Legal remedies are judicial remedies that parties have by right as set out in law and statutes. These remedies are based on the law and statutes. A judge simply enforces the right as established by law.
In contrast to legal remedies, equitable remedies are remedies, usually non-monetary, which a court fashions when the judge believes existing legal remedies do not adequately redress the injury or situation. Equitable remedies were developed at the time of King Henry VII in order to provide more flexible responses to changing social conditions than possible in existing laws and statutes. Equitable remedies are based on concepts of fairness and equity as determined by the judge. Such a determination oftentimes is largely dependent on the judge's personal beliefs and attitudes.
The traditional role of a court is to interpret and enforce the Constitution and valid laws as written. The court was not to rewrite the law or impose the court's personal viewpoints regarding the law, but to take the law as written and apply it to the case as long as the law was not unconstitutional. Federal and state legislatures created the laws; courts interpreted and enforced them. Judicial activism is the belief that judges can and should creatively reinterpret the Constitution and laws to meet the vital needs of society when the federal and state branches of government and legislatures fail to do so. Again, this is based on the personal beliefs and viewpoints of the court as to what the vital needs of society are and how they should be met. Judicial rulings in cases of judicial activism are oftentimes based on the personal or political considerations of the judge rather than on existing law.
Unfortunately, the combination of a court having the right to fashion an equitable remedy and judicial activism can prove to be a potentially dangerous combination, especially in estate planning. A decedent does not want a judge to substitute what the judge personally believes is a fair living trust or will. For example, a decedent may have 4 adult children and leave his or her assets to the children equally; however, the trust provides that 3 of the children receive their shares immediately while the share of the 4th child remains in trust for the child's benefit. A judge may believe it is not "fair" that the 3 children receive their shares outright while the 4th child does not. Fortunately, there is a legal principle that the intent of the decedent as expressed in the complete trust agreement or will must be followed. Nonetheless, the combination of equitable remedies and judicial activism opens the door to judges inserting their personal beliefs and considerations into a myriad of cases.
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.
A highly regarded estate tax-savings tool utilized in estate planning is the Irrevocable Life Insurance Trust, commonly referred to as an “ILIT”.
Establishing an ILIT allows proceeds from a life insurance policy to escape estate taxes upon the death of the insured. Under the current income tax laws, proceeds from a life insurance policy are paid to the beneficiaries of the insurance policy entirely income tax free. For estate tax purposes, however, if you are the owner of a life insurance policy, the proceeds from that policy are included in your taxable estate on your death, and therefore become subject to the estate tax. For example, if you are single with estate assets (other than life insurance) valued at $5,000,000, and if the proceeds of a life insurance policy payable on your death amount to $2 million, the estate tax due is approximately $628,000.
With an ILIT, on the other hand, the $2 million policy is removed from your taxable estate because the policy is owned by the trust. Thus, in the above example, placing the policy in a properly drafted ILIT would completely eliminate any estate tax on your death, while freeing up the entire $2 million for your heirs. In combination with the favorable income tax laws, an ILIT can ensure that the proceeds from a life insurance policy escape both income and estate taxes. Additionally, contributions to an ILIT in the form of premium payments can also be made gift-tax free.
To enjoy those tax savings, it is imperative that you send the appropriate “Crummey” notice to the beneficiaries of your ILIT if required. “Crummey” notices are required any time you make a gift to your ILIT. In order to claim the gift tax annual exclusion (the amount that you are permitted to gift each year without incurring gift taxes) for gifts made to your ILIT, you must notify the ILIT beneficiaries of their right to withdraw such gift. Only by giving appropriate notice to these beneficiaries of their immediate right of withdrawal will you be able to claim the gift tax annual exclusion under the Internal Revenue Code. Otherwise, you may incur gift tax liability.
To give appropriate notice, you can send a letter to the beneficiaries of your ILIT with the following information:
In addition, to keep adequate records, you may also want to send a separate receipt of acknowledgment. Each beneficiary can sign and give it back to you, stating that they received the required notice of their right to withdraw. As previously mentioned, if these notices are not sent you may incur gift tax liability.
An ILIT is an excellent tool that can save you and your estate potentially hundreds of thousands of dollars in estate and gift taxes, if the proper formalities are strictly adhered to. If you have questions about whether an ILIT is right for you or if you have been properly preparing the requisite Crummey notices, contact one of our attorneys at (702) 433-4455.
The primary death tax concern in most estate planning situations is the federal estate tax. Generally speaking, federal estate tax is based on the dollar value of the trust-estate of the decedent, is due nine (9) months after the date of death, and is taxed at a forty percent (40%) tax bracket. The good news is that the federal estate tax equivalent exemption for deaths occurring in the 2015 calendar year is Five Million Four Hundred Thirty Thousand Dollars ($5,430,000.00). In other words, if the net taxable estate is Five Million Four Hundred Thirty Thousand Dollars ($5,430,000.00) or less, there is no federal estate tax. Also the federal estate tax equivalent exemption is indexed for inflation, so theoretically the amount of the exemption should increase each calendar year. Because of the large dollar amount of the exemption, federal estate tax is oftentimes not a major factor in the estate plan of many people.
However, there is a potential second death tax when a person dies. Some U. S. states levy their own death tax called an inheritance or estate tax. Currently six (6) states have an inheritance tax, fifteen (15) states have an estate tax, and two (2) states have both. Most eastern states have an inheritance or estate tax, while most western states, including Nevada, have no inheritance or estate tax. The two (2) western state exceptions are Washington and Oregon.
Unlike the federal estate tax, state inheritance tax is based on the amount a beneficiary inherits and the beneficiary’s relationship to the decedent. Also inheritance tax is usually the personal liability of the beneficiary. With inheritance tax, there are often different rates and different exemption amounts for spouses, children or siblings. State inheritance or estate tax rates are lower than the federal estate tax rate of forty percent (40%). The state with the highest maximum estate tax rate is Washington at twenty percent (20%) followed by eleven (11) states with a maximum rate of sixteen percent (16%). Nebraska has the highest maximum inheritance tax rate of eighteen percent (18%) followed by Kentucky and New Jersey at sixteen percent (16%).
What happens if the decedent dies a resident of the state of Nevada where there is no inheritance or estate tax, but the beneficiary is a resident of New York where there is estate tax? Which state law controls, Nevada or New York? With one exception, the state law of the residence of the decedent at the time of death, not the state law of the residence of the beneficiary, controls as to the applicability of state inheritance or estate tax. In the above example, Nevada law controls since it was the residence of the decedent at the time of death so there would be no state inheritance or estate tax. The one exception is real estate located in another state. In the above example if the decedent owned real estate in New York or some other state that has an inheritance or estate tax, the state law where the real estate is located would control at least as to that real estate.
In summary, although federal estate tax is oftentimes not a major estate planning consideration due to the amount of the federal estate tax exemption under current federal law, one must not overlook possible state inheritance or estate tax. This is particularly true if one owns real estate outside the state of Nevada.
Unlike the federal estate tax, state inheritance tax is based on the amount a beneficiary inherits and the beneficiary’s relationship to the decedent. Also inheritance tax is usually the personal liability of the beneficiary. With inheritance tax, there are often different rates and different exemption amounts for spouses, children or siblings. State inheritance or estate tax rates are lower than the federal estate tax rate of forty percent (40%). The state with the highest maximum estate tax rate is Washington at twenty percent (20%) followed by eleven (11) states with a maximum rate of sixteen percent (16%). Nebraska has the highest maximum inheritance tax rate of eighteen percent (18%) followed by Kentucky and New Jersey at sixteen percent (16%)
What happens if the decedent dies a resident of the state of Nevada where there is no inheritance or estate tax, but the beneficiary is a resident of New York where there is estate tax? Which state law controls, Nevada or New York? With one exception, the state law of the residence of the decedent at the time of death, not the state law of the residence of the beneficiary, controls as to the applicability of state inheritance or estate tax. In the above example, Nevada law controls since it was the residence of the decedent at the time of death so there would be no state inheritance or estate tax. The one exception is real estate located in another state. In the above example if the decedent owned real estate in New York or some other state that has an inheritance or estate tax, the state law where the real estate is located would control at least as to that real estate.
In summary, although federal estate tax is oftentimes not a major estate planning consideration due to the amount of the federal estate tax exemption under current federal law, one must not overlook possible state inheritance or estate tax. This is particularly true if one owns real estate outside the state of Nevada.
Friends and family often ask me if they really need an attorney to prepare the estate planning documents. There are many forms on the Internet or online services that offer do-it-yourself planning.
I admit, these forms are services are much cheaper than paying for an attorney…at least on the front end.
The problem with doing your own estate planning documents is that you lack the legal advice that comes with estate planning documents. This legal advice is an important part of your estate plan; it ties all the legal documents and assets together into an integral, working plan. If you make a mistake in your estate planning documents or in how your assets are held, those mistakes cannot be fixed once you are deceased.
I will admit that, as an attorney, I am biased in writing this post; however, as the attorney in the office that handles most of the probate cases, this year I have seen an increase in awful estate planning documents. Its only August and I have already seen a large number of invalid or incorrect wills, incorrect deeds and invalid trusts. I may be biased, but when mistakes are made, I end up fixing them on the back-end. These errors lead to very expensive probates and often times assets passing to unintended beneficiaries.
Here is a list of the top mistakes I have seen this year:
When a person has a serious illness, they go to a doctor. Everyone accepts that fact that you need medical advice (not from google) to make sure you get the proper medical treatment. Estate planning is similar, if you choose to do-it-yourself you may end up doing more harm than good. You need an attorney to draft proper documents, integrate assets into those documents and to make sure all the pieces fit together properly. Make sure your documents can speak for you when you can no longer speak for yourself.
Attorney – Corey J. Schmutz
Oftentimes the most treasured pieces of property in an estate are those items which you do not hold formal legal title to. Unlike a car or home where ownership is evidenced by a title or deed, there are typically no such records for family heirlooms such as china dishes, jewelry, photo albums or vinyl records signed by the Beach Boys.
When the owner of these personal property items dies, the items are generally given to the beneficiaries named in the owner’s will or trust. But oftentimes the items are given by way of general provisions. For example, a will may provide that half of a person’s entire estate will go to Son and the other half will go to Daughter. In that case, half of the personal property items will go to Son and half will go to Daughter. The executor ultimately decides how to allocate the personal property items between Son and Daughter ,which may cause a rift between Son and Daughter if they do not see eye to eye on who gets what. They may ultimately decide to go to court to resolve their dispute, which costs time and money. The person creating the will or trust could specifically designate which items of personal property will go to Son and which will go to Daughter to avoid this outcome; however, this can be difficult because people collect, lose, and gift personal property items to family and friends throughout their lives. Thus, what a person owns in terms of personal property is not static. Because of this, drafting a specific provision for each personal property item in a will or trust would likely be inefficient, as the document would need to be continually updated to reflect a current inventory and disposition of that inventory.
Fortunately, Nevada law does not require this kind of drafting and instead offers an alternative, which allows a will or trust to reference another document known as a "List Disposing of Tangible Personal Property". This list is legally binding and can govern the disposition of personal property items.
To be legally binding, the list must contain the following:
This list may be prepared before or after a will or trust is executed and it can be altered or amended at any time.
To take advantage of this statutory provision that allows for the disposition of tangible personal property by list contact one of our attorneys and we can help you to create a comprehensive estate plan where these most treasured items will be disposed of according to your wishes, thereby reducing the potential in-fighting among your beneficiaries.
The recent decision of the U.S. Supreme Court in Obergefell v. Hodges made clear that same-sex couples have the right to marry nationwide. In so holding, all states must formally recognize same-sex marriages that were legally entered into in other states. In addition, states cannot deny applications for marriage licenses for individuals of the same gender.
The ruling clarifies that same-sex married couples now have the same legal rights that are enjoyed by opposite-sex couples. It allows same-sex married couples to take advantage of estate planning techniques historically afforded only to husband and wife. At the same time, it also raises issues concerning the property rights and obligations of same-sex couples who have already been married for a number of years.
While marriage equality may now be universally recognized across the nation, state laws of descent and distribution are no substitute for creating a customized estate plan that clearly reflects one’s wishes. State laws often produce undesired or unintended results, especially in an area where legal rights have only just been pronounced and may apply retroactively. Good reasons apply equally to all persons to proactively plan for the orderly distribution of their estate in documents that will be legally respected in the event of death or incapacity.
Please contact us for a free 30-minute review of your estate plan to make sure it follows your wishes.
The main component of the estate plan for most people is a revocable living trust that they establish during their lifetime. The terms of the revocable living trust control the disposition of any asset titled in the name of the trust. Trust assets can include real estate, investment accounts, financial accounts, stocks and bonds, certificates of deposit, vehicles and other personal property. The revocable living trust can also be the joint owner of an asset, most commonly with an individual. When the individual dies, the revocable living trust becomes the sole owner of the asset and the asset is subject to the terms of the trust. The revocable living trust can also be the designated beneficiary of an asset such as a life insurance policy, a retirement plan and an annuity. The proceeds are payable to the trustee of the revocable living trust, and again the ultimate disposition of these proceeds are controlled by the terms of the trust. An asset can also contain a payable on death (POD) designation wherein the asset is payable to the trust upon the death of the owner. So why should one have a last will and testament if they have established and funded a revocable living trust?
Even when a person establishes a revocable living trust, unfortunately periodically one or more of the person’s assets such as a vehicle or a bank account or even real estate does not get properly re-titled into the revocable living trust for whatever reason. In this situation, when the trustor dies the vehicle or bank account or real estate is in the name of the deceased trustor alone and the disposition of the asset is controlled by the terms of the last will and testament of the decedent. Accordingly, even an estate plan that has a revocable living trust always includes a last will and testament. The will is oftentimes referred to as a “pourover will”, as it provides that any asset is “poured over” into the revocable living trust to be held in trust and disposed of pursuant to the terms and conditions of the revocable living trust.
In summary, one’s estate plan should always include a last will and testament even though the person has established a revocable living trust. Although the goal is to never have to use the last will and testament, it is a safety net, providing that an asset not properly titled in the name of the revocable living trust at the time of death shall pass to the trust to be disposed of pursuant to the terms and conditions of the revocable living trust.
If you have been keeping up on the reading of our newsletters, blog posts, and other mailers, you might have noticed that we have been urging our clients to review their current estate planning documents with their estate planning attorney. Undoubtedly, it is very likely that if your estate plan has not been updated prior to 2009, that updates to your existing plan are warranted. Either changes in the laws governing your estate planning documents or changes in your life or the lives of your beneficiaries’ are the catalyst for these necessary updates.
Many clients are surprised to learn that their current trust may be unnecessarily complex given some not-so-recent changes to the federal estate tax laws. Since 2011, a feature of the new estate tax laws is the concept of “portability” of the federal estate tax exemption between married couples. In simple terms, portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use of all of the deceased spouse’s federal exemption from estate taxes, then the amount of the exemption that was not used for the deceased spouse’s estate may be transferred to the surviving spouse’s exemption so that he or she can use the deceased spouse’s unused exemption plus his or her own exemption when the surviving spouse later dies. Even more simply stated, portability provides relief from the complex A-B trusts that were commonly drafted prior to 2011. Relief from the complex A-B trust structure means that your spouse will not have to be subject to onerous and unnecessary complexity that involves significant time and expense upon your death; but requires an update to your existing trust if it still contains the A-B trust provisions.
In 2009, laws at the state level were overhauled in the areas affecting your general durable power of attorney and health care power of attorney. Failure to update these documents may potentially cause unnecessary delay, during what can already be a very difficult time, while you are incapacitated.
It has been our experience in reviewing existing estate plans with our clients that certain life events have caused their plans to become ineffective or inconsistent with their present intents and desires. It is important that you take an inventory of your assets while checking title on these assets. If you have sold or refinanced your home or opened new financial accounts, then you may want to verify that title is held by your trust. It would also be prudent to verify the beneficiary designations on assets like life insurance policies and IRAs or other qualified accounts. The underlying purpose of these suggestions is to ensure that your estate does not become subject to probate upon your death.
In addition to a change in a client’s asset inventory, certain life events such as the death of a loved one, children reaching adulthood or the birth of grandchildren may cause you to reevaluate your existing estate plan and consider other updates. Lastly, there are a number of other important considerations that may cause you to strongly consider updating your existing plan. The following is a short list of such considerations:
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| A. Collins Hunsaker |
If it has been years since you have had your estate plan reviewed by your estate planning attorney or you have concerns that your existing plan may not be designed to meet your present intents and desires, we strongly encourage you to call our office to schedule a consultation for a review.
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