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.
The 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.
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.
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.
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.
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.
Posted in Estate Planning, Irrevocable Trust, Probate, Wills
Tagged Asset Protection, Condo, Estate Planning, Lake Tahoe, LLC, Nevada, Retirement, Vacation Home
As death looms, people become much more focused on arranging their affairs. Even those with few assets will develop a laser-like focus on leaving a suitable legacy. There are pitfalls to death-bed estate plans or revisions to existing plans. In a perfect world, an estate plan is constructed carefully after much thought and revisions are made regularly. However, lawyers and financial advisors are often solicited to make changes when a client fears an imminent demise.
Recently, I helped clients update their revocable living trust after the wife was diagnosed with terminal cancer. They created their trust 20 years ago and had not made any updates since that time. In the intervening years, one of their five children had passed away and numerous grandchildren had been born. The prior version of their trust provided that if one of their children predeceased them, the surviving children would receive the estate equally. The clients instead wanted the trust share that would have passed to the deceased child to be held in trust for the deceased child’s children or the clients’ grandchildren. If nothing had been done, the clients would have disinherited their grandchildren.
When making near-death amendments or creating new estate plans, advisors and clients must consider the income tax ramifications. A common mistake is to transfer a home or real property to children or grandchildren prior to death. Such a transfer results in loss of the step-up in basis of the property to the date-of-death fair market value. The child or grandchild receiving the property steps into the shoes of the transferring parent or grandparent and takes the transferor’s basis in the property. Usually, the basis is much lower than the present day fair market value. When the child or grandchild sells the property, he or she will incur a much higher capital gains tax than necessary.
Finally, to avoid a contest, a medical or mental competency examination can assure that the client is competent to make the change. These exams can be administered by the client’s regular physician. By using their normal physician, the client will feel more at ease and the physician will already have a history with the client and be able to differentiate whether the client lacks capacity.
Death-bed planning can be done effectively but there are numerous considerations and precautions to follow.
Posted in Community Property, Estate Planning, Probate, Tax, Trusts, Wills
Tagged Basis Step-up, Community Property, Estate Planning, Income Tax, Nevada, Probate, Tax, Trusts, Wills
Recently, a Probate and Property magazine article listed Nevada as the premier domestic jurisdiction for asset protection trusts. In the November/December 2012 issue, Barry Engel, founding principal of the Denver, Colorado firm of Engel & Raiman PC, was interviewed on “Asset Protection Developments.” Mr. Engel co-authored the 1989 amendment to the Cook Islands International Trust Act. Mr. Engel complimented Nevada by stating:
In terms of domestic jurisdictions, we have used Nevada over the years more than any other state. We like it for the protective legislation is has on the books, the quality of trustees available, its proactive attitude and approach toward domestic asset protection law, and how it seems to strive to make what it has even all the better.
Nevada continues to surpass other states in regard to its asset protection trusts and the protections available to debtors. Our office can help you protect assets from creditors and assure your wealth preservation.