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.
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 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 inpiduals 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.
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 protection.
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 beneficiary 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.
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.
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