It is well established that an individual is entitled to direct the disposition of his or her property upon death in accordance with that individual’s own desires. With a few exceptions, there is no legal requirement that a person’s property be left to his or her heirs at law. Perhaps a person chooses to leave a portion of his or her estate to a friend or confidant, or even to a favorite charity. Often times, when a person determines to leave property to someone other than a family member, the estate planning attorney will take care to properly document the file to make clear that the person was making a conscious decision to leave his or her property in the manner set forth in the documents.
Generally speaking, estate planning documents such as trusts and wills are designed to reflect the wishes of the person or persons creating the documents. There are times, however, when we are contacted by a deceased person’s legal heir based upon concerns by the heir that the documents presented do not in fact represent the wishes of the person who has passed away. In these cases, it is important for the attorney to work with the concerned family members to gather all of the available information surrounding the preparation and execution of the estate planning documents by the deceased person.
In Nevada, there are basically two grounds to contest a trust or will. The first basis is lack of testamentary capacity; and the second one is undue influence. There are legal guidelines to help determine if a person had legal capacity to execute a trust or will. As a threshold matter, an individual must be of “sound mind” at the moment he or she signs the will. In addition, the person would need to know the extent of his or her property, as well as to whom such property would normally be expected to pass absent any estate planning. The person would also need to understand the legal implications of executing the trust or will. The test for undue influence, on the other hand, focuses on whether or not the person was acting freely or, rather, pursuant to the influence of one or more other persons. Undue influence occurs when the will of another person overrides the will of the person making the trust or will based upon factors such as coercion, duress and/or fraud.
When it appears that there are sufficient grounds to contest the making of a trust or will, an interested person has the option to file a trust or will contest with the court. Such contest proceedings are typically conducted similar to most civil cases, in that all parties will be given an opportunity to tell their side of the story and present evidence in support of their position. Witness testimony is common, and medical evidence often plays an important role in these types of proceedings.
Trust and will contest actions should not be taken lightly. It is important to thoroughly discuss the risks and benefits of bringing such an action with an attorney who is knowledgeable in handling these unique types of cases. There may be certain limitations on the time in which an action may be filed. Additionally, there are costs and expenses associated with any court proceeding. Moreover, there often exist “no contest” clauses in trusts and wills that will need to be carefully reviewed and considered prior to bringing a contest.
For the most part, the estate planning documents that a person leaves behind are truly reflective of his or her desires. There are, however, a handful of instances in which a trust or will contest is clearly warranted. When there do exist concerns regarding the validity of any estate planning document, we encourage you to review any such concerns with one of our qualified attorneys without delay to preserve and protect your rights going forward.
Many clients are under the impression that all estate planning documents made by a husband and wife are revoked upon a divorce. While Nevada law contains provision to ensure that an ex-spouse does not inherit under the will, estate planning documents created during the marriage are not automatically revoked. Estate planning documents can remain intact as to other beneficiaries named in the documents. As a result, a failure to change estate planning documents post divorce can have devastating consequences. In some unfortunate cases where documents are not changed prior to death, bequests can be unintentionally passed to a former spouse’s children or other relatives.
After a divorce, it is important to update estate planning documents to reflect changes in circumstances. Clients generally desire to change power of attorney agents and beneficiary distributions. If you have not updated your estate planning documents since your divorce, please call our office to set up a free consultation to discuss how you can update your estate plan.
In January and February of this year we blogged about the changes to the estate tax. We may have even used the term ”permanent” in our January post. Please forgive us. While it’s true that the estate tax laws that were passed on January 1, 2013, do not contain an expiration date or sunset provision, the changes in the law are permanent only as long as Congress and the President leave the law unchanged.
Last week the Obama administration unveiled its budget proposal, and once again the estate tax is in the crosshairs of uncertainty. President Obama’s proposed budget would decrease the estate tax exemption to $3.5 million starting in 2018 and would be indexed for inflation moving forward. Furthermore, the estate tax would be increased from today’s 40% rate to 45%.
In addition to the foregoing, there are other interesting proposals in the budget that would impact some of our estate planning techniques. Accordingly, we will be closely watching the proposed budget to see if any of the changes make their way into a legislative bill this coming year.
Attorney Jason Walker
As a result of last year’s rush to make substantial gifts before the gift and estate tax laws were set to change (which didn’t end up happening) our office is now faced with helping these same clients prepare and file their gift tax returns (Form 709). Some clients prefer to defer to their CPA for preparation of the return, while some clients and their CPA’s choose instead to have our office prepare the return. Since all of our firm’s estate planning attorneys have either a CPA designation, a master’s degree in tax, or a master of laws in tax (LLM) or some combination of these three, we are well-qualified to assist with the preparation of a gift tax return.
Gift tax returns must be filed on or before April 15 unless an individual extends his individual return which will cause an automatic extension of the filing date for the gif tax return. Of course, any actual gift tax due must be paid on or before April 15, regardless of extension. It is possible for a person to file his or her individual return on or before April 15 and extend their gift tax return by filing form 8892. The extension due date is October 15.
But who must file a gift tax return? For 2012, any gift in excess of $13,000 should be reported to the IRS on Form 709. For most people there will be no actual tax due since the lifetime gift tax exemption amount will “cover” any tax on gifts that do not exceed $5,120,000. For 2013 the numbers above change slightly to $14,000 and $5,250,000, respectively.
For most of the gifts that our office helped our clients achieve, we purposely applied “discounts” to the value of the gift. These discounts include discounts for lack of control and discounts for lack of marketability. There are other discounts that are statutory, such as the discounted gift value under a qualified personal residence trust (QPRT). But in either case, the gift tax return must be prepared and enough information disclosed to the IRS so that the IRS can easily understand the nature and amount of the discount. Unlike an individual Form 1040 which is often just the return itself that is filed; we may actually be providing hundreds of pages of information to the IRS if we are disclosing real property appraisal reports and/or a professional valuation of a business entity which would disclose the valuation discounts taken.
The moral of the story of today’s blog is to demonstrate that one should not try to file a Form 709 alone without professional assistance. Unless a gift is made outright and consists of cash, stock, or real property with an easily demonstrated value, a CPA or tax attorney should assist you with the preparation of your gift tax return. And even though the initial deadline is fast approaching, there is plenty of time to file for an extension, so please contact your CPA or our office if you will require assistance with a gift tax return for 2012.
Attorney Jason C. Walker
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