An often asked question regarding the administration of Trust or Estate after a death occurs is:
1. What happens if the beneficiary predeceased the decedent?
In this age of longevity, it is not uncommon for a beneficiary named under the terms of a Trust or a Last Will and Testament to predecease the inpidual creating the Trust (the “Trustor”) or the inpidual creating the Last Will and Testament (the “Testator”). When this occurs, what happens to the bequest? For example, a Trustor provides that a specific bequest of $50,000.00 be given to her son, Joseph. However, Joseph predeceases the Trustor. When the Trustor dies, what happens to the bequest? Does it lapse and become null and void? Or is it still legal effective? The answer is it depends on the terms of the Trust or Will and the facts of the situation. Nevada has an anti-lapse statute which provides that a bequest is saved and does not lapse if the predeceased named beneficiary is a child or other relation of the Trustor-Testator and the beneficiary left lineal descendants who survived the Trustor-Testator, unless the Trust or Will provides otherwise. NRS 133.200 provides as follows:
“When any estate is devised to any child or other relation of the testator, and the devisee dies before the testator, leaving lineal descendants, those descendants, in the absence of a provision in the will to the contrary, take the estate so given by the will in the same manner as the devisee would have done if the devisee had survived the testator.”
In our example above, the predeceased beneficiary, Joseph is a child of the Trustor-Testator. If Joseph left lineal descendants (child, grandchild, et cetera) and the Trust or Will does not provide otherwise, the $50,000.00 bequest will not lapse but will pass to Joseph’s lineal descendants. This may or may not be what the Trustor desires. When one creates a Trust or Will, one should always discuss and consider the possibility of a beneficiary predeceasing. If one does not want the bequest to pass to Joseph’s lineal descendants, the Trust or Will should specifically state that in the event Joseph predeceases, the bequest shall lapse or shall pass to some other beneficiary.
At the Jeffrey Burr law office, we have many years of experience in assisting clients in their estate plans through the drafting and execution of their Trusts/Wills. As part of this service, we go to great lengths to determine exactly what the client desires, including the client’s wishes in the event a named beneficiary predeceases the client.
Under Nevada law, N.R.S. 133.020, “every person of sound mind, over the age of 18 years, may, by last will, dispose of all his or her estate.” The creation or amendment of a Will or other testamentary document involves mental and emotional decisions that oftentimes affect the people nearest to the testator, including family members and friends. To prevent the unfortunate consequences of testamentary decisions based on mentally-impaired reasoning, the law requires that a testator have a “sound mind” or sufficient “testamentary capacity” when making such important choices. A testator, at the time of executing a Will or testamentary document, must understand the nature and extent of his property, understand who the natural objects of his bounty are, and comprehend the consequences of his actions and the disposition of his property according to a mentally formed plan. If a testator’s mental capacity is disproved in court after the time of execution of a testamentary document, the court may invalidate the document entirely or just certain provisions in the case of amendments.
When a testator makes a decision regarding his Will, such as to disinherit a family member, oftentimes the disinherited person will try to prove in court the testator lacked testamentary capacity. In fact, one of the most common legal challenges to the validity of a testamentary document, such as a Will, is an attempt to prove the testator did not have a sound mind when he made testamentary decisions. Accordingly, a testator who wishes to create or amend a Will or other testamentary document should always consult a knowledgeable estate planning attorney, and in appropriate situations may consider undergoing a psychological evaluation contemporaneously with the execution of the testamentary document(s). By undergoing such an evaluation at the time of execution, a testator establishes his mental capacity before it comes under attack. While this precautionary step may seem unnecessary and discomforting, the money and time a testator or his inheritors may save in future legal contests may make it worthwhile. Also, a testator’s knowledge and peace of mind that nobody will be able to displace his wishes regarding the future of his estate is extremely important.
If you anticipate the probability of someone challenging the validity of your Trust and/or Will, what can you do? For example, you desire to disinherit or greatly reduce the inheritance of a child, but you believe if you do so, the child will almost certainly challenge the validity of the Trust and Will in a Court of law. There are a number of preventive things you can do, but one of the most common estate planning tools in this situation is a “no contest clause”. A no contest clause is a provision in a Trust and Will that essentially provides that anyone challenging the validity of the terms of the Trust and Will shall be disinherited and shall receive nothing. Nevada Courts recognize the validity of a no contest clause; however, Nevada Courts, as Courts in most states, will not enforce a no contest clause if the Court finds that the challenge was made in good faith based on probable cause. The Court realizes that there will be cases where in fact there are legitimate challenges questioning whether the person making the Trust and Will had the ability (testamentary capacity) to do so, whether the person was under the undue influence of someone at the time, et cetera.
You should always state in the Trust or Will that you are intentionally omitting a person as a beneficiary if that person is someone who would be considered a natural object of your bounty such as a child. However, it is usually not a good idea to explain why you are disinheriting or reducing the share of the person in the provisions of the Trust or Will. An example would be to state that the person uses or is addicted to illicit drugs or is addicted to gambling. This opens the door to the argument that the person was not using or addicted to illicit drugs or addicted to gambling and that you made the Trust or Will based on this incorrect belief (often referred to as an “insane delusion”), or the argument that the person is no longer using or addicted to illicit drugs or gambling at the time of your death, or similar arguments.
One thing to keep in mind is the old axiom that “greed can be a wonderful thing” in certain situations. Needless to say, someone who is completely disinherited has nothing to lose in challenging the validity of a Trust or Will. On the other hand, a person who is left something, even if minimal, under the terms of the Trust or Will potentially can lose it all in bringing a Court challenge. This, at a minimum, tends to give one pause in bringing such an action.
The attorneys at Jeffrey Burr Law Office have many years of experience in not only planning your estate in this situation, but also in upholding your wishes as expressed in your Trust and Will once you are gone.
The average life expectancy in Colonial America was under twenty-five (25) years in the colony of Virginia, and in all of New England about forty percent (40%) of children failed to reach adulthood. During the Industrial Revolution, the life expectancy of children increased dramatically. In the twentieth (20th) century, the average lifespan in the United States increased by more than thirty (30) years, of which twenty–five (25) years can be attributed to advances in public health. The average life expectancy for an individual born in the United States in 2008 is seventy-seven and a half (77½) years to eighty (80) years. The oldest confirmed recorded age for any human is one hundred twenty-two (122) years, though some people are reported to have lived longer. With people living longer and longer, does there come a point when a person cannot make a Trust or Last Will and Testament due to his or her age?
Most people find it surprising that less legal capacity is required to make a Trust/Will than to transact ordinary business. The ability to make a Trust and Last Will and Testament is called "testamentary capacity." In Nevada, a person must be eighteen (18) years of age and of “sound mind” at the time he or she makes a Trust or Last Will and Testament. NRS 133.020. “Sound mind” means the person must understand the nature of the act of executing the Trust/Will, understand the nature and extent of his or her property, know the natural objects of his or her bounty (spouse, children, et cetera), and the nature of the disposition. This does not mean that a person must know exactly or in great detail the nature and extent of his or her property; he or she must only generally know the same. Nor does this mean that the person has to leave part or all of the property to his spouse or children as his natural objects of bounty; he must only know that such spouse and children exist.
Accordingly, the ability or inability to make a Trust/Will is not determined by age, and there is not a certain age above which a person cannot make a Trust/Will. The basic requirement is that the person making the Trust/Will has the requisite testamentary capacity at the time of the making of such Trust/Will. In fact, a person of many years can have the requisite testamentary capacity to make a Trust/Will, while a person of far less years may not. Further, the inability to make a Trust/Will is not synonymous with illiteracy, deafness, illness, blindness, physical or mental weakness, the taking of pain medication, eccentricity or even Alzheimer's disease as long as testamentary capacity is present at the time of the making of the Trust/Will.
At the law firm of Jeffrey Burr, we have many years of experience in assisting clients in their estate plans through the drafting and execution of their Trusts/Wills. As part of this service, we go to great lengths to determine and document the testamentary capacity of the client to ensure that his or her expressed desires and wishes are carried out at the client’s demise. In this regard, we have experience in not only defending the validity of Trusts/Wills where testamentary capacity was present, but also in challenging and setting aside Trusts/Wills where the person lacked the necessary testamentary capacity, was unduly influenced, et cetera.
Many times people will tell me they don’t need to prepare estate planning documents because they don’t have an “estate.” My response is simply, “you don’t have to have a significant amount of assets to need an estate plan.” Take a moment to ask yourself the questions below to see if you need to consider putting together an estate plan or updating an outdated estate plan:
Do you have current estate planning documents?
1. A Revocable trust that properly addresses changes in familial relationships, financial status, and changes in the law, e.g. the recent appeal of the estate tax.
2. A properly executed pour over will if you have a trust or a simple will if you don’t have sufficient assets to justify a trust. Even if you don’t own a significant amount of assets, having a properly executed will in place can assure that what assets you do have are distributed according to your wishes.
3. Medical directives and powers of attorney specific to your jurisdiction. These documents are especially important and really have nothing to do with the amount of assets you own.
4. Nomination of a guardian for self, estate, and minor children. Again, these nominations have nothing to do with the size of your estate, but have everything to do with properly providing the appropriate individuals to take care of you or your children in the event you are unable to do so yourself.
Are you a business owner?
5. Are you operating as a sole proprietorship? If so, are you properly insured (life and disability) and protected from frivolous liability? Are you performing the legal formalities necessary to achieve limited liability in the event you are operating via a limited liability company (LLC) or limited partnership (LP)? Do you have a contingency plan in place that provides for the management or distribution of business assets in the event of your death or incapacitation? Operating a business through a legal entity has tremendous advantages; however, one must make sure that the entity is maintained properly or such an entity may not provide the expected benefits when the time comes (i.e. do not comingle personal and business assets, have an operating agreement in place, maintain adequate insurance).
6. Do you have partners? If you have partners, it is highly recommended that an operating agreement be in place and that a properly funded buy‐sell agreement accompany the operating agreement. These documents should address liquidation rights, rights to first refusal in the event one partner sells his/her interest in the entity, succession planning, etc.
Are you concerned about asset protection and special needs planning?
7. Do you have a developmentally disabled spouse, parent, child, grandchild or has there been a recent death in the family? It may be important to form a Special Needs Trust to allow a disabled loved one to be able to receive an inheritance from you without hindering his/her chances of receiving governmental assistance. It may also be important to protect yourself from potential creditors of your loved one by putting the proper legal entities in place to hold assets.
8. Do you have any of the following: Children from a prior marriage; a spouse with children from a prior marriage; step children; concerns about children’s spouses; plans of marriage on the horizon.
All of these issues may affect the current estate plan you have and place and should be examined on a case-by-case basis. As you can see, some of these issues have nothing to do with the amount of assets you own or the size of your estate. Everyone should take the time to at least ask themselves: Who will take care of my kids or me, and how, in the event I am not able to care for myself? Asking such a questions may help you realize the importance of putting in place an estate plan that is specifically tailored just for your needs.
Clients regularly struggle with the decision of how to allocate and distribute their estates between their favorite individuals and their ideal charitable causes. A few years back, I, along with one of my esteemed associates penned what is now affectionately referred to as the Grant-Walker Hierarchy of Worthier Beneficiaries. This model attempts to establish a moral construct for making such decisions. While inherently biased toward an individual's personal values and preferences, the Grant-Walker Hierarchy of Worthier Beneficiaries does provide some level of guidance for testators wrestling with this important decision. Following is our register, listed in order of worthiest to least worthy:
Responsible, well-educated, appreciative and moral individuals, who exhibit strong charitable character traits and inclinations.
Irresponsible, poorly-educated individuals with proper oversight and legal controls in place, along with appreciative, moral and qualified charitable organizations.
Unappreciative, immoral individuals and charitable organizations, along with the United States Treasury.
If helpful, feel free to incorporate our construct into your decision-making process when deciding who gets what at your death.
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.
Last night, attorney, Jeremy Cooper, attended a Las Vegas Chamber of Commerce seminar hosted by the Human Rights Campaign addressing Smart Financial and Estate Planning for LGBT individuals and families. Half of the presentation focused on the new Domestic Partnership law of Nevada and the current state of this evolving area of law. The other half focused on estate planning for LGBT individuals and families. The following is a brief overview of the recently enacted Domestic Partnership legislation followed by some estate planning recommendations for those in the LGBT community:
Domestic Partnerships
During 2009, the Nevada legislature enacted legislation recognizing Domestic Partnerships between individuals who have properly registered with the state. A Domestic Partnership is a social contract between two persons that grants each partner different rights not available to non-married couples. To establish a legal Domestic Partnership, partners must furnish proof to the Secretary of State that both persons share a common residence, neither partner is married or part of another domestic partnership, the individuals are not related by blood, both individuals are at least 18 years of age, and both individuals are competent to consent to the domestic partnership.
Upon establishing a valid Domestic Partnership, domestic partners have the same rights, protections, and benefits granted to married spouses. Domestic partners are also subject to the same responsibilities, obligations, and duties under law as imposed upon married spouses. These rights and obligations include, but are not limited to, child support, alimony, community property rights, mutual responsibility for debts to third parties, etc. Deciding whether a couple should register as a Domestic Partnership is a very intimate and personal decision that should not be made without understanding the legal ramifications of doing so. Jeffrey Burr recommends consulting with a family law attorney who is experienced in dealing with the LGBT community.
Estate Planning Tips
Because of the unique legal challenges facing the LGBT community, it is vital that valid and comprehensive estate planning be put into place regardless of whether a committed LGBT couple decides to register as a Domestic Partnership in Nevada. First and foremost, proper estate planning by LGBT individuals should ensure that the right people are making the right decisions regarding one’s health care and asset management when the time comes, as well as distributing property to the intended beneficiaries at death. LGBT individuals and couples should strongly consider obtaining the following documents:
1. Powers of Attorney for Health Care and Financial Matters and Directives: These documents are extremely important for LGBT couples who decide not to register as Domestic Partners and for Domestic Partners when traveling outside of the state of Nevada or other states that do not recognize Domestic Partnerships. These are the documents that will allow your partner to make health care and asset management decisions for you if that is what is desired.
2. Wills and/or Trusts: These documents are also very important because they will determine to whom your property will be distributed at your death. Without a will or a trust, property will pass to ones heirs as determined by the state laws of intestacy which does not provide for property to pass to an LGBT partner unless the partnership has registered as a Domestic Partnership. These documents will also nominate guardians for one’s estate, person and minor children.
3. Partnership Alliance Agreement or Property Agreement: This document is essentially the same type of agreement as a Premarital, or Prenuptial, Agreement in that it establishes property brought into the partnership, how new property and income will be treated during the partnership, and how property will be distributed upon dissolution of the partnership. These documents can be prepared for LBGT couples whether or not they have registered as domestic partners.
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