This past Monday, I gave a 90-minute webinar entitled “Revocable Living Trusts in a Nutshell”. It was sponsored by the good folks at the National Business Institute (“NBI”) and simulcast by West Legal Ed Center. The course was geared toward a national audience and is approved for Continuing Legal Education (CLE) credit in many states as well as CPE for the National Association of State Boards of Accountancy. The webinar was recorded and will be available for 1.5 to 2.0 hours credit at both NBI and West until at least the end of 2013 (depending on your state).
I strongly encourage lawyers, accountants, financial planners or others who are thinking about sharing knowledge with colleagues to consider webinar speaking. It can be quite rewarding and is relatively painless, plus you can present your talk right from your own office.
Follow-Up Answers to Webinar Questions
During the Q & A portion of the webinar, I promised that I would respond here to questions I did not know off the top of my head. As a reminder, at this time, I am only licensed to practice law in Virginia, Maryland and Pennsylvania. The following deals with matters in other states where I am not licensed, so while I give my best efforts to answer, please consider me as no more than a mere commentator on such matters.
Question 1: A Florida resident has a revocable living trust that is the named owner of a second home in New York State. What are the consequences, if any, of this arrangement? Would the property be subject to an ancillary probate proceeding in New York State after his death?
Main Rules – In general, tangible property, including real estate is subject to state death taxes and probate in the state where the property is located. Intangible personal property, such as stock, is subject to state death taxes and probate in the state where the owner was domiciled.
Without any planning, a Florida resident who dies owning real estate in New York would be subject to Florida probate as well as an ancillary probate proceeding in New York (due to the property’s situs). The New York real estate would also be subject to New York State death taxes.
Use of an RLT — If the Florida resident transfers the New York property into an RLT during his lifetime, it would avoid the ancillary probate in New York because the property would be owned by the RLT and not the decedent. However, the property would still be subject to New York death taxes since it is still deemed a tangible asset.
Alternatives – To both maintain ownership of the property and avoid New York death taxes, the property would need to be converted into an intangible asset. Therefore, instead of transferring the property into an RLT, it would likely be more effective for the property to be transferred into an LLC, partnership or corporation in exchange for a membership, partnership or shareholder interest in the entity. Such interests would be considered intangible and thereby could avoid the New York death tax.
Incidentally, don’t forget that owning an interest in a cooperative apartment is treated as an intangible asset. Therefore, an out-of-state resident owning an interest in, say, a co-op in Manhattan at death would likely not owe any New York State death taxes on that asset.
Question 2: A husband and wife are killed in an accident they caused, resulting in hundreds of thousands of dollars in liabilities to their estates. If their RLT either owned or was the beneficiary of their life insurance are their estates protected from creditor claims?
The answer will vary based on the couple’s domicile, how the RLT was drafted, and whether the decedents surrendered all incidents of ownership.
State Asset Protection Rules — State rules greatly vary. Some do not give any creditor protection to RLT-owned life insurance. For an outstanding discussion and survey of all state laws on the protection of life insurance, see “Creditor Protection for Life Insurance and Annuities” by Gideon Rothschild and Daniel S. Rubin.
Drafting of the RLT – The RLT can (and probably should) be drafted to state that any life insurance proceeds cannot be used to pay any estate expenses.
Incidents of Ownership – In the rare case that the couple has somehow yielded all control to their policy while it is held in the RLT, this could also conceivably protect their estates. Check Sec. 20.2042-1 of the Treasury Regulations, especially sections (c)(4) and (c)(5), for definitions and further discussion of “incidents of ownership”.
Questions and Comments
A big, warm thank you to the New Mexico listener who emailed that “no, you did not cause me to recall last year’s Oscars.”
Less of a thank you to those who have told me that I “have a face for radio and a voice for print”.
Please do not hesitate to ask anything further below. Thanks again!!!