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.
In Clark County, Nevada, (where most of our clients live) it is very easy to obtain a copy of your recorded property deed. If our office helped you transfer your house into your trust, then you should have received a copy of your deed from us when the recording was complete. But many clients, including myself, have received "junk mail" soliciting to provide a copy of your deed for a processing fee. The mail is very official looking and convincingly informs the recipient of the reasons why you need a copy of your deed.
You do not need to fall for this solicitation. Hopefully you immediately realized that you already have a copy of your deed. But if you have misplaced your deed, it is not a tragedy. You don't have to have your original document to later sell the property. But the main reason that you can ignore this type of solicitation is that the Clark County Assessor's website allows you to view and print a copy of your deed for free! No charge! No processing fees at all.
To access the county records, visit the Assessor's website link here.
I have included a redacted copy of the solicitation letter that many clients have received.
If you have any questions or need assistance locating a copy of your deed, please contact our office.
As your life circumstances change through marriage, children, grandchildren, moving, divorce or other events, your estate plan should be reviewed and updated to reflect your current situation and wishes.
Many clients realize when their situation or circumstances change that the central part of their estate plan (typically a trust or a will) needs to be updated, but forget about the other documents they prepared as part of their comprehensive plan. Other such documents may include a Financial Power of Attorney, Health Care Power of Attorney and/or Directive to Physicians, often referred to as a “Living Will”. Oftentimes the same person is nominated to serve as, for example, the Successor Trustee and the Attorney in Fact under a Financial Power of Attorney. If a client changes their successor trustee because that person is no longer a good choice but forgets to also update their Power of Attorney designation, their intentions and wishes may be thwarted as the person they intended to completely remove from their plan is actually still an integral part of it. In addition to modifying the person or people nominated in a Financial or Health Care Power of Attorney, your wishes regarding end of life decisions might also change. Thus, one’s Directive to Physicians should also be revisited every few years to assure that those are still your wishes. These documents should also be periodically reviewed and updated to reflect changes in the law governing Powers of Attorney and Health Care Directives.
Below is a brief description of several of the ancillary documents that should be a part of your estate plan which ought to be periodically reviewed on a regular basis along with your will or trust to ensure your estate plan is current and reflects your intent.
In summary, please don’t forget to review these important documents on occasions when you feel that changes in life have impacted your estate plan.
When a spouse dies, it is important that the surviving spouse review his or her own estate plan and estate planning documents. In most situations, a married couple nominates his or her spouse to serve as their attorney-in-fact (agent) under their power of attorney for health care decisions and as their attorney-in-fact (agent) under their power of attorney for financial matters. Under these documents, the person nominated to make health care decisions and to handle the financial affairs for the surviving spouse is now deceased. Accordingly, it is essential that the surviving spouse review the powers of attorney to insure that there are alternate agents nominated to so serve.
Oftentimes the surviving spouse will desire to update the powers of attorney by making the alternate nominated party or parties under the existing powers of attorney now the primary nominated party or parties and adding new alternate nominated parties. This is also true for nominated successor trustees under the Trust agreement and for the nominated personal representatives under the Last Will and Testament of the surviving spouse. Again, the nominated successor trustee and the nominated personal representative is often the now deceased spouse.
Such a review is not limited to these estate planning documents. The surviving spouse should also review any insurance policies insuring the life of the surviving spouse as to designated beneficiaries. Again, the spouse, who is now deceased, is usually the designated beneficiary of the policy. The surviving spouse needs to be sure that there are alternate designated beneficiaries under the terms of the policy (a revocable trust is a good beneficiary for insurance policies). Unfortunately, if there is no living designated beneficiary at the time of the death of the surviving spouse, some policies provide that the proceeds are paid to the estate of the insured. This would in all likelihood result in the necessity of a probate of the estate of the surviving spouse, something we always try to help our clients avoid due to the costs and fees involved with a probate proceeding.
Additionally, if the surviving spouse has a retirement plan, the designated beneficiary provisions of the plan should be reviewed to make sure that there are alternate designated beneficiaries other than the deceased spouse.
When putting together our estate planning, it is natural for us to plan for our descendants and other persons whom we wish to be benefitted by our legacy. We may also want to include provisions for certain charitable organizations that are meaningful to us. Our population is changing such that estate planning considerations are also expanding to less traditional classes of beneficiaries, such as aging parents and family pets. The older generations are living longer, and people are finding themselves caring for an aging parent, relative or friend. Persons in care-giving roles may want to think about including their aging parents in their estate plans to ensure there is no disruption in their parents' ongoing care and/or diminution in their parents’ quality of life. In addition, some pet owners go to great lengths to provide a high level of care for their pets. To them, it is important to make arrangements for the continued care of their pets should their pets outlive them. For the owner’s peace of mind and the security of the pet, an estate plan may include a reasonable monetary bequest to a caregiver who could in turn use the funds to care for the pet.
Last November, Attorney John Mugan wrote a blog titled “Income Tax Basis Adjustment of Trust Assets at Death of Trustor”. I would suggest one reads this blog to gain an understanding as to how income tax can largely be avoided at the time of death applying the long standing Internal Revenue Code rule more commonly referred to as the “step-up” basis rule.
It is rumored that President Obama would like Congress to reexamine this rule. In a New York Times article (“Obama Will Seek to Raise Taxes on Wealthy to Finance Cuts for Middle Class”) dated January 17, 2015, Julie Hirschfeld Davis wrote:
“The centerpiece of the plan, described by administration officials on the condition of anonymity ahead of the president’s speech, would eliminate what Mr. Obama’s advisers call the “trust-fund loophole,” a provision governing inherited assets that shields hundreds of billions of dollars from taxation each year.”
The proposed elimination of “step-up” basis rule has already proven to be a highly contested issue among political pundits. Although it is difficult to know for certain as to whether or not President Obama will be successful in his efforts to push through legislation that would cause the elimination of this rule, many believe that a GOP led Congress will impede his efforts.
If you find this topic of interest, I would recommend that you take a look at the article “Obama Plan to Lower Middle Class Tax at Expense of Rich is Non-Starter for GOP” for another writer’s perspective.
-Attorney Collins Hunsaker
There’s a lot of talk this time of year about resolutions, goals, and changes that people want to make in their lives. The best joke that I heard on this subject was one fellow who said that for his new year’s resolution, he’d like to keep his computer screen at 1280 x 1024. I’d like to throw out a serious suggestion for a goal for 2015; but I won’t be asking you to improve your health through exercise or better eating.
Estate Planning. That’s a broad category, but I have two targets: 1) those who need to implement their first estate plan; and 2) those who need to review and update their existing estate plan.
Initial Estate Planning: This one’s pretty obvious, and for those that fit into this category, you know who you are. It may be an awkward topic or it might scare you to talk about estate planning. But it’s not as bad as it might seem. Just get it done and you will feel better and more prepared for the future.
Review and Update: This category scares me because I am afraid that there are still a lot of people that need to have their old estate plan reviewed. A trust originally drafted and signed in the ‘90’s or early 2000’s, likely needs to be updated. We at JEFFREY BURR have talked a lot about this with newsletters to our clients, letters discussing estate tax updates, and this blog.
Our concern is that a lot of these old trusts may have language requiring the surviving spouse to divide and allocate the entire trust estate between two separate sub-trusts. These divisions into sub-trusts were originally intended to reduce or eliminate the impact of the federal estate tax. But the estate tax laws were significantly changed in 2012. The 2012 estate tax changes made permanent a much higher exemption amount ($5 million per spouse – indexed for inflation), and the idea of portability of the estate tax exemption was introduced. Portability allows a surviving spouse to claim and preserve a deceased spouse’s $5 million exemption regardless of the details of their estate planning or even without having a Will or Trust in place. And the increase in the exemption amount means that far fewer people will be impacted by the federal estate tax.
The combined result of these changes is that married clients with an estate less than $10 million may be able to greatly simplify their trust by removing the requirement to divide the trust. While this administrative burden to divide the trust upon the death of the first spouse may no longer provide a tax advantage, it may be a mandatoryrequirement of the trust contract and the surviving spouse may have few options other than to fulfill the mandatory obligation to divide and operate the trust as two or three trusts after the first spouse’s death.
Please make an appointment with your estate planning attorney to have your trust reviewed. It won’t take too long because most attorneys will be able to quickly identify if an update is warranted and 2015 is a great year for a checkup if you haven’t had one in a while.
In a recent decision by the United States District Court, District of Nevada, in the case of In re Cleveland, that Court affirmed its position that a trustee in a Chapter 7 bankruptcy succeeds to all of a debtor’s rights in such debtor’s single-member LLC. 2014 WL 4809924 (D. Nev. Sept. 29, 2014). These rights include the power to control the LLC and to sell the assets of the LLC.
Under Nevada state law, a judgment creditor of an LLC member is entitled only to a charging order to enforce its judgment. NRS § 86.401. The charging order is the exclusive remedy, and this is the case no matter if the LLC has only a single-member or not. With a charging order, the judgment creditor can only claim distributions that would have been made to the member. In other words, each time the LLC is to make a distribution to a member subject to a charging order, the creditor that obtained the charging order can direct the LLC to make the distribution to it instead of to the member. The judgment creditor cannot, however, reach the LLC’s assets with a charging order.
The In re Cleveland decision, although decided by the United States District Court for the District of Nevada, does not limit the trustee in a Chapter 7 bankruptcy to only a charging order when it comes to single-member LLCs. Instead, in a bankruptcy situation, which is governed by federal law and which preempts state law, the trustee is permitted to control and otherwise sell the assets of a single-member LLC – something that cannot be done with a charging order. This distinction between state and federal law is important and should be considered when forming an LLC and certainly when a member of a single-member LLC is contemplating bankruptcy.
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