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Las Vegas, NV Estate Planning & Probate Blog

Tuesday, May 21, 2013

Oklahoma

Phillips Ballenger will be donating 100% of proceeds from consultation fees for the remainder of the month to the American Red Cross to aid in relief efforts in Oklahoma.  Our hearts go out to the citizens of Oklahoma and the thousands affected by this tragedy. 


Monday, April 8, 2013

What Could Happen If You Write Your Own Living Trust?

Readers often ask me about do-it-yourself estate planning. Lawyers want to know how to discourage clients from using books or software and websites that spew out documents for free or for a fraction of what they charge. Meantime, consumers ask, “What’s wrong with that?”

The trouble with do-it-yourself planning is that even if your situation seems simple, there are many oddball things a layman wouldn’t think of that can go wrong, especially with wills and trusts. These mistakes can end up costing you or your heirs a lot more than you saved in legal fees.

Eileen Guerin Swicker, a lawyer with her own practice in Leesburg, VA, recently told me about a really doozy. It involved a client who set up his own living trust.

By way of background, both a will and a living trust can be used to transfer assets, and each has unique uses and features. For example, only a will can name guardians for children who are minors. (For how to choose a guardian, see my post, “Adam Yauch’s Will Reveals His Private Dilemma.”) And unlike a will, a living trust can take effect while you are alive, so it can be used to hold assets for your benefit if you become unable to manage them yourself.

The client who Swicker told me about set up his own trust in 1984, using a 3-page form that he bought at an office supply store. He recorded a deed to transfer his home into the trust, and absentmindedly dated that deed 1983 (in other words, one year before the trust was created).

Flash forward to 2009 when this fellow, who had paid off the mortgage on the house, wanted to borrow against it. He planned to give his adult daughter $300,000 in cash so she, in turn, could pay off the mortgage on her own house. Great strategy (see my posts, “5 Ways To Help Family Pay For Housing,” and “The Best Investment Advice I Ever Received”).

But at this point, his clerical error of 25 years earlier came back to haunt him. Why? Because the title company said he didn’t have a clear chain of title to his home, so the bank wouldn’t give him the loan. The man, who by then was 75, called Swicker’s previous law firm in tears, asking for help.

Fixing the problem was a convoluted process that took two weeks and wound up costing the client $2,000 in legal fees. That’s about twice what he would have had to pay back in 1984 if he had had the firm draw up the trust instead of doing it himself, Swicker says.

After that, Swicker hoped the client would call back and ask lawyers to help bring his estate-planning documents up to date. But by the time Swicker left the firm eight months later, he still hadn’t done that. Says she: “It was one of those classic cases of somebody who dug a hole, and kept digging it deeper.”

-Deborah L. Jacobs, Forbes

http://www.forbes.com/sites/deborahljacobs/2012/08/16/what-could-happen-if-you-write-your-own-living-trust/


Monday, April 8, 2013

Protecting an Elderly Mother's Assets

Dear Liz: Could you advise us on how to protect our 93-year-old mother's assets if she should become ill or die? She does not have a living will or a trust regarding her two properties.

Answer: "If" she should become ill or die? Your mother has been fortunate to have had a long life, presumably without becoming incapacitated, but her luck can't hold out forever.

Your mother needs several legal documents to protect both herself and her assets. Perhaps the most important are powers of attorney for healthcare and for finances. These documents allow people she designates to make medical decisions and handle her finances for her should she become incapacitated. In addition, she may want to fill out a living will, which would outline the life-prolonging care she would and wouldn't want if she can't make her wishes known. (In some states, living wills are combined with powers of attorney for healthcare, and in others they are separate documents.)

These legal papers aren't important just for the elderly, by the way. You should have these too, since a disabling illness or accident can happen to anyone.

Your mother also should consider a will or a living trust that details how she wants to parcel out her estate to her heirs. Of the two documents, wills tend to be simpler and cheaper to draft, but a living trust means the court process known as probate can be avoided. The probate process is public, and in some states (particularly California) it can be protracted and expensive. A living trust also could make it easier for someone to take over managing her finances in case of incapacity or death.

You can find an attorney experienced in estate planning by contacting your state's bar association. Expertise and competence are important, so you may want to look for a lawyer who is a member of the American College of Trust and Estate Counsel, an invitation-only group that includes many of the best in this field.

If she or you are trying to protect her assets from long-term care or other medical costs, you'll need someone experienced in elder care law to advise you.

-Liz Weston, Los Angeles Times

http://articles.latimes.com/2013/mar/29/business/la-fi-montalk-20130331


Monday, April 8, 2013

Nice Girls Talk About Estate Planning

Going to a woman’s undergraduate college taught me that it’s okay for women to be smart. When I went to Columbia Law School, I found myself explaining that to a very brainy, beautiful classmate who told me she got more dates if she acted dumb. That was in 1978.

Women have come an enormous distance since then. Currently they serve as CEOs of 14 Fortune 500 companies, according to Catalyst. Among them: Indra K. Nooyi at PepsiCoIrene B. Rosenfeld from Kraft Foods; Patricia A. Woertz of Archer Daniels Midland, and Ursula M. Burns of Xerox.

Still, for all we have achieved — with our careers, managing our finances, sharing child rearing and other household responsibilities — we’re not as savvy about estate planning as we ought to be. In fact, a recent survey by EZLaw suggests that women care more about losing weight than about protecting their financial assets.

Does this mean women have more will power when it comes to their waistlines, than when it comes to estate planning?

If so, it’s a shame, because estate planning affects women profoundly. Among Americans 65 and older, 42% of women, but just 14% of men are widowed. Women’s longer life expectancy, combined with their tendency to marry older mates and their lower lifetime earnings means they are far more likely to see their living standards compromised in retirement if proper estate planning isn’t done. And since it is women who most are often widowed, they usually have the last word about which of a couple’s assets ultimately go to family, charity or the taxman.

 

In a field still dominated by men, there’s a lingering tradition of paternalistic tools and techniques – such as locking inheritances up in trusts for widows who presumably can’t even balance a checkbook. Women who don’t speak up about estate planning might wind up capitulating to strategies that put them at financial disadvantage.

Perhaps worst of all is how a lack of planning can affect families of young children. Without a will, if your children are minors and you were a single or surviving parent, a court will appoint a guardian for them.

As I noted in a recent article for Forbes.com, “Estate Planning For Women (And the Men Who Love Them),” now, more than ever, women need to take charge of this process, or at least be equal participants.

But how can you start a conversation about this stressful topic? That’s the question I’ve been asked most frequently since my book Estate Planning Smarts was published. In fact, it has come up so often, that I added a special section on the subject to the second edition of the book, published in April.

Sometimes it is best to have a series of talks, rather than covering everything at once. Depending on whom you are talking with, here are some conversation starters.

With your spouse or partner. Couples have their own special ways of communicating, and you know better than anyone which approach will play best with your mate. You can emphasize your own mortality (“I’d like to talk about ways to provide for you and the family in case something happens to me”) make it a subject of mutual concern (“We’re not getting any younger – I think it’s time we did our wills”) or focus on the children (“Now that we are parents, we really shouldn’t procrastinate any longer about doing our wills.”) More about this from my colleague Hani Sarji in his post, “Estate Planning Smarts For New Moms.”

Sometimes it’s easier to start with current events or an anecdote about other people. Perhaps it’s a movie you saw, a book you read, a news report about someone your age who recently died or a sudden death in your community. If a friend or family member has talked to you about their own plan (say you’re the godmother of a friend’s new baby) it can help take the sting off confronting the awful thought that one of you is likely to go first.

Those who encounter pushback from a spouse or partner have a card to play that’s probably not appropriate for other people who are broaching the topic: “We owe this much to each other” or “Please do this for my sake.”

With adult children.While parents have no obligation to change an estate plan after hearing a child’s preferences, disclosing what they plan can help refine their approach. For example, maybe you are thinking of leaving one child a larger inheritance than the others because he has more children. By sharing these details with this child, you might learn that he would rather receive the same amount as his siblings, rather than face their wrath.

Above all, explaining the principles that have influenced your decision could make them easier for children to accept. For instance, don’t assume it’s obvious that you left the summer home to one child because he used it most; a parent’s death or even illness can rekindle sibling rivalries from decades earlier.

Of course, parents who share their thinking risk hostility from adult children who do not like what they hear. To reduce the possibility of a hostile audience, parents may talk to each child separately, rather than addressing them as a group. Afterward, ask each child, “What do you think?” You may be surprised to find that adult children have great ideas and interesting opinions.

With your parents. A trickier situation involves adult children who notice signs of a parent’s mental decline. Once parents become incompetent, they lack the legal capacity to make binding commitments, so it is important to sign estate-planning documents before that happens. But bringing up the matter may threaten a parent’s independence and desire for control.

One possibility is for the child to say: “I just did my own estate plan. Don’t you think you should update yours?” Another is to convey a story about a friend’s parent who did not take the necessary measures (for example, by not signing a durable power of attorney) and how much hardship was caused for those children.

Sometimes there is a fine line between being well meaning and protecting your own inheritance. For that reason, lawyers typically insist that they have an opportunity to meet with the parent separately, even if a child provides transportation to the office.

Their goal is to guard against the two most common grounds for contesting a will or trust. One is undue influence, which refers to efforts to coerce someone to sign estate-planning documents that favor one heir over others. Another is the argument that the client lacked capacity when signing the document.

Sure, it is easy to get frustrated with parents who do not put their affairs in order. But keep in mind that having the conversation requires them to confront their mortality. For both parents and children, that can be a gigantic step.

Not for women only: Have you had this conversation with anyone in your family? If so, please post a comment below telling us how you did it and what happened.

-Deborah L. Jacobs, Forbes

http://www.forbes.com/sites/deborahljacobs/2011/08/09/nice-girls-talk-about-estate-planning/


Monday, April 8, 2013

Estate Planning Smarts For New Moms

Having a child is often the first time people think about their estate plans. New moms have much on their mind. I highly recommend the second edition of Deborah L. Jacobs’ book Estate Planning Smarts: A Practical, User-Friendly Action-Oriented Guide to help them plan for their family’s future.

Caring for yourself. Contrary to what many think, estate planning is not just for millionaires and billionaires. Everyone should have at least a basic plan that provides for what will happen in the event of disability or illness. Failing to have an estate plan can hurt the people you love.

The first chapter of Estate Planning Smarts is titled, “Nothing Lasts Forever.” The subtitle suggests to “[r]ead this chapter even if you are hearty and clear-headed.” This chapter defines and discusses documents that everyone needs in their estate plan – a power of attorney, HIPAA release, living will, and health care proxy.

Once you have these basic estate planning documents, you will need a place to store them. The second edition of Estate Planning Smarts has a new and very informative section on organizing financial records. Jacobs discusses various options that you have, including keeping your records in loose-leaf binder, on a computer, or on an online storage site.

Providing for your children. Jacobs informs that estate planning entails providing for your children’s future and making “sure someone will care for them if you suddenly perish.”

Estate Planning Smarts has an entire chapter devoted to anticipating the needs of young or disabled children. Chapter 5 gives tips about choosing a guardian to take care of your child in the event something happens to you. This chapter also discusses how to leave sufficient funds for your child and how to put money in good hands. The to-do list at the end of the chapter can help you avoid potential legal and economic pitfalls.

Chapter 8 discusses a topic that many think about only after they become parents: life insurance. Jacobs discusses how life insurance can serve your estate planning goals, how to avoid tax traps, and finding the best way to fund the premium.

Chapter 9 is also essential reading for a mother. It discusses how to pay for health care and education. This chapter begins by discussing custodial accounts for minors. It then discusses funding Section 529 plans and Coverdell Education Savings Accounts, and financing heath care and education by using a trust. There are many choices to consider and the to-do list at the end of the chapter asks some questions and tells you the action to take if your answer is “yes.”

Your assets. Estate Planning Smarts has advice on deciding who gets what (chapter 2). It also has chapters devoted to specific assets – retirement accounts (chapter 7) and houses (chapter 11).

Business owners. Today, many mothers are also business owners. Some women are mothers, business owners, and the bread winners in the family. These entrepreneurial mothers will find the advice in chapter 12 invaluable. As the subtitle states, “Read this chapter if you have your own business or share in a family-held enterprise.”

Taxes. Jacobs discusses estate and gift taxes in plain English. Chapter 3 (Understanding the Tax System) is up-to-date and “covers all the ramifications of the 2010 estate tax overhaul.” As the subtitle to the chapter informs, “Read this chapter even if you think estate taxes won’t affect your heirs.” If saving taxes is a high priority for you, then chapter 15 is also invaluable: Give Now, Save Tax Later.

Giving. If you want to give to your family, chapter 13 is key. Many new moms take motherhood as an opportunity to turn the table and celebrate their own moms and families. Chapter 17 discusses philanthropic giving and gives tips on how you can support the causes that you care about.

Why Estate Planning Smarts? You can’t afford to neglect estate planning. Estate Planning Smarts is, therefore, a must-read. It is written with you in mind.

  • Chapter previews. Each chapter begins with topics that you will learn about.
  • Great writing. Jacobs has the rare talent of discussing complex issues in a way you can understand. Jacobs is an award-winning business journalist and a lawyer. Her writing is clear and concise.
  • Informative charts and graphs. Estate Planning Smarts uses charts and graphs that provide perspective and insight.
  • Life-changing to-do lists. Each chapter ends with a very useful to-do list. Estate Planning Smarts is not just for reading; it is for taking action.
  • Handy glossary. There is a very useful glossary at the end of the book.
  • Detailed index. Estate Planning Smarts has a 26-page index that will allow you to find the information you are looking for.

The perfect gift. Tell new moms you know happy Mother’s Day and give them a copy of Estate Planning Smarts as a gift. It is a great way to show them you care, and they will appreciate it. I gave the first edition of Estate Planning Smarts to new mothers that I knew and they were always grateful for the gift. This year, I will give them the second edition of Estate Planning Smarts. Jacobs has revised the book by bringing it up-to-date, and she has added helpful new information. For example, on pages 289-291, Jacobs gives tips on how to start the estate planning conversation with family members. On pages 291-292, she emphasizes her objection to DIY estate planning.

For all mothers. Estate Planning Smarts has useful information for all mothers. For example, grandmothers would especially find interesting chapters 14 (What You Can Do for Grandchildren), 13 (Subsidize Friends or Family) and 9 (Pay for Healthcare and Education). Anyone who has done an estate plan before should read chapter 19 (Keep Your Plan Current).

For all women. Jacobs is on a mission to educate women about estate planning. Tomorrow, May 9, she will give a talk at Barnard, Estate Planning Is A Women’s Issue. Here is the description of the talk:

Estate planning is important for both sexes, but for various reasons, it affects women more profoundly. As a group, women live longer than men, earn less than them, and are more likely to spend their final years without a spouse or partner. Therefore women need to be especially vigilant about providing for their financial security. Whether you’re doing an estate plan for the first time, or revising a plan to reflect changes in your life, this program will cover the key issues, including:

  • Caring for yourself
  • How the new tax law affects estate planning for couples
  • How to start a conversation about estate planning — with your spouse or partner, with adult children, with aging parents
  • Should your plan be equal or fair?
  • The impact on planning of subsidizing adult children and grandchildren
  • What are non-probate assets and key pitfalls that surround them

This talk will address estate planning issues for women, but of course, the men in their lives are also welcome. Jacobs will adapt this talk and speak to other audiences around the country during the year ahead.

-Hani Sarji, Forbes

http://www.forbes.com/sites/hanisarji/2011/05/08/estate-planning-smarts-for-new-moms/


Tuesday, March 26, 2013

Bankruptcy Judge refuses to dissolve LLC

A recent case further bolsters Limited Liability Protection, in this case, under Federal Bankruptcy Law. 

In In re Warner, 480 B.R. 641 (Bankr, N.D. W. Va. Sept 27, 2012,) the trustee in the bankruptcy of an LLC member asked the Bankruptcy Court for a declaration that the LLC was dissolved pursuant to the LLC's own operating agreement, which called for dissolution upon the bankruptcy of a member.  In this case, the Court denied the Trustee's motion, relying on provisions in the Bankruptcy Act that trump other contracts.  This ruling left the trustee with very limited options for liquidating the member's LLC interest and paying out to the bankruptcy creditors. 

 

 

While most of my asset protection planning involves third-party (i.e. non-bankruptcy) creditors, however this case is important in light of the fact that the court upheld asset protection provided by the member's LLC. 

 

-Tiffany Ballenger, Esq.

 

 


Wednesday, March 13, 2013

How do I leave my estate to my adult children?

When considering how to leave assets to your adult children, first decide how much you want each one to receive. Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive "equal" shares of your estate. For example, you may want to give more to a child who received a college scholarship rather than for the child whose tuition you paid for.  Another good example is leaving more to a child who has served as caretaker for your or your spouse/partner. 

Some parents worry about leaving too much money to their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive- the "trust fund baby" problem.   Certainly, you do not have to give your entire estate to your kids- you can choose to give to grandchildren, great-grand children or charities as well.  

Next, decide HOW the children should receive their inheritance.  Here are some options: 

 Option 1: Give Some Now
If you can afford to give your children or grandchildren some of their inheritance now, you will experience the joy of seeing the results. You could help a child buy a house, start a business, be a stay-at-home parent to your grandchildren, or even see your grandchildren go to college—and know that it may not have happened without your help. This would also let you see how each child might handle a larger inheritance.

Option 2: Lump Sum
If your children are responsible adults, this may seem like a good choice—especially if they are older and you are concerned that they may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if your child adds his/her spouse as a co-owner. If it bothers you that a son-or daughter-in law could end up with your assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Option 3: Installments
Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon your death, one-third five years later, and the final third five years after that) or at certain ages (say, age 25, age 30 and age 35). In either case, be sure to review your instructions from time to time and make changes as needed. For example, if you live a very long time, your children might not live long enough to receive the full inheritance—or, they may have passed the distribution ages and, by default, receive the entire inheritance in a lump sum.

Option 4: Keep Assets in a Trust
You can keep your assets in a trust and provide for your children, but not actually give the assets to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. If you have a special needs dependent, or if a child should become incapacitated, the trust can provide for this child without jeopardizing valuable government benefits. If you have a child who might need some incentive to earn a living, you can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If you have a child who is financially secure, you can keep the assets in trust for your grandchildren and future generations, and still provide a safety net if this child’s situation changes and he/she needs financial help. This option gives you the most flexibility, control and protection over the assets you worked a lifetime to accumulate and build.

While there is no one right choice for how to leave assets to all adult children, given many individuals’ concerns over protecting inheritances from creditors (particularly ex son or daughters in law), many choose leaving their assets in trust for the benefit of their children and/or grandchildren. Regardless of your ultimate choice, this is an important decision that should be considered with input from your estate planning professional.  Please contact us today to set up an appointment should you have questions!

Credit: estate planning.com


Wednesday, March 13, 2013

Why Nevada LLC's might just be the "best"!

SB 405 went into effect on October 1, 2011. It strengthens the asset protections available to Nevada-based entities. The updated charging order language affects Nevada Limited Liability Companies (LLCs), Corporations and Limited Partnerships (LPs). The law changed as follows: the new language in the statute makes the charging order the exclusive remedy of a judgment creditor- including single member LLC’s and single shareholder corporations. A charging order is a remedy issued by the court giving the creditor a lien over the debtor’s interest in the entity. As such, this new language solves the problem brought forth in case law (specifically single-member LLC cases). Using the generous provisions provided by Nevada statute, many opportunities for asset protection and estate planning can be designed to maximize protection and take advantage of the charging order as the exclusive remedy, discouraging litigation and encouraging settlement.

Main Advantages of Forming Entities Post SB 405: No Equitable Remedies Allowed

Most significantly, SB 405 adds key language to the entity statues specifically stating that no other remedies may be applied. Equitable remedies have served to allow a court to evade the “charging order as the exclusive remedy” language in the past. Equitable remedies are court-granted remedies that require a party to act or refrain from performing a particular act. Under the doctrine of limited liability, a corporate entity is liable for the acts of a separate, related entity (or individual) only under extraordinary circumstances, commonly referred to as piercing the corporate veil. Federal common law typically involves a two pronged test for piercing the corporate veil: the party sought to be charged must have used its alter ego to perpetrate a fraud or have so dominated and disregarded its alter ego's corporate form that the alter ego was actually carrying on the controlling party's business instead of its own. In the Ninth Circuit, cases suggest (at least in California cases), that fraudulent intent in incorporation need not be shown to pierce the veil, as long as it can be shown that the separate identity of the corporation has not been respected and that respecting the corporate form would work an injustice on the litigants.   The test for alter ego liability is almost identical to the veil-piercing test.  Alter ego has been defined as a lack of attention to corporate formalities, commingling of assets and intertwining of operations. Alter ego requires demonstrating that the two corporations (or individual and corporation/company) functioned as a single entity. Applying this notion, the court could set aside the protection afforded by the corporation or company by ordering that the company or corporation is the owner’s “alter ego” then piercing the corporate veil by stating that the company and the individual are one in the same (and going after the other’s assets in satisfaction of the judgment). Of course, veil piercing and alter ego concepts are separate and distinct. Piercing the corporate veil allows the court to find A vicariously liable for B's debts. By contrast, a contention that A is B's alter ego asserts that A and B are the same entity. Liability then is not vicarious but direct. Most other forums do not specifically disallow the court from applying equitable remedies and, as such, the court would have discretion to seek piercing the corporate veil under theories such as reverse veil piercing, alter ego, constructive trust and the like.  Of note is that one exception to SB 405 was made. Courts are allowed to apply the “alter ego” theory as the only equitable remedy as to corporations (not limited partnerships or LLCs).  As such, Nevada LLCs and LPs continue to be a favored structure for ease of management and asset protection.

 

Available Opportunities for Planning

SB 405 creates numerous planning opportunities for current business owners and those looking to create entities. Citing the precedent reached in Albright, A-Z Electronics, Modanlo and Olmstead among others, many estate and business planners in the past have been hesitant to utilize single member LLCs because a Court may state that a single member LLC doesn’t enjoy the charging order as an exclusive remedy. Per SB 405, this loophole is now specifically closed by statute. Additionally, out-of-state entities may enjoy protection as well. To bolster the protection provided by a foreign entity, there are many options available:

Start Over In Nevada

A client may choose to “start from scratch”, so to speak, and re-form the company here in Nevada, dissolving the foreign entity. This may be a good choice if the assets themselves are easily transferable.

Domesticate the Foreign Entity in Nevada

If the assets are hard to transfer (or if the entity owns many types of assets), it may be easier to domesticate the entity in Nevada, taking advantage of our favorable laws. In that instance, the individual assets would not need to be transferred, making it simple to effectuate.

Form a Nevada Holding Company

This type of “hybrid” option involves forming a Nevada entity, such as an LLC, and transferring ownership of the foreign entity to the Nevada entity.  As such, no individual assets would need to be moved and the companies would enjoy Nevada-based protection. This is a great choice for clients who have a number of foreign entities or existing Nevada corporations.

What do I do if I have a corporation?

LLCs and LPs have been favored over corporations by many planners because of greater creditor protection. The alter-ego theory cannot be applied against LLCs or LPs, but can be applied against a corporation. Clients who have foreign and Nevada corporations would still like to make use of the protections now available under SB 405 to increase their creditor protection. The options above can still be used, relatively easily and with minimal expense. To conclude, Nevada’s passing of SB 405 greatly enhances its creditor protection laws for Nevada LLCs, LPs and corporations by excluding all potential equitable remedies (with the exception of the alter ego remedy for corporations).  It goes even further by stating that single member or single shareholder companies enjoy the limits of a charging order remedy, therefore setting our laws above and beyond the laws of the rest of the country.

 

-Tiffany N. Ballenger, Esq.


Wednesday, March 13, 2013

Domestic Asset Protection Trusts & Battley v. Mortensen

In May of 2011, a federal bankruptcy caseBattley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD (2011) led many planners and clients to doubt the protection afforded by Domestic Asset Protection Trusts (DAPTs). Judge MacDonald set aside Thomas Mortensen’s transfer of real property to an Alaska asset protection trust as a fraudulent conveyance. This case came in direct opposition from previous holdings on the same issue, as the Grantor of the trust was not only solvent when he transferred the subject property, but he was also beyond the state statute of limitations for transfers.  In Alaska, the statute of limitations is fours but only two years in Nevada. What does this mean for those who have created DAPTs as part of their overall estate planning and asset protection structures?

Following an expensive divorce, Mr. Mortensen drafted an Alaska Asset Protection Trust by himself. The trust was created to hold real property located in Alaska, worth only approximately $60,000 at time of transfer in addition to a cash gift of approximately $100,000 from his mother.   In 2009, more than four years after drafting the document, Mr. Mortensen become ill and subsequently racked up credit card debt.  He then filed for Chapter 7 bankruptcy.    Though he disclosed his personal assets and the fact that he had a DAPT, he did not disclose the property held by the DAPT.

Even though Alaska has a four-year statute of limitations on transfers to a DAPT, the court applied federal Bankruptcy law which enjoys a ten-year statute of limitations from the date in which a bankruptcy is filed.  Thus, the transfer to the DAPT was unwound, and the property transferred to the DAPT was sold to satisfy his creditors.

Practitioners are somewhat split as to this ruling.  Some believe that this case may be a death knell to transfers to a DAPT however, this case should be distinguished on its facts.  Unfortunately in this case, Mr. Mortensen drafted the DAPT and filed bankruptcy without legal counsel.   Had he not filed Chapter 7, Mr. Mortensen would have been protected from the unsecured creditors via the four-year statute of limitations and the ten-year federal rule would not have been applied.  Additionally, Mr. Mortensen was not in a good position to form a DAPT in the first place since he had declining income, low net worth and escalating debt.

Rather, I like to view this case as a whole as validating the fact that Asset Protection trusts should not be created to defraud creditors.  As such, this type of planning can still prove to be an integral part of one’s overall estate plan.

 

-Tiffany N. Ballenger, Esq.


Wednesday, March 13, 2013

How do I leave my assets to my minor children?

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.

For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child attains the age of majority the court must distribute the entire inheritance in one lump sum.

A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.

Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.

Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant (say, $10,000 or more), court approval may be required. In any event, the child will still receive the full amount at legal age.

A better option is to set up a children’s trust in your will and name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because a will cannot go into effect until after you die.

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).

credit: estate planning.com


Wednesday, March 13, 2013

Asset Protection Techniques

Every day, potential clients come to find out how to protect their assets from potential creditors and lawsuits. Nevada law offers many “free” exemptions under NRS 21.090. However, many assets are still vulnerable such as non-homesteaded real property, bank accounts and investments. Fortunately, Nevada also offers other options for helping to safeguard these exposed assets.

Once risks and areas of exposure have been identified and the potential protection strategies have been carefully explored, a cost vs. benefit analysis should then be conducted before finally deciding which asset protection strategies to employ.

Two of the most widely used Nevada asset protection structures are the Nevada Limited Liability Company (LLC) and the Nevada Asset Protection Trust (NAPT).

Nevada LLC

limited liability company formed in Nevada offers excellent domestic protection. Most practitioners agree that Nevada offers some of the most favorable corporate laws in the country. Some of the pros of a Nevada LLC are:

  • Nevada’s statues generally favor businesses;
  • The organizational requirements are quite informal- no annual meetings or minutes are necessary;
  • LLC’s are flexible structures that can be used in many different ways- to own property, to manage an operating business and to hold liquid assets;
  • LLC’s can be taxed in four different ways: as a disregarded entity, a partnership, an S-Corp or a C-Corp;
  • Nevada, unlike many other states, has no state income tax or corporate tax; and
  • Nevada LLC’s can be structured to maximize privacy and anonymity.

Perhaps most importantly, the members’ interests cannot be attached by a creditor. The only remedy against a member is to obtain a “Charging Order” allowing the creditor to lien or “charge” the member’s profit distribution rights when, or if, a distribution is made by the member of the LLC. As such, assets within the LLC are safe but trapped.

Nevada Asset Protection Trust

Nevada Asset Protection Trusts (NAPT) were created by The Nevada Spendthrift Trust Act, NRS 166.010 et seq. in 1999. Nevada is one of just a handful of states that provide a Trust of this sort.

This unique law lets an individual create a valid Grantor Trust where he or she is both the Trustee, the person who controls the Trust assets, and the beneficiary, while the assets within the Trust remain protected from creditors. Unlike many other states with similar laws, the Trust creator does not need to be a Nevada resident to create a NAPT. Additionally, any category of asset such as real property, personal property or liquid assets in any location can be protected with a NAPT.

NAPTs work in the following manner: By law, the Trust prohibits the assignment, alienation, acceleration and anticipation of any interest of the beneficiary under the Trust by the voluntary or involuntary act of the beneficiary or by operation of law or any process. Payments by the Distribution Trustee, a third party who has discretion to make distributions, are made only to the beneficiary who can also be the person establishing the Trust. The Trustee of a Spendthrift Trust is required to disregard and defeat every assignment or other act, voluntary or involuntary, that is attempted contrary to the provisions of the Nevada Spendthrift Act.

Some of the benefits of the Nevada Asset Protection Trust are:

  • You keep control of your assets;
  • You may receive the full benefit and use your own assets;
  • You don’t need to give away your assets;
  • You can protect any type, and an unlimited amounts, of assets from creditors;
  • The Nevada Asset Protection Trust is less expensive to form and maintain and much less complex than foreign or offshore Trusts which are often troubled by IRS audits and complicated tax reporting requirements;
  • The Nevada Asset Protection Trust may avoid loss of the assets through a bankruptcy; and
  • The Nevada Asset Protection Trust can be integrated with your estate plan (remember, a “Living” or “Family” Trust does NOT provide the creditor protection benefits discussed above).

With all of its benefits, there are some disadvantages to an NAPT. If the Grantor of the Trust is also a beneficiary, a third party Distribution Trustee must serve as well, which means that the Grantor does not have absolute discretion. Additionally, there is a two-year seasoning period. If a creditor is a current creditor when the transfer of the asset to the NAPT occurs, the creditor must bring suit against the property transfer within two (2) years of the transfer or within six (6) months after the creditor discovers, whichever is later. After the seasoning period is over, the creditor is barred from bringing suit to recover said property.

Both of these techniques, amongst others, can be extremely useful in protecting assets and providing peace of mind in our volatile economy.

 

-Tiffany N. Ballenger, Esq.


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