Unfortunately in this time of economic turmoil, the assets of a Trust or an Estate, such as real estate, deeds of trust, stocks and bonds, can significantly decrease in value from the time the Trust was established or the Last Will and Testament was executed and the date of death. Accordingly, an all too often problem in this day and age facing the Successor Trustee or the Personal Representative is which creditors of the Decedent to pay? In the event the Trust or Estate ultimately does not have sufficient assets to pay all of the creditors, a Successor Trustee or a Personal Representative could be held personally liable for failing to pay a creditor and/or improperly paying a creditor.
Under Nevada law, the debts and charges of a Trust or Estate are ranked in order of priority for payment. For example, the highest priority for payment is the trust or estate administrative expenses, followed next by funeral expenses, then followed by last illness expenses and so on. One must be careful to strictly follow this statutory order of priority if there is a chance there will not be sufficient funds to pay all creditors. If a Successor Trustee or a Personal Representative pays a lower priority creditor and then does not have enough funds to pay a higher priority creditor, the Successor Trustee or a Personal Representative will have to personally pay the higher priority creditor and then attempt to seek reimbursement from the lower priority creditor who was paid.
A related problem is what to do if, after proper payment of some creditors, there are not enough funds left to pay all of the members of the next priority class. An example of this would be to pay all administrative expenses and funeral expenses in full, but then not have enough funds to pay all of the expenses related to the decedent’s last illness. In this situation, the last-illness creditors should be paid on a pro-rata basis.
At the Jeffrey Burr law office, our attorneys have many years of experience guiding Trustees and Personal Representatives in properly carrying out their administrative duties, such as dealing with creditor claims and the proper payment of such claims.
When someone is the beneficiary of a Trust or Estate, one of the first questions the Trustee of the Trust or the Personal Representative of the Estate is asked is “When will I receive my money?” Human nature being what it is, most people want their share of the Trust or Estate “yesterday” or as soon as possible. Oftentimes the beneficiary making the inquiry is related to the Trustee or Personal Representative, and this places the Trustee or Personal Representative in a difficult position. What factors should the Trustee or Personal Representative consider before making any distributions?
A major factor to consider is possible creditor claims. A Trustee or Personal Representative does not want to distribute the Trust or Estate monies to third party beneficiaries only to discover later that the decedent or the Trust is legally indebted to a creditor. In such a situation, the creditor oftentimes will pursue the Trustee or Personal Representative for the amount of claim, and the Trustee or Personal Representative is left trying to seek reimbursement from the beneficiaries. Unfortunately, once the monies are distributed, the monies are usually “gone” from a practical point of view and it is very difficult to recover the reimbursement from the beneficiaries. The law recognizes this quandary, and furnishes the solution for the Trustee or Personal Representative by way of a notice to creditors and a limited time period for filing claims procedure. For example, under Nevada law a Trustee or Personal Representative can publish a Notice To Creditors once each week for three (3) consecutive weeks and mail a Notice to known or readily ascertainable creditors. Notice must also be given to the Department of Health and Human Services if the decedent received public assistance during his or her lifetime. A creditor having a claim due or to become due then has ninety (90) days from the first publication date and ninety (90) days from the mailing date as to those creditors to whom notice must be mailed in which to file a written claim (some creditors have the later of ninety (90) days from the first publication date and thirty (30) days from the mailing date). If the creditor fails to file a written claim within the applicable time period, generally speaking the creditor is forever barred from enforcing the claim even though it was a legally owed debt on the date of the death of the decedent. Accordingly, once notice is given and the applicable time period for filing claims has passed, the Trustee or Personal Representative can be reasonably assured that there are no unknown claims lurking.
Two exceptions to the rule are mortgages-deeds of trust and income taxes. Mortgages-deeds of trust are recorded with the County Recorder and a matter of public record, so the holder of the mortgage-deed of trust need not file a written claim in order to perfect its lien against the real estate. Normally the Trustee or Personal Representative is aware of the mortgage-deed of trust as a result of a review of the financial affairs of the decedent which discloses monthly payments to the holder of the mortgage-deed of trust. Also a search by a title company of the public records regarding any real estate owned by the decedent will disclose any mortgages-deeds of trusts of record.
Income tax reports of the decedent or the trust or the estate can be audited by the IRS (or by a state if state income tax involved), possibly resulting in additional tax, penalties and interest owed. This potential problem is solved by holding back a sufficient amount of money from the distributions to pay any such additional tax, penalties and interest.
There are a number of other significant factors to be considered before making beneficiary distributions such as potential legal challenges to the validity of the Will or Trust of the decedent, priority of payments, terms of the Trust or Will, et cetera. Accordingly, a Trustee and Personal Representative should always consult a knowledgeable estate and trust attorney before making distributions. At Jeffrey Burr Law Office, our trust administration and probate attorneys have assisted numerous inpidual and corporate Trustees and Personal Representatives in performing their duties, including being the bearer of bad news to the beneficiaries as to why a distribution cannot be made immediately.
Often times with the passing of a loved one, handling the burial and final disposition of the loved one’s remains can become a point of contention if there has not previously been clear direction provided on how this is to be handled. In the absence of specific instruction, funeral homes may require a court order authorizing the disposition of the remains of a decedent. Also in the absence of clear instruction, parties may be at odds with how the remains are to be handled, thus, requiring court intervention and added expense and delay.
In light of these potential issues, it is important to note that Nevada state law allows an adult, while living, to execute an affidavit authorizing the burial of his or her remains at death. Specifically, NRS 451.024 provides a priority of individuals authorized to handle the burial of a decedent’s remains. Pursuant to NRS 451.024, the individual designated in the aforementioned affidavit has priority in handling the remains of the deceased loved one. Thereafter the statute specifies priority based on relationship to the decedent, e.g. spouse, adult son or daughter, parent, adult brother or sister, and so on and so forth. To avoid potential issues regarding the handling of a loved one’s remains, care should be taken ahead of time to include these arrangements as part of one’s estate plan so that this matter can be dealt with during life.
My general and limited observation is that more and more people are selecting cremation for their end-of-life plans. As one might imagine, estate planning attorneys hear some interesting requests regarding cremation and the ultimate disposal of one’s ashes. Our office is no exception. Most requests are dignified and tasteful. Some are also very entertaining.
On a serious note: Nevada Revised Statutes (NRS 451.655) provide that a person may order his or her own cremation and instructions for disposition by signing an order and having it signed by two additional witnesses. One can avoid delay by providing this order directly to a funeral home that is to provide the mortuary services. Our office incorporates this statutory requirement directly into the Last Will, but we have also provided, on occasion, a separate order for the funeral home in coordination with the statute referenced above.
In an effort to be tastefully entertaining, and divert my attention from the 2010 Federal estate tax repeal which recently is a frequent topic on our blog, I thought I would share some cremation myth and lore. Several years ago I remember reading on a blog that Disneyland was having frequent issue with people disposing of cremated loved ones on the “Pirates of the Caribbean” ride. (Keep your hands inside the ride at all times). Clients have instructed that we write up many specific instructions regarding scattering: mountain tops; beaches; rain forests; backyards; oceans; you name it, we have probably written it up in a Will. One particular client that I can recall instructed that his ashes be inserted into a number of helium balloons and that the balloons should be released into the wind. We usually make it clear that public scattering might technically be illegal and that permission should be obtained.
Just this week I read a Wall Street Journal article and discovered that the scattering of ashes without pre-permission has a name. It is known in the funeral industry as a “wildcat scattering.” I found the above article interesting and it had some good stories regarding some verified wildcat scatterings. Feel free to comment and share any stories or wishes you might have regarding the distribution of your cremains.
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