted by Congress in 1996, DOMA keeps the Federal Government from recognizing same-sex marriages. The Act defines the word “marriage” to only mean the “legal union between one man and one woman as husband and wife.” The effect of this law is to deny all federal marriage benefits to same-sex couples, even to those same-sex couples who have been married under the laws of a jurisdiction where same-sex marriage is valid. Currently, the states of Connecticut, Iowa, New Hampshire, and Vermont, as well as the Commonwealth of Massachusetts and the District of Columbia have held such marriages to be legal. Several foreign countries also legally recognize marriage between same-sex individuals, including, but not limited to, Argentina, Canada, the Netherlands, South Africa, and Spain.

In the Gill case, the court held that DOMA violated the Fifth Amendment’s equal protection doctrine as set forth in its due process clause, because it denied federal rights and benefits to plaintiffs (who were federal government employees) to which they were entitled, based on their federal employment. These rights included health and Social Security benefits, as well as the right to file joint federal income tax returns. In the Massachusetts case, the court held that the Act violates the Tenth Amendment, by forcing the plaintiff (the Commonwealth of Massachusetts) to engage in discrimination against its own citizens.

On Summary judgment, the same judge decided both cases in favor of the plaintiffs on July 8, 2010. If appealed, the case must be filed with the First Circuit Court of Appeals by September 6, 2010. Obviously, the losing parties there will petition the United States Supreme Court for review.

If DOMA is ultimately held to be unconstitutional, the federal tax and estate planning implications for same-sex couples will be very interesting. Such implications might include the following:

- Joint Tax Returns. Will married same-sex couples be able to file joint returns? Striking down DOMA may not conclusively allow for joint filing since Internal Revenue Code Section 6013(a) specifically states that a “husband and wife” may file joint returns, rather than allowing for “spouses” to file. It should also be noted that the filing of joint returns does not always result in a lower tax, bearing in mind the marriage “penalty” that is sometimes paid by couples were both spouses earn approximately equal incomes.

- Estate and Gift Tax Marital Deduction. Section 2056(a) makes the marital deduction available for transfers passing from a “decedent to his surviving spouse.” This would seem to include transfers between federally recognized same-sex spouses. Gift splitting would also seem to apply.

- Retroactivity. Will the ruling be retroactive, allowing for the filing of amended returns? If so, income tax refund claims should be made for all prior years. Refunds might also be sought for gift tax paid on transfers between same-sex spouses where the unlimited marital deduction was not available. Divorced couples might also consider filing for a refund for years in which they were married. Executors of estates where the decedent was party to a same-sex marriage might also consider filing for a refund.

- Application to Civil Unions. If the Act is struck down, might registered domestic partnerships, like what we have here in Nevada, also be afforded marriage-type rights in tax planning? If so, how would our community property laws be applied? Might the IRS be required to boost basis for community-like property having passed from a deceased same-sex partner? While much of this discussion focuses on unlikely scenarios, it is provided to illustrate the complexity created by a retroactive law being broadly applied to legally recognized same-sex relationships.

- Attorney David Grant

The Importance of Testamentary Capacity

2010-08-02T10:28:00.000-07:00

Under Nevada law, N.R.S. 133.020, “every person of sound mind, over the age of 18 years, may, by last will, dispose of all his or her estate.” The creation or amendment of a Will or other testamentary document involves mental and emotional decisions that oftentimes affect the people nearest to the testator, including family members and friends. To prevent the unfortunate consequences of testamentary decisions based on mentally-impaired reasoning, the law requires that a testator have a “sound mind” or sufficient “testamentary capacity” when making such important choices. A testator, at the time of executing a Will or testamentary document, must understand the nature and extent of his property, understand who the natural objects of his bounty are, and comprehend the consequences of his actions and the disposition of his property according to a mentally formed plan. If a testator’s mental capacity is disproved in court after the time of execution of a testamentary document, the court may invalidate the document entirely or just certain provisions in the case of amendments.

When a testator makes a decision regarding his Will, such as to disinherit a family member, oftentimes the disinherited person will try to prove in court the testator lacked testamentary capacity. In fact, one of the most common legal challenges to the validity of a testamentary document, such as a Will, is an attempt to prove the testator did not have a sound mind when he made testamentary decisions. Accordingly, a testator who wishes to create or amend a Will or other testamentary document should always consult a knowledgeable estate planning attorney, and in appropriate situations may consider undergoing a psychological evaluation contemporaneously with the execution of the testamentary document(s). By undergoing such an evaluation at the time of execution, a testator establishes his mental capacity before it comes under attack. While this precautionary step may seem unnecessary and discomforting, the money and time a testator or his inheritors may save in future legal contests may make it worthwhile. Also, a testator’s knowledge and peace of mind that nobody will be able to displace his wishes regarding the future of his estate is extremely important.

- Attorney Robert Morris

Preventive Medicine - No Contest Clauses

2010-07-21T09:11:00.000-07:00

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

August 2010 AFRs Announced

2010-07-19T13:19:00.000-07:00

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.

Another Estate Tax (Homerun) Victory

2010-07-15T15:38:00.000-07:00

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

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

2010-07-07T12:53:00.000-07:00

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

2010-07-07T10:44:00.000-07:00

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

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

2010-06-30T11:56:00.000-07:00

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.

- Attorney Jeremy Cooper

Can I Be Buried on My Own Property?

2010-06-29T07:19:00.000-07:00

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

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

2010-06-23T11:46:00.000-07:00

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.

Distributions to Beneficiaries - Show Me the Money!

2010-06-22T08:30:00.000-07:00

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.

- Attorney John Mugan

July AFRs Announced

2010-06-17T12:02:00.001-07:00

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

2010-06-17T07:43:00.000-07:00

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/.

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

2010-06-15T10:20:00.000-07:00

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.

Estate Tax Exemptions: Past, Present, and Future

2010-06-07T10:39:00.000-07:00

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

Follow-up to Personal Relationship Contracts: United Asset Protection

2010-06-03T16:00:00.000-07:00

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

Personal Relationship Contracts: Prenuptial, Postnuptial and Cohabitation Agreements

2010-05-26T05:56:00.001-07:00

If you are getting married, already married, or just living with your significant other, you might consider making an agreement with your partner to clearly define your rights with respect to your separate and jointly-held property. Each of these personal relationship contracts can be briefly explained as follows:

The Prenup. A prenuptial agreement, or premarital agreement as it is sometimes called, is a contract entered into prior to marriage by those people intending to marry each other. The provisions of this contract may vary widely, but commonly include terms for how property will be divided and how spousal support will be handled in the event of divorce or separation. Prenups should be completed and signed by both parties with ample time before the wedding. If signed at the last minute, one party could later make the argument that they entered into the agreement because of undue influence or in a state of duress. Moreover, each party should be represented by his or her own separate attorney to avoid the later argument that unbalanced or unfair bargaining took place. In every case, a prenup must fully disclose the assets, liabilities, and incomes of each party. Leaving such financial information out could potentially invalidate the entire agreement. Full disclosure is the best policy.

The Postnup. Postnuptial agreements, or separate property agreements, are written contracts entered into by and between husband and wife after they are married. Like a prenup, a postnup establishes how a married couple’s assets and affairs will be settled in the event of a separation or divorce. Without a prenup or a postnup, state statues will determine the nature of a couple’s property: whether it is community property, jointly-owned, or separate property. As with a prenup, both spouses should be represented by their own attorney when entering into a postnup.

The Cohab. A cohabitation agreement is a legal agreement between partners who are unmarried and have chosen to live together and desire to protect themselves from the needless cost of litigation should their relationship break down. Although such parties do not develop community or marital property rights as a married couple would, a cohab can assist in sorting out complex contractual rights which may develop as related to jointly purchased property, debts, etc. Such an agreement is intended to bind both parties such that when the relationship ends, the procedure for splitting-up is understood. Again, it is highly recommended that each party have their own separate legal counsel.

-Attorney David M. Grant

Synopsis on Nevada Lawyer Article: Nevada Law Provides Top Trust Situs

2010-05-20T08:48:00.000-07:00

David Grant and I recently co-authored an article on the state of Nevada being one of the most favorable jurisdictions for establishing a trust in the May issue of the Nevada Lawyer (Nevada Laws Provide Top Trust Situs). The article focuses on the recent attention Nevada has been receiving on a national level as a top tier situs for estate planning and asset protection. Nevada has always been a pioneer in the areas of progressive trust jurisprudence and asset protection, but recent legislative amendments to its trust laws have solidified Nevada’s place as a jurisdiction of choice in these areas.

While David and I strongly encourage you to visit the link above and read our article, the following is a high-level summary of the items it touches on:

• Nevada’s lengthy time period applicable to its Rule Against Perpetuities law (365 years). The duration of this time period allows individuals and families to dramatically increase their wealth over successive generations by shielding it from estate and generation skipping transfer tax.

• Virtual Representation laws that make it easier for unascertainable beneficiaries (e.g., unborn children) to have their interests represented in the context of trust administration.

• Codification of a Trust Protector Statute, Trust Protectors are sometimes called Trust Consultants.

• Statutes that now allow Decanting Provisions in Nevada trusts. Decanting provisions make it possible to transfer assets of one irrevocable trust to another provided there is no substantial change in beneficial interests.

• Updates to Nevada’s Domestic Asset Protection Trust statute which indicate further validation by the state of this instrument. Updates include provisions allowing settlors to serve as trustees and adviser protection language.

• No state income, estate, gift or inheritance taxes.

• A summary of Nevada’s favorable Charging Order laws and State Exemptions (e.g., $550,000 homestead exemption).

The article provides a good overview of these areas without going into too much detail. As practitioners in the area of estate planning, we felt it important to point out the many favorable aspects of forming a trust in Nevada and the efforts the state legislature is making to keep Nevada competitive with other trust-friendly states like Alaska and Delaware. The comprehensiveness of the most recent legislative changes make it seem likely that Nevada will continue to be a pioneer with respect to trust law and asset protection and remain at the forefront of these areas.

-Attorney Jeremy Cooper

June AFRs Announced

2010-05-20T07:11:00.000-07:00

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

For this same period, the Section 7520 Rate will be 3.2%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-15.pdf.

Jeffrey Burr Summer CPE Series Starts Tomorrow

2010-05-19T09:51:00.001-07:00

Jeffrey Burr will be hosting a series of interactive CPE lectures and providing lunch this summer starting tomorrow. Feel free to attend and invite colleagues. See invitation for details (Please note that the date for the June session is incorrect, it should be Thursday, June 10).

Important Post-Mortem Elections to Consider

2010-05-12T11:55:00.000-07:00

During the administration of a decedent’s estate / trust there are several tax compliance issues and post-mortem elections that a personal representative and /or successor trustee should be aware of in the exercise of his/her fiduciary duties and to insure the efficient administration of the decedent’s affairs.

The personal representative of the estate will not only have to file a final individual income tax return but may also need to file an annual fiduciary income tax return until the estate/trust is fully administered. As has been mentioned previously on this blog, the final resolution of the estate tax for 2010 is uncertain; however, if no action is taken by Congress in 2010, come 2011 the estate tax not only returns in all of its splendor and glory, it will cast a broader net capable of catching any estate with a gross value of over $1,000,000.

There are several elections that can be made to defer the payment of estate tax in appropriate situations, to treat the estate and trust as one taxpayer, to elect to take deductions on an estate tax return or income tax return and so on.

There are also elections that a surviving spouse, intestate heir, or will or trust beneficiary may chose to make to preserve a homestead, provide for a family allowance, or disclaim an expected inheritance.

It is important that these options are discussed by the fiduciary of the estate with the beneficiaries. If you have been named as a fiduciary of a decedent’s estate or have priority to serve as an administrator of an intestate estate we would encourage you to contact our office to inquire about a free consultation.

-Attorney Robert Morris

Short-term Guardian for Minor Children

2010-05-10T10:15:00.000-07:00

Are you sending the kids to camp this summer?

Do you have plans for a vacation without the children?

Do not forget to provide the necessary paperwork for the temporary caregivers to be able to make decisions for the child. An example of when this guardianship might be helpful is if the child was to get sick or injured while in the care of the guardian – this would enable the guardian to make decisions for the minor’s care. Hospitals or Doctors might otherwise hesitate to provide the services until they first make contact with the parent. In extreme circumstances, such a delay could be costly.

Nevada Revised Statutes Section 159.205 allows the child’s parents or parent to appoint a temporary guardian of the child. This does not require court approval but must be in writing and the parent’s signature must be notarized. The maximum term for this type of guardianship is six (6) months.

Protecting Your IRA

2010-05-06T13:37:00.000-07:00

With the downturn in the economy, it is hardly surprising that creditors are getting more aggressive and creative in their efforts to reach the assets of debtors. There have been several cases recently which resulted in creditors successfully seizing a beneficiary’s interest in an inherited IRA.

To give the reader some perspective, assets held in an IRA which originated with the owner (i.e. the owner of the IRA who actually made the initial contributions) are universally protected under the laws of the 50 states. The amount which is protected varies from state to state, but protection exists, nevertheless. Nevada makes $500,000 of an IRA owner’s accounts exempt from attachment by creditors. It may be helpful to note that ERISA retirement plans, such as 401(k)’s, 403(b)’s, qualified plans, etc. should have unlimited protection. Therefore, anyone considering rolling such a qualified plan into an IRA should think about the possible exposure which could occur when rolling a fully‐protected plan into an IRA with limited rotection.

As long as the IRA is $500,000 or less, the IRA owner’s creditors will not have a claim against the IRA and there is no requirement that the required minimum distribution be paid to the creditor. Therefore, if the IRA owner is careful, even after reaching age 70 ½, the distributions can be received and creditors will not be able to reach the distributions.

When an IRA owner dies, and the remaining IRA passes to a beneficiary, the beneficiary can usually opt to take the IRA as an “inherited IRA”, which allows the new beneficiary to obtain continuing tax deferral on the IRA, with minimum distributions not required until the end of the first year following the death of the IRA owner (and the first year minimum distribution may actually be deferred until April 15th of the following year). In two recent cases it was held that an inherited IRA does not receive protection from the creditors of the beneficiary of the inherited IRA. These cases were a surprise to many attorneys who practice in the asset protection area of the law; nevertheless, they must be recognized and dealt with. (On a positive note, one recent case did hold that an inherited IRA is protected.) The point is, that in the current environment, one cannot be certain of the protection which a court may grant to an inherited IRA.

There is a fairly simple method to avoid a bad result and that is to make your trust the eneficiary of your IRA and then allow the trustee to accumulate required annual distributions and make distributions in the trustee’s discretion. With this approach, a creditor would be blocked from getting at the IRA because of the trust holding the IRA, as well as the accumulated distributions. The trustee can still make distributions, and because there is no duty on the part of the trustee to inform the creditor that a trust distribution will be made, the funds can be distributed out to the beneficiary with minimal risk of the creditor seizing them. Care must be taken in drafting the trust which will be the IRA beneficiary to ensure that maximum tax deferral of distributions will be achievable. If you are concerned about your beneficiaries losing the IRA they will inherit from you, it may be wise to give us a call to explore some solutions to these potential pitfalls.

‐‐Attorney Mark L. Dodds

Testamentary Capacity: Is the Ability to Make a Will Based on Age?

2010-05-03T10:42:00.000-07:00

The average life expectancy in Colonial America was under twenty-five (25) years in the colony of Virginia, and in all of New England about forty percent (40%) of children failed to reach adulthood. During the Industrial Revolution, the life expectancy of children increased dramatically. In the twentieth (20th) century, the average lifespan in the United States increased by more than thirty (30) years, of which twenty–five (25) years can be attributed to advances in public health. The average life expectancy for an individual born in the United States in 2008 is seventy-seven and a half (77½) years to eighty (80) years. The oldest confirmed recorded age for any human is one hundred twenty-two (122) years, though some people are reported to have lived longer. With people living longer and longer, does there come a point when a person cannot make a Trust or Last Will and Testament due to his or her age?

Most people find it surprising that less legal capacity is required to make a Trust/Will than to transact ordinary business. The ability to make a Trust and Last Will and Testament is called "testamentary capacity." In Nevada, a person must be eighteen (18) years of age and of “sound mind” at the time he or she makes a Trust or Last Will and Testament. NRS 133.020. “Sound mind” means the person must understand the nature of the act of executing the Trust/Will, understand the nature and extent of his or her property, know the natural objects of his or her bounty (spouse, children, et cetera), and the nature of the disposition. This does not mean that a person must know exactly or in great detail the nature and extent of his or her property; he or she must only generally know the same. Nor does this mean that the person has to leave part or all of the property to his spouse or children as his natural objects of bounty; he must only know that such spouse and children exist.

Accordingly, the ability or inability to make a Trust/Will is not determined by age, and there is not a certain age above which a person cannot make a Trust/Will. The basic requirement is that the person making the Trust/Will has the requisite testamentary capacity at the time of the making of such Trust/Will. In fact, a person of many years can have the requisite testamentary capacity to make a Trust/Will, while a person of far less years may not. Further, the inability to make a Trust/Will is not synonymous with illiteracy, deafness, illness, blindness, physical or mental weakness, the taking of pain medication, eccentricity or even Alzheimer's disease as long as testamentary capacity is present at the time of the making of the Trust/Will.

At the law firm of Jeffrey Burr, we have many years of experience in assisting clients in their estate plans through the drafting and execution of their Trusts/Wills. As part of this service, we go to great lengths to determine and document the testamentary capacity of the client to ensure that his or her expressed desires and wishes are carried out at the client’s demise. In this regard, we have experience in not only defending the validity of Trusts/Wills where testamentary capacity was present, but also in challenging and setting aside Trusts/Wills where the person lacked the necessary testamentary capacity, was unduly influenced, et cetera.

-Attorney John R. Mugan

Special Needs and Preventative Planning

2010-04-28T12:47:00.000-07:00

I recently attended a Special Needs Planning conference in which some of the industry’s best and brightest gathered to discuss the latest in this important area of law. Special Needs Planning deals with, among other things, planning for individuals who, whether by birth or some other incident (injury or illness), are mentally, physically, or emotionally disabled. Because of the occupational limitations these kinds of disabilities typically place on such individuals, the government has provided various types of means‐tested benefits that are available to aid in sustaining the disabled.

Programs like Supplemental Security Income and Medicaid are examples of common means‐tested government benefits; however, in order to qualify for these programs one must meet the government proscribed limitations on the amount of income and assets a potential recipient can posses without forfeiting one’s right to such assistance. Consequently, as an estate planner, it is not uncommon to be faced with the obstacle of drafting a trust in such a way that would allow potential beneficiaries to receive an inheritance from his/her parents without risking disqualification from continued receipt of means‐tested governmental benefits. Fortunately, Federal laws allow for the formation of certain types of trusts that can be established for the disabled individual’s benefit without disqualifying said individual from a means‐tested governmental benefits program.

The three types of trusts typically used in Special Needs Planning are: Third Party Special Needs Trusts, d(4)(A) Special Needs Trusts, and d(4)(C) Special Needs Trusts. As should be expected, each of these trust has different features to be considered in determining the appropriate fit for a given client. For example, the Third Party Trust is generally an ideal vehicle for Special Needs Planning as it can be set up by anyone other than the disabled individual and does not require that any assets be paid back to the government at the disabled individual’s death as a reimbursement for benefits received. On the other hand, d(4)(A) and d(4)(C) trusts have what is referred to as a “Medicaid Payback Provision” which requires the use of remaining trust assets for governmental reimbursement at the disabled individual’s death. As noted above, all of these trusts allow for receipt of an inheritance and continued governmental assistance.

While this post is meant to be a simple overview of Special Needs Planning trusts, it is also intended to alert individuals to the importance of incorporating the appropriate language in their family trusts so that it will be possible for successor trustees to be able to form such trusts in the event any of them is ever necessary. Furthermore, appropriate planning beyond the realm of estate planning should be taken to provide for unexpected injuries or illnesses that may lead to forced retirement from one’s job or increased medical costs/treatments due to a disability. In other words, regardless of what our new Health Care laws end up providing for those rendered disabled and unable to work, disability insurance is just one example of an attractive option one could employ as a supplement to any assistance the government is willing to provide. In short, proactively planning for the unexpected is likely to provide maximum flexibility and increased autonomy in dealing with career‐ending disabilities.

-Attorney Jeremy Cooper

Jeff Burr to Address the Nevada Society of CPAs

2010-04-22T08:23:00.000-07:00

Attorney Jeffrey Burr will be addressing the Nevada Society of CPAs today during the group's monthly luncheon. Jeff will be addressing the current state of estate tax law, timely tax-efficient wealth transfer strategies, and recent changes to Nevada's asset protection laws. The luncheon begins at noon and will be held at Lawry's the Prime Rib.

May AFRs Announced

2010-04-19T17:45:00.000-07:00

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

For this same period, the Section 7520 Rate will be 3.4%. To go directly to the IRS' publication, please visit the following website: http://www.irs.gov/pub/irs-drop/rr-10-12.pdf.

The Big Fish

2010-04-14T08:32:00.000-07:00

Central on the mind of estate planners around the country is the status of the federal estate tax. Firms around the country, including our own, have made changes to clients’ plans to take into consideration the possibility that if a client with an otherwise taxable estate were to pass away during 2010 prior to Congress making a change to the tax law, we would be able to effect a plan wherein the entire estate passes free of federal estate tax. On the Jeffrey Burr Blog we have made a coordinated effort not to bore our readers with too frequent discussion of this topic.

Well, the big one has occurred. According to The Trust Advisor Blog1 “Houston gas pipeline mogul Dan Duncan was the 74th richest person in the world when he died on March 28 [2010]. If he’d passed away three months earlier or ten months later, his $9 billion estate could have generated up to $4 billion for the IRS. But because there’s no federal estate tax this year, the government gets nothing.”

The blog also points out that Mr. Duncan’s death may present a “tempting opportunity for a revenue-strapped Congress to follow through on threats to reinstate the tax for 2010 and possibly make it retroactive to the beginning of the year.” This is certainly plausible with such a generous reward awaiting the Treasury.

On the other hand, and the article quote above also raises this point, with this “big fish” out there, there is also significant incentive for a presumably well-equipped legal team on behalf of the estate of Mr. Duncan to fight against retroactive passing of federal estate tax legislation. Even if the Duncan family has to spend tens of millions to fight a retroactive tax law, they will still be miles further ahead than if Mr. Duncan had passed away during a time that the federal estate tax law was in place and the Treasury could claim approximately $4 billion in estate tax revenue.

1 Billionaire’s Heirs First to Win 2010 Estate Tax Jackpot; posted by Scott Martin in News on April 10, 2010 on http://thetrustadvisor.com/

-Attorney Jason Walker

Estate Plans Come in All Sizes

2010-04-12T15:12:00.000-07:00

Many times people will tell me they don’t need to prepare estate planning documents because they don’t have an “estate.” My response is simply, “you don’t have to have a significant amount of assets to need an estate plan.” Take a moment to ask yourself the questions below to see if you need to consider putting together an estate plan or updating an outdated estate plan:

Do you have current estate planning documents?

1. A Revocable trust that properly addresses changes in familial relationships, financial status, and changes in the law, e.g. the recent appeal of the estate tax.

2. A properly executed pour over will if you have a trust or a simple will if you don’t have sufficient assets to justify a trust. Even if you don’t own a significant amount of assets, having a properly executed will in place can assure that what assets you do have are distributed according to your wishes.

3. Medical directives and powers of attorney specific to your jurisdiction. These documents are especially important and really have nothing to do with the amount of assets you own.

4. Nomination of a guardian for self, estate, and minor children. Again, these nominations have nothing to do with the size of your estate, but have everything to do with properly providing the appropriate individuals to take care of you or your children in the event you are unable to do so yourself.

Are you a business owner?

5. Are you operating as a sole proprietorship? If so, are you properly insured (life and disability) and protected from frivolous liability? Are you performing the legal formalities necessary to achieve limited liability in the event you are operating via a limited liability company (LLC) or limited partnership (LP)? Do you have a contingency plan in place that provides for the management or distribution of business assets in the event of your death or incapacitation? Operating a business through a legal entity has tremendous advantages; however, one must make sure that the entity is maintained properly or such an entity may not provide the expected benefits when the time comes (i.e. do not comingle personal and business assets, have an operating agreement in place, maintain adequate insurance).

6. Do you have partners? If you have partners, it is highly recommended that an operating agreement be in place and that a properly funded buy‐sell agreement accompany the operating agreement. These documents should address liquidation rights, rights to first refusal in the event one partner sells his/her interest in the entity, succession planning, etc.

Are you concerned about asset protection and special needs planning?

7. Do you have a developmentally disabled spouse, parent, child, grandchild or has there been a recent death in the family? It may be important to form a Special Needs Trust to allow a disabled loved one to be able to receive an inheritance from you without hindering his/her chances of receiving governmental assistance. It may also be important to protect yourself from potential creditors of your loved one by putting the proper legal entities in place to hold assets.

8. Do you have any of the following: Children from a prior marriage; a spouse with children from a prior marriage; step children; concerns about children’s spouses; plans of marriage on the horizon.

All of these issues may affect the current estate plan you have and place and should be examined on a case-by-case basis. As you can see, some of these issues have nothing to do with the amount of assets you own or the size of your estate. Everyone should take the time to at least ask themselves: Who will take care of my kids or me, and how, in the event I am not able to care for myself? Asking such a questions may help you realize the importance of putting in place
an estate plan that is specifically tailored just for your needs.

-Attorney Robert Morris

Two More FLP Cases: Taxpayers Prevail Both Times

2010-04-08T08:33:00.000-07:00

While litigation never ceases in the family limited partnership (“FLP”) area of tax law it is exciting to report on two recent taxpayer victories.

First Victory—Estate of Samuel P. Black, (TC, Dec. 2009). In this case, the decedent set up an FLP—Black, LP—and then transferred stock in a corporation (“Erie”), which was also his employer, to the FLP. His philosophy of investment was explained by the court to be one of “buy and hold,” particularly with respect to the Erie stock. Because he purchased the Erie stock at every opportunity, by the 1960s, he was the second largest shareholder.

Mr. Black had gifted stock to his son and to trusts established for his grandchildren. He became concerned that his son might default on a bank loan and that his son’s marriage was heading toward divorce. These factors could cause his son to have to sell some of his Erie stock. He was also concerned that the Erie stock would be distributed to his grandchildren from the trusts and that they might then also sell some of stock. Mr. Black was told that if he established an FLP which included as limited partners his son and his grandchildren’s trusts, he could better keep the Erie stock from being sold without his consent. In 1993 the FLP was formed and Mr. Black was the general partner until 1998, at which time his son became managing general partner of the FLP. Throughout the years, Mr. Black made several gifts of interests in the FLP to his son, to his grandchildren, to the trusts established for the grandchildren, and to a charity. When Mr. Black died in 2001, the FLP still held all of the original Erie stock.

When just five months after he had passed away Mr. Black’s wife died, a secondary public offering was made of the Erie stock wherein the FLP sold three million shares for $98 million, in order to pay estate taxes. The FLP then loaned $71 million to Mrs. Black’s estate to pay estate taxes. The Internal Revenue Service (“IRS”) asserted that the stock in Erie which Mr. Black had transferred to the FLP should be included in his gross estate under Section 2036 of the Internal Revenue Code (“IRC”). It is not clear whether Mr. Black retained any of the proscribed rights under Section 2036; however, the court addressed the bona fide sale exception first. In prior cases, the Tax Court has held that to meet the bona fide sale exception, the decedent must have had a legitimate and significant non‐tax reason for creating the family limited partnership. Under this analysis, the court held for the taxpayer stating that using the partnership to address Mr. Black’s concerns about the Erie stock being sold was such a legitimate non‐tax reason.

Second Victory

—Estate of Charlene B. Shurtz (TC, Feb. 2010). Mrs. Shurtz and many members of her extended family (remove the word “members” here) owned significant interests in a timberland holding. She, along with the other family members, were advised by an attorney that having so many owners made management of the timberland difficult and would make a future sale a burdensome and cumbersome event. In 1993 this led to the formation of a limited partnership—C.A. Barge Timberlands, L.P. Family members holding timber interests then contributed their respective interests to the limited partnership in exchange for partnership interests. The limited partnership had a corporate general partner of which Mrs. Shurtz was a one‐third owner.

In 1996, Mrs. Shurtz and her husband formed a family limited partnership—Doulos L.P. (the “FLP”)—for the apparent reason of protecting family assets from potential creditor claims. It appeared that Mrs. Shurtz believed the state where the timber was located was an especially litigious state. Mrs. Shurtz contributed her interest in C.A. Barge Timberlands, L.P. along with other separate timberland that she owned to Doulos L.P. She initially held a 1% general partnership interest and a 98% limited partnership interest in the FLP, while her husband held a 1% general partnership interest. Before passing away in 2002, over the course of several years she made many gifts of small interests in FLP to her children and to trusts established for her grandchildren.

At the time of her death she held a 1% general partnership interest and an 87.6% interest as a limited partner. Even though her estate plan was set up utilize her exemption amount and the marital deduction in such a way that no tax should have been due upon her death, the IRS took the position that the assets she had transferred to the FLP should be included in her estate under IRC Section 2036.

The court accepted the estate’s argument that FLP was formed to protect family assets from litigation claims and to facilitate management, thereby finding that her transfers fell within the bona fide sale exception to Section 2036 of the IRC. Therefore, the court was not required to consider whether she had retained any of the proscribed 2036 rights.

Estate of Samuel P. Black and Estate of Charlene B. Shurtz are both good examples of why it is important to emphasize the non‐tax reasons for entering into an FLP transaction in which ownership in the entity is being transferred from one generation to the next. Some courts are more lenient than others in what they are willing to except as legitimate nontax reasons, so it is best to have several potential reasons on hand. Also, choosing a non‐tax reason like asset protection may sound great for tax purposes, but could become problematic from an asset protection standpoint if a transfer to an entity is ever challenged and it looks like asset protection was the sole reason for its creation as it may be difficult to argue that said transfer was not made to hinder, delay, or defraud creditors. Alternative suggested non‐tax reasons for transferring ownership of an entity could be: to consolidate control of family owned assets, ease of management and transfer of ownership, facilitation of financing, etc. The bottom line is that each case needs to be addressed separately and legitimate non‐tax reasons specific to a given transaction need to be considered and documented or the client needs to understand the potential exposure he/she faces by not doing so.

‐Attorney David M. Grant