Tag Archives: Estate Planning

Morris Presents on Benefits of Trusts

View More: http://jessilemay.pass.us/woodburnwedgeThe free, semi-annual Family Estate Planning workshop series, sponsored by the Community Foundation of Western Nevada, begins on Wednesday, September 19, 2018. The eight-week workshop series features different presenters addressing all topics related to estate planning.  The workshops are held every Wednesday at the Sierra View Library at 10:30 a.m. and 1:30 p.m. Jason Morris has presented since the program’s inception in 2010.  He will speak on the benefits and advantages of trust planning on October 10, 2018.  Call 775-333-5499 to register for the workshop series now.

Trustee or Not to Trustee

Nevada Trust

Most people establishing a revocable living trust select a relative or friend to act as the trustee. Many people feel that this is a bestowal of honor or dignity being conveyed to the nominated individual. The trust creators rationalize the choice of related party as trusts have a very personal element – distributing accumulated assets to loved ones or charities. Yet, the relationships between family and friends grow complicated with emotions and other factors after the trust creator dies. The mere fact of a close relationship is not enough to qualify any individual for the role of trustee. We find that many clients benefit from the inclusion of a professional trustee to administer and distribute the trust estate.

We regularly hear from clients during the estate planning process that “my kids all get along,” and “they would never fight over this stuff.” However, there are frequent disputes between siblings related to the actions or omissions of the appointed trustee. Where parents intend to disinherit one child or make uneven distributions among the children while naming one child as trustee, the groundwork is laid for a conflict. Similarly, parents may desire to leave assets in trust for the benefit of a child, preventing the spendthrift child from blowing the accumulated wealth. By naming a sibling of the spendthrift beneficiary as the trustee of the trust share, clients make the appointed child the bad guy. The chosen trustee may quickly learn that the assigned task is nothing but pain and heartache.

Recently, our firm handled a case where the non professional trustee retained assets in trust for decades longer than she should have. The trust agreement called for the immediate disbursement of assets to several individuals and several charities. Rather than make the prompt distributions, the trustee kept the trust intact and reaped hundreds of thousands of dollars in fees for herself. The charities and individual beneficiaries suffered significant damages which were nearly impossible to collect from the destitute individual trustee.

To avoid these difficulties and provide for a more professional administration, we recommend naming a professional trustee, such as a Nevada trust company or bank. Due to our favorable trust laws and no state income tax, Nevada has a strong industry of professional trust companies. Some argue that professional trust companies charge a higher fee than a lay person. That may be true in isolation. Yet, if the beneficiaries fight the trustee through litigation or the trustee does not appropriately distribute the assets as described above, the professional trustee fees are much lower.

One of the great virtues of trusts is their flexibility. Trusts can be drafted to divide the duties between a professional fiduciary and the individual trustee. A trust company can take responsibility for tax issues, issuing account statements, and making investment decisions. The non-professional trustee can be in charge of making distributions to the beneficiaries. The individual trustee will understand the beneficiaries’ problems and idiosyncrasies and can better address the individuals’ needs.

For those who have trusts presently, you may consider removing and replacing your current trustee with a professional. For those considering a trust, we would be happy to discuss the advantages of naming a professional trustee.

Gift Taxes in a Nutshell

Title Deed with keys

When does my generosity, or my desire to give gifts during my life, trigger the application of federal tax laws regarding gift taxes? Consider the following scenarios:

  • Declan wants his daughter Fiona to receive his residence at his death. He and his late wife purchased the property for $30,000 in the early 1950s. He signs and records a deed in 2015 that conveys the property to himself and Fiona as joint tenants. As of the date of the conveyance, the property is worth $300,000. He continues to reside there and to pay all property taxes, insurance and maintenance.
  • Teresa opens a bank account in 2014 and transfers $500,000 to the account. She names herself and her son Juan as joint tenants with right of survivorship at the time she opens the account. Under the account terms, both Teresa and Juan have the right to withdraw the entire amount of the bank account at any time. Juan does not withdraw any funds from the account the first year. He withdraws $40,000 in 2015 to pay his college tuition.

Has Declan or Teresa made a taxable gift? If so, when was the gift made and for how much? Could either of them have achieved the same result but avoided the gift tax rules?

The gift tax is a tax imposed on certain gifts made during life. Not every gift is taxable. The IRS allows a generous annual exemption, currently $14,000, per donee. This means you may give up to $14,000 each year to an unlimited number of recipients without having to file a gift tax return. (The amount was established at $10,000 and is increased periodically for inflation; it has been $14,000 since 2013). Also, you may give unlimited gifts to your spouse (if a U.S. citizen) or to §501(c)(3) charities without incurring a tax. You may also pay tuition for education and medical bills on another’s behalf without tax consequence if you pay such amounts directly to the educational institution or health care provider.

Even if you make gifts that are taxable, Congress has provided for a unified credit that allows you to make otherwise taxable gifts throughout life and at death up to a sum total of $5,450,000 (for those who die in 2016) without paying a gift or estate tax. The credit is “unified” in the sense that it is applied both to gifts made during your life time and to gifts made at death from your trust or estate, up to the maximum credit. Each year the unified credit is adjusted upward for inflation. Gifts made above that amount are taxed at a whopping 40%.

Returning to our examples, the fact is that both Declan and Teresa have made taxable gifts that require a gift tax return to be prepared and filed with the IRS; and both could have avoided this result with some good legal advice and planning.

Declan has made a taxable gift of one half the value of the real property, or $150,000, to Fiona. He can count the first $14,000 toward the annual exclusion, but he still must file a gift tax return for the remaining $136,000. Even worse, since the transfer was made during his life time, if and when Fiona sells the house after his death she will have to pay a capital gains tax on the increase in value from the $30,000 purchase price. Had Declan conveyed the property to her at his death, she would have received a step up in basis, meaning the base price for considering a capital gains tax would have been the value at his date of death, rather than the value of the original purchase in the 1950s. This would have been a huge tax savings to Fiona. It would also have eliminated the requirement of the gift tax return.

Teresa makes a gift of $40,000 to Juan in 2015 when he withdraws that amount from the account. She must file a gift tax return for the gift, after offsetting the amount of the annual exclusion. The joint bank account is treated differently than a joint tenancy in real property; until and unless Juan withdraws money from the account over and above any contribution he may have made to the account, there is no gift because Teresa can still withdraw the whole amount. Here, Teresa could have paid Juan’s school directly for the tuition without any gift tax consequence.

Note that for both Declan and Teresa, assuming no previous gifts have been made, no actual tax is due because the unified credit will cover these relatively modest amounts; but the hassle and cost of preparing the gift tax return could have been avoided. Moreover, if either has an estate that will exceed the unified credit at the time of death, these gifts will have negative consequences for their estates.

If you are thinking of making a large gift, it is well worth consulting with your accountant or estate planning lawyer to ensure you take advantage of the gift and estate tax rules to minimize or eliminate your tax liability.

The 4 P’s of Protecting Your Family’s Legacy Home

Lake CabinThe lakefront home, the mountain cabin or the ocean-side estate all require special planning to protect and enhance these legacy homes. From Lake Tahoe to Donner Lake, from downtown city condos to Pacific Ocean properties, we advise our clients to give special attention to these legacy homes. These special properties need the “four P’s:” protection, privacy, probate avoidance and planning.

Protection:

These types of properties need comprehensive insurance coverage for potential damage to the structure, adequate liability coverage and an ownership structure that provides protection from outside creditors. Under Nevada law, limited liability companies (LLCs) offer tremendous protection, particularly if you or your family rent or lease the legacy home. A Nevada LLC may not prevent a lawsuit, but it will certainly deter potential creditors.

Privacy:

You and your family may not want to divulge the ownership of the real property. Nevada counties have very transparent real property records. Anyone with basic internet search skills can locate the owner of real property, past and present, and the price paid for the real estate. To provide a privacy shield, ownership of the legacy home can be held by a legal entity such as a trust or LLC, with a name unconnected to the family. You should consult with a lawyer to determine which device, trust or LLC, will best meet your objectives as simply titling your legacy home into an existing business entity is not a great solution. Doing so could subject your legacy home to the claims of existing or future business creditors.

Probate Avoidance:

Many people understand the primary benefit of a revocable living trust is probate avoidance. What many do not understand is that a revocable living trust can hold title to real property, like legacy homes, in other states. Families with real property in more than one state must have a trust to avoid probate. An existing revocable trust could be a ready-made device to hold title to your legacy home.

Planning:

Plan now if you want to keep the legacy home in your family. If you do not provide directions or instructions to your family, anxious beneficiaries can force the sale of the legacy home. You must establish a clear succession plan establishing how the property will be managed, maintained and eventually distributed to the next generation or beyond. Please contact a qualified estate planning attorney to discuss how to preserve and protect your legacy home.

Can You Probate a Lost Will?

LWT March 2015

I once had a client whose husband had died many years previous, leaving a will in which he left all his property to her. The will had been prepared by a local attorney who later retired, and had died by the time the client retained me. The client had furnished a copy of the will to her accountant, who used it to prepare an estate tax return. However, the accountant only had a copy of the first few pages of the will, not including the signature pages. The client evidently lost the original will and could not locate a copy of it. All we had to go on was the copy of a portion of the will that the accountant had. I did my best to track down the original will or a copy. The drafting attorney was deceased and although I located his former secretary, she indicated that his files had not been retained; the will would have gone back to the client. In short, there was no extant copy of the full will.

Can you probate a lost will? In some instances, yes. If a will is lost by accident after the decedent’s death, or destroyed by fraud during the decedent’s lifetime and without his or her knowledge, a court may receive evidence of the execution and validity of the will. A lost will would have to be proved in the same way as other wills; the persons who witnessed the testator sign the will would have to testify to that fact. This may not be difficult if you know who the witnesses were and can locate them. Often the witnesses of a will are law office personnel. Most law office personnel who witness wills do so often enough that they would not be able to recall a particular instance; especially not where the will had been signed many years prior. If you can locate the witnesses and they remember the will, then the proponent of a lost will has to show that it is more likely than not that the will in question was never revoked by the testator; if no one objects, the court may admit it to probate. In the case of my client, we didn’t know who had witnessed the will because we did not have the signature pages or the pages signed by the witnesses. Without that, we could not offer the lost will for probate.

Lessons learned? Make sure your original will, and your spouse’s original will, are kept in a secure, fire safe location and that the location is known to those who will handle your estate at your death. Often an attorney’s office will store the original will in a vault. If your attorney retires and returns the original to you, put it in another safe place, such as a safe deposit box. Better yet, go to another attorney and see if the will needs updating; the new attorney may have a vault where the will and codicil could be stored. Make sure to keep full copies of the executed will. Finally, keep the original will and copies after the testator dies, even if you do not think there are any assets to probate at his or her death. This is critical! In the case of my client, her husband had died 20 years prior and she thought all assets were in joint tenancy at their death. It was only in refinancing some property that she discovered this was not the case.

If you have questions or concerns about lost wills or the proper care of original estate planning documents, consult with a qualified estate attorney.