The question I am often asked is "do I really need a trust?" This is usually followed by a statement along the lines of "I have named beneficiaries to receive all of my accounts and the only other asset I own is my house." The short answer is: an estate of any size can benefit from a trust. Simply put, having a trust allows you to decide who will receive your assets, when they will receive your assets, and the manner in which your assets will be distributed to them.
Most people understand that a trust is preferable to a will in that a trust avoids probate. Of course, assets titled in joint tenancy and assets having a beneficiary designation will also avoid probate. Both of these techniques will result in a property automatically passing to the surviving beneficiary without probate. If, however, your joint tenant and/or designated beneficiary should predecease you, then any such property becomes subject to probate once again unless and until you take further action with respect to the ultimate disposition of the property.
A beneficiary, pay-on-death (POD) or transfer-on-death (TOD) designation will cause the timing of the distribution to occur upon an account owner’s death. Joint tenancy is also widely used as a tool to pass property upon a person’s death. The designation of joint tenancy, however, brings with it much more than simply being a gift upon death. Adding someone as a joint tenant to your property, gives that person present access to your property up to the whole thereof. For this reason, care should be taken in setting up joint tenancy unless you intend for your joint tenant to receive current rights in your property or you trust the person implicitly to carry out your wishes with respect to the disposition of such property both during your life and upon your death.
Assuming your joint tenant and/or named beneficiary survives you, the whole of the subject property will pass to such person upon your death. In other words, these probate avoidance techniques do not allow you to direct the timing or the manner of the distribution. For example, you cannot provide that the property be paid out to them over time or upon attaining certain ages, etc. In addition, should your joint tenant and/or designated beneficiary be a minor, he or she is unable to receive the property until someone takes steps to have a formal guardian of such minor appointed through the court.
If real property is indeed the only asset that is left for you to make provisions for upon your death, Nevada law allows for the execution and recordation of a deed upon death. While this may seem like a quick and easy solution to provide for the disposition of real property, it also carries with it certain drawbacks. The way the law is currently written, creditors reserve the right to assert claims against the property for 18 months following death. Consequently, a beneficiary of a deed upon death is realistically precluded from transferring or selling the property for a minimum of 18 months since title companies have been reluctant to insure title until after the creditor period has fully run.
While one or more probate avoidance techniques may be useful for certain assets in specific instances, there is simply no other estate planning technique that affords the same level of flexibility as a trust. A trust lets you determine the exact moment of when the desired gift will be made to the intended recipient. It allows you to give property outright or to maintain property in trust to be gifted out over time as you may direct. In the case where a beneficiary should predecease you, the trust can provide for any number of successive beneficiaries. It provides for orderly administration and distribution under the care of the person you appoint to act as your trustee. In short, a trust provides a canvas for you to design a plan to accomplish all of your estate planning objectives without the unintended consequences and/or pitfalls associated with other planning techniques. Thus, there is no real substitute for setting up a trust.
As an estate planning attorney, I often find it of interest to read about a celebrity’s estate plan. Celebrity estate plans can provide both good and poor examples of what should and should not be done by all of us. Recently, I came across an interesting article entitled “7 Estate Planning Lessons from Celebrities” which brought focus to this very topic. I would recommend reading it as the lessons provided are applicable to those with significantly less wealth than the celebrity examples found in the article. To bring focus to just two of the seven lessons provided in the article, I would like to focus on the estate plans of Philip Seymour Hoffman and Heath Ledger.
Philip Seymour Hoffman didn’t want his children to become “trust-fund kids.” However, it is reasonable to conclude that Hoffman had a desire that his children’s reasonable needs be met with his wealth. Against the advice of his attorneys, Hoffman’s estate plan was to leave his entire estate to his long-time girlfriend Mimi O’Donnell. It was Hoffman and O’Donnell’s mutual understanding that she would use his wealth to provide financially for the children, in her absolute discretion. This plan had two significant flaws. First, because Hoffman and O’Donnell were not married, the transfer of Hoffman’s estate to O’Donnell was taxable for estate tax purposes. Second, without proper instructions and guidelines as would typically be found in a trust agreement, there is no guarantee that O’Donnell will use Hoffman’s wealth in a manner that Hoffman would have approved of in relation to the upbringing of his children. Lesson to be learned from Hoffman’s estate plan is to not leave your estate to one person without proper guidelines and instruction in a legally enforceable document like a trust.
Although quite young at the time of his death, the 28 year-old actor Heath Ledger had a will when he died in 2008. Apparently, Ledger had drafted his will previous to the birth of Ledger’s daughter leaving his entire estate to his parents and sisters. Fortunately, Ledger’s family did the right thing by allowing the entire estate to pass to his daughter. The result of Ledger not taking the time to update his will after the birth of his child could have been ugly with the worst case scenario of Ledger’s daughter receiving nothing from her father’s estate. The lesson to be learned from Ledger’s estate is that as certain life events occur, a review and update of your estate plan should take place.
Tom Clancy, renowned author, died on October 1, 2013. Tom died with an estate worth approximately $83 million. Tom was survived by his wife, Alexandra Clancy, a daughter born to Tom and Alexandra and four adult children from Tom’s prior marriage.
When Tom died, he left a Last Will and Testament (“Will”) that governed the disposition of his probate assets. The Will provided that his probate estate is to be divided into thirds – one-third to his wife in trust (the “Marital Trust”), one-third to his wife and all of his children in trust (the “Family Trust”) and one-third to his children from his prior marriage in trust (the “Children’s Trust”).
Due to the size of Tom’s estate and his estate planning elections, Tom’s estate is required to pay a significant amount in estate taxes, apparently approximately $16 million. Tom’s personal representative (aka executor) allocated a portion of the taxes owed to Alexandra’s inheritance. Alexandra objected and claimed that based on a codicil that Tom executed, which amended the terms of his Will, Tom’s intent was that no portion of her inheritance would be responsible for the estate taxes. Rather, Alexandra claims the entire burden should be borne by the portion going to Tom’s four adult children from his prior marriage.
As a result of Alexandra’s claim, a dispute ensued between her and Tom’s adult children. On August 21, 2015, a Baltimore judge ruled in favor of Alexandra, a decision that is likely to cause a protracted legal battle.
This case provides a prime example to blended families of the importance of engaging in appropriate estate planning. Relationships can be finicky, especially relationships between a child and his or her step-father or step-mother. Estate planning should not be a straw that breaks the camel’s back and ruins that relationship. Not only that, disputes between children and their step-parents can erode the hard-earned estates of the deceased parent through legal fees, which could be avoided with appropriate planning.
If you have a blended family and do not have the appropriate estate planning in place, please contact our offices to further discuss your situation.
The main component of the estate plan for most people is a revocable living trust that they establish during their lifetime. When you create a revocable living trust, you can only plan for the present and for the near foreseeable future. However, an unanticipated change in circumstances in your life may necessitate the amending of your revocable living trust. Simple examples are when you wish to change the successor trustee or provide for a specific bequest to a new beneficiary or change the amount of a monetary bequest going to a beneficiary. In these situations, how do you amend the trust?
First of all, oral changes to a trust agreement will never be legally enforceable (i.e. trustor tells someone that his car should go to a child or grandchild.) The reason for the unenforceability of oral amendments is that once the trustor is deceased, he or she is not there to verify (or deny) the purported oral amendment. If this was not the rule, anyone could allege that the trustor orally changed the trust before he or she died, and there would be no way to prove or disprove this.
In order to determine how to properly amend your trust, the provisions of the revocable living trust agreement must be closely examined. The agreement will specifically state how the trust can be amended. Oftentimes the trust agreement will provide that any amendment to the trust must be in writing, dated, signed by the trustor and delivered to the trustee. It is essential that the terms of the trust regarding amendment be strictly adhered to. Even when amendments are made in writing, there can be problems. People will sometimes attempt to amend their trust by marking out some provision and handwriting something in its place. They may even date and initial the change. However, if the trust agreement requires that the amendment be signed by the trustor and it is not re-signed, the amendment fails to satisfy the amendment conditions as set forth in the trust agreement. This, of course, can have serious ramifications, including the possible failure of the trustor’s intentions being carried out once he or she has died. The successor trustee or an interested party could petition the court to take jurisdiction of the trust and determine what the intent of the now deceased trustor was. This seems to be a failure, however, since one of the main advantages of a revocable living trust is to avoid court involvement and the accompanying costs and fees. Also the court may construe the trust contrary to what the true intent of the deceased trustor really was.
Accordingly, it is best to always consult a qualified estate planning attorney such as those at the Law Offices of JEFFREY BURR to assist you in the proper amendment of your trust.
We all have heard the overused phrase that “we live in a litigious society.” For many of us, being a named defendant in a lawsuit is often an uneasy proposition. Even if a person believes that he or she is not at fault for another’s injuries, that person is relying on what many believe is an imperfect justice system to find the truth. In recent times, the area of law known as asset protection has become increasingly popular both as a practice for attorneys and as a solution for their clients. However, what many people do not fully understand is that they may own protected assets which did not require the assistance of an attorney in obtaining protection.
Many of these protected assets are contained within the Nevada Revised Statute (NRS) at Section 21. The following is just a partial list of such assets:
This list does not include cash accounts, business interests and assets, or investment property. In order to protect those assets, a person will need to seek the advice of an attorney to properly establish what we at JEFFREY BURR, LTD. call an “Integrated Estate Plan.” An Integrated Estate Plan not only provides asset protection for unprotected assets, but it will also provide solutions for avoiding probate and guardianship.
At JEFFREY BURR, LTD., we have the knowledge and experience necessary to assist our clients in creating an Integrated Estate Plan.
- Attorney A. Collins Hunsaker
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:
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
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:
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:
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
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.”
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 forcing 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.
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.
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