Planning for Unique Assets

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Planning for Unique Assets

  1. 1. PLANNING FOR UNIQUE ASSETS MARK E. KELLOGG ESTATE PLANNING AND BUSINESS SUCCESSION PLANNING mkellogg@fraserlawfirm.com 517.377.0890 517.482.5800 Lansing • Detroit • Grand Rapids www.fraserlawfirm.com © Fraser Trebilcock 2014
  2. 2. Planning For Unique Assets  Definition:  An asset that an Estate Planner has not handled regularly  My presentation will be limited to personal property assets (not include real estate interests)  Primary focus will be on the planning stage, the transfer of unique assets and the administration of unique assets following death © Fraser Trebilcock 2014
  3. 3. Probate Transfers  MCL 700.2513 A will may refer to a written statement or list to dispose of items of tangible personal property not otherwise specifically disposed of by the will, other than money  In testator’s handwriting or signed by the testator at the end, and  Must describe the items and devisees with reasonable certainty  © Fraser Trebilcock 2014
  4. 4. Joint Ownership of Personal Property  MCL 557.151  All bonds, certificates of stock, mortgages, promissory notes, debentures, or other evidences of indebtedness made payable to a husband and wife shall be held by husband and wife in joint tenancy unless otherwise expressly provided, same manner as ownership of real estate by husband and wife;  With full right of survivorship on death of either © Fraser Trebilcock 2014
  5. 5. Joint Ownership of LLC Interest  MCL 450.4504 A membership interest in a limited liability company (LLC) is personal property and may be held in any manner in which personal property may be held.  Husband and wife may hold a membership interest in joint tenancy in the same manner and subject to the same restrictions, consequences and conditions that apply to the ownership of real estate held jointly by husband and wife under Michigan law—with full right of survivorship  © Fraser Trebilcock 2014
  6. 6. Non-probate Transfers Many assets can be transferred outside of probate by naming a beneficiary  MCL 700.6101   A provision for nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage, promissory note, certificated or uncertificated security, account agreement, custodial agreement, deposit agreement, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or other written instrument of similar nature is nontestamentary. © Fraser Trebilcock
  7. 7. Planning for Unique Assets Most clients desire to avoid probate  To accomplish this a unique asset must be transferred to the client’s trust or placed in an entity owned by the client’s trust  © Fraser Trebilcock 2014
  8. 8. Direct Transfer to the Trust Preferable to specifically transfer a unique asset to the client’s trust (Transfer of Unique Asset Chart)  Transfer of Unique Asset Chart  Recommended ways to hold the assets  Information about who to contact to transfer the asset  Forms used for transfer  Notes and comments relating to the transfer  © Fraser Trebilcock 2014
  9. 9. GENERAL ASSIGNMENT Use of General Assignment - Disadvantage –   It may fund the trust with assets that were not intended to be included (motor vehicles, other assets not intended to be in trust) © Fraser Trebilcock 2014
  10. 10. GENERAL ASSIGNMENT  ―Catch-all‖—  Ravitz v Comerica Bank – Michigan Court of Appeals Unpublished Opinion (Docket No 246994 (Nov 16, 2004)); Decedent transferred his ―partnership‖ interests to trust by a general assignment  © Fraser Trebilcock 2014
  11. 11. GENERAL ASSIGNMENT  Ravitz v Comerica Bank – Decedent had business interests but they were not partnerships  Court held that the business interests were in the trust even though the assignment did not correctly identify the type of business interest  © Fraser Trebilcock 2014
  12. 12. GENERAL ASSIGNMENT  Ravitz v Comerica Bank – While a general assignment may not be a ―silver bullet‖ to transfer everything to the Trust, a well drafted assignment shows the transferor’s intent and at least in the Ravitz case, was relied on by the Court  © Fraser Trebilcock 2014
  13. 13. Special Circumstances Related to Personal Property  Encumbered Property – Some items of personal property may be encumbered by a lien (example: car, boat, travel trailer)  Is it the Testator/Settlor’s intent that the lien be the cost of the estate/trust or does the Testator/Settlor intend that the benefiary/recipient assume responsibility for the debt  The Testator/Settlor’s intent should be made clear as part of the bequest/gift  © Fraser Trebilcock 2014
  14. 14. Special Circumstances Related to Personal Property  Delivery, Storage and Insurance The costs of insuring, packing, shipping and delivery of a unique asset should be considered  Generally, the costs are borne by the recipient  Testator/Settlor’s intent should be clear  More significant issue if beneficiaries of specific gifts are different than beneficiaries of residue  © Fraser Trebilcock 2014
  15. 15. Delivery, Storage and Insurance  Personal Property Rule # 1 –  The emotional attachment that any given beneficiary has to any particular item of personal property is directly proportionate to the weight of the item and the distance that the beneficiary resides from the county of probate administration  EXAMPLE: The child who lives in Europe really wants the grand piano © Fraser Trebilcock 2014
  16. 16. Delivery, Storage and Insurance  Personal Property Rule # 2 – The emotional attachment that any given beneficiary has to any particular item of personal property is increased if the estate bears the expense of storage, handling and delivery © Fraser Trebilcock 2014
  17. 17. Specific Unique Assets  ALCOHOL- John and Susie Client come in for an estate plan and mention that they have an extensive wine cellar or private vineyard.  Alcohol may present planning and administration issues.  © Fraser Trebilcock 2014
  18. 18. ALCOHOL    Most alcohol is difficult to sell. MCL 436.1203 – Michigan law requires that most alcohol be sold through the MLCC. When some or all of the beneficiaries are younger than 21 distribution can be complicated. A personal representative or trustee faces criminal penalties if alcohol is furnished to a person less than 21 years of age (MCL 436.1701) © Fraser Trebilcock 2014
  19. 19. ALCOHOL   Allen L. Venet – 2012 47th Annual Heckerling Institute on Estate Planning: From Bazarr to Bizarre: Planning for and Administering Unusual Assets in Estates and Trusts – “What to do? While certain rare wines can be sold at auction in some states, the vast majority of libations do not warrant such treatment. Moreover, as a practical matter, few if any licensed dealers will purchase alcohol from “lay people” because appropriate storage cannot be guaranteed. Therefore, in most situations if an estate or trust holds alcohol sale is not an option. Every fiduciary has the duty to protect estate and trust assets. Therefore, it is rarely appropriate to destroy alcohol, at least if it has any value. Query, is there a distinction between “distributing” a bottle to a beneficiary, and allowing the beneficiary to “take” the bottle? Perhaps the only answer is consumption! Remember, however, your fiduciary duty is to the beneficiaries. So be sure that they share in the consumption.” © Fraser Trebilcock 2014
  20. 20. Some Things You Just Can’t Own  Certain WildlifeFederal Endangered Species Act, 16 U.S.C.A. Section 1538 et. seq.  Michigan Natural Resources and Environmental Protection Act 451 of 1994, MCL 324.101 et. seq.  A listing of the species protected under Michigan Law is maintained by the Michigan State University Extension and can be found at mnfi.anr.msu.edu/data/specialanimals.cfm  These items cannot be possessed or transported (delivery is a federal criminal offense; violation of Michigan law exposes violator to fines and criminal © Fraser Trebilcock penalties) 2014 
  21. 21. Some Things You Just Can’t Own     Ivory African Elephant Conservation Act of 1989, 16 U.S.C.S. 4201; African Elephant 16 U.S.C.S. 4203; See Phelan, Ben, The Ins and Outs of Owning Ivory, Antiques Roadshows-Follow the Story, on-line article, www.pbs.org/wgbh/roadshow/fts/chattan ooga_200804A10.html (2009); The Protection of Bald and Golden Eagles Act of 1940 (16 U.S.C.A. 668); Archeological Resources Protection Act of 1979 (16 U.S.C.A. 470) © Fraser Trebilcock 2014
  22. 22. Some Things You Just Can’t OwnCONSIDERATIONS     Michigan law allows the fiduciary to abandon assets. A fiduciary would want to avoid potential criminal sanctions and might want to abandon an asset that, at least on the black market has considerable value. Does a fiduciary have a conflict of interest in avoiding personal liability by abandoning a prohibited item versus the fiduciaries responsibility to preserve the assets for the heirs/beneficiaries? Consider Exculpatory Language in an Estate © Fraser Trebilcock 2014
  23. 23. Some Things You Just Can’t OwnCase       Tax Court Case SettlementEstate of New York art dealer Ileana Sonnabend Art work by Robert Rauschenberg titled ―Canyon‖ Sculptural combine included a stuffed bald eagle Heirs could not sell the artwork – felony Estate valued ―Canyon‖ at zero because it could not be sold © Fraser Trebilcock 2014
  24. 24. Some Things You Just Can’t OwnCase       Total Estate approximately $876,000,000 Estate tax $471,000,000 BUT what if this was the only significant asset in the Estate? Does the IRS require that the tax be paid on an asset that can only be sold illegally? Case settled---IRS allowed ―Canyon‖ to be donated to the New York Museum of Modern Art No estate tax was assessed BUT donation did not qualify for a charitable deduction © Fraser Trebilcock 2014
  25. 25. FIREARMS  How many guns in America? CNN 47% of households have at least 1 gun (Gallup poll)  CNN 8/9/2012 report – 310 million nonmilitary firearms  FBI Estimates that there are over 200 million privately-owned firearms in the U.S.  Often estimated that about 1 in 4 people own any firearms and on average firearm owners own 4 guns each  © Fraser Trebilcock 2014
  26. 26. FIREARMS  How many guns in America? 1995 BATFE estimated 223 million firearms owned by individuals in U.S. The number has increased since.  Small Arms Survey in 2007 by the Graduate of International Studies in Geneva estimated 270 million firearms in the U.S.  NO DEFINITIVE ANSWER BECAUSE MOST STATES DON’T REQUIRE REGISTRATION. © Fraser Trebilcock 2014
  27. 27. Michigan Law – Pistols/Handguns  Michigan Law – Handgun is a weapon that is 30 inches or less;  A rifle is a weapon more than 30 inches;  The owner of a weapon that is between 26 and 30 inches may apply to have the weapon classified as a rifle (MCL 750.228)  Under Michigan Law the rule to transfer a rifle are much less restrictive than rules to transfer a handgun  © Fraser Trebilcock 2014
  28. 28. Handguns-Michigan Law    Under Michigan Law the possession and transfer of a handgun is strictly regulated. All transfers of handguns must be reported on a Pistol Sales Record Michigan State Police Form RI-060. MCL 28.422 entitled ―License to purchase, carry, possess, or transport pistol; issuance; qualifications; applications; sale of pistol; exemptions; nonresidents; forging application; implementation during business hours‖ regulates the licensing for the purchase, possession or transport of a pistol/handgun. © Fraser Trebilcock 2014
  29. 29. Handguns  MCL 28.422(7) … This section does not prevent the transfer of ownership of pistols that are inherited if the license to purchase is approved by the commissioner or chief of police, sheriff, or their authorized deputies, and signed by the personal representative of the estate or by the next of kin having authority to dispose of the pistol. © Fraser Trebilcock 2014
  30. 30. Handguns HANDGUN (PISTOL) Minimum Age 18 FORM Pistol Sales Record MSP RI060 License to Purchase Yes unless CWP Who may transfer Personal Representative Next of Kin © Fraser Trebilcock 2014
  31. 31. National Firearms Act (NFA) Weapons Title II Firearms (commonly known as Class 3 Firearms)  machine guns, short-barreled rifles, short-barreled shotguns, suppressors and silencers, and various other weapons as defined in NFA and Gun Control Act (GCA)  © Fraser Trebilcock 2014
  32. 32. NFA FIREARMS Under federal law a ―person‖ defined to include a trust, must obtain permission from the Bureau of Alcohol Tobacco Firearms and Explosives (―BATFE‖) before any transfer of Title II firearms can occur  ―Transfer‖ includes not only a sale or purchase, but also simply lending your firearm to another  © Fraser Trebilcock 2014
  33. 33. NFA FIREARMS  To obtain permission --Submit application (ATF Form 4)  Submit photographs and fingerprints  Pay transfer tax  Obtain approval of the chief law enforcement officer (CLEO) – MOST DIFFICULT REQUIREMENT  © Fraser Trebilcock 2014
  34. 34. NFA FIREARMS  RULES AND REGULATIONS COULD BE PROBLEMATIC FOR – Families who wish to share family firearms  Father dies leaving 3 adult children and his desire/intent is that all 3 share in the possession and use of Title II Firearms  Currently no way for individuals to obtain joint ownership of firearms  © Fraser Trebilcock 2014
  35. 35. NFA FIREARMS – AG OPINION      Attorney General Opinion 7260 (September 2, 2011) Suppressors were legal to possess in Michigan if in compliance with federal regulations Previously, gun trusts in MI not prevalent as the items one could legally possess in the state were cost prohibitive for most After AG Opinion due to difficulty of obtaining CLEO signature or unwilling to comply with regulations (fingerprinting, photographs) Need/desire for Gun Trusts has increased in MI © Fraser Trebilcock 2014
  36. 36. GUN TRUSTS  NFA Trust or ―Gun Trust‖ – Trust designed specifically for ownership, transfer and possession of NFA Firearms; can avoid some of the rules and regulations regarding the transfer of Firearms (can also include Title I Firearms, family heirlooms, hunting rifles)  The Trust is the owner of the Firearms  Any trustee (not otherwise prohibited) is authorized to possess and use the firearms  As long as firearms stay in possession of the trustees, no transfer occurs that would require NFA approval  Use and possession of Firearms can be shared  © Fraser Trebilcock 2014
  37. 37. GUN TRUSTS     No need for CLEO certification prior to purchasing new firearms for the Gun Trust Changes in laws preventing or further restricting transfers would not prevent family members from enjoying the firearms and passing them down generations because no transfers occur Less risk that family members inadvertently violate the law by taking possession of an NFA Firearm upon death, disability or incapacity of original owner Or, that personal representative of the estate forgets to register firearm properly prior to transferring to an heir © Fraser Trebilcock 2014
  38. 38. GUN TRUSTS    NOTE: Michigan law is unclear on the validity of a Gun Trust as far as pistols/handguns are concerned Current pending Michigan legislation may also have an impact on the utility of gun trusts proposal that ―Firearm‖ replace ―Pistol‖ There has been talk of BATFE and President Obama doing away with NFA Trusts and requiring everyone to obtain a CLEO signature, or possibly other rule changes impacting gun trusts © Fraser Trebilcock 2014
  39. 39. DIGITAL ASSETS  Three Main Types of Digital Assets 1. 2. Online Accounts – Facebook, LinkedIn, Twitter, PayPal, eBay, Pinterest, iTunes, Email Accounts, Blogs Files stored on a client’s computer, phone, DVDs, CDs, in the Cloud, IMs, saved emails © Fraser Trebilcock 2014
  40. 40. DIGITAL ASSETS – NATURE OF ASSET Most Digital Assets are NOT personal property. A user is typically granted a license to use an application or website.  Websites and apps are controlled by the ―Terms of Service‖, a contract between the company and the user.  © Fraser Trebilcock 2014
  41. 41. DIGITAL ASSETS  Issues with digital assets –  Some clients might prefer that certain digital assets are never found  Others may prefer that someone other than a loved one handle certain digital assets, or  Possibly a desire that the digital assets be destoyed © Fraser Trebilcock 2014
  42. 42. DIGITAL ASSETS – ESTATE PLAN Digital assets should be addressed in some manner with estate planning clientsDevelop an Inventory of Digital Assets (URLs, user names, passwords)  Determine who should have access to these assets © Fraser Trebilcock 2014
  43. 43. DIGITAL ASSETS – PENDING LEGISLATION   Michigan has pending legislation (SB 293) which attempts to gain control over digital assets by a personal representative by adding a new section (GG) to MCL 700.3715, ―Transactions authorized for personal representatives‖ which provides as follows – (GG) TAKE CONTROL OF, CONDUCT, CONTINUE, OR TERMINATE ANY ACCOUNTS OF THE DECEDENT ON ANY SOCIAL NETWORKING WEBSITE, ANY MICROBLOGGING OR SHORT MESSAGE SERVICE WEBSITE, OR ANY MAIL SERVICE © Fraser Trebilcock 2014
  44. 44. DIGITAL ASSETS    This proposed legislation will not provide much access to a personal representative since most digital assets are not personal property. The Michigan State Bar’s Probate and Estate Planning Council has appointed a committee that will take a more comprehensive approach to this issue. Also, the Uniform Law Commission (ULC) is in the process of drafting a uniform act entitled, ―Fiduciary Access to Digital Assets.‖ © Fraser Trebilcock 2014
  45. 45. DIGITAL ASSETS – What to do?     Until Michigan has comprehensive laws on this topic, the terms of governing instruments (estate plan documents) will control; however, despite what the estate plan documents my provide, ―Terms of service‖ contracts may still limit access and control to digital assets. Practitioners may want to consider updating various estate plan documents to name digital asset fiduciaries (agent under a power of attorny, conservator, personal representative, trustee). Watch for new laws in this area. Keep up to date on how various specific providers are dealing with access to digital assets at death and modify the terms accordingly. © Fraser Trebilcock 2014
  46. 46. QUESTIONS? Fraser Trebilcock Davis & Dunlap, P.C 124 West Allegan, Suite 1000 Lansing, MI 48933 www.fraserlawfirm.com Phone: (517) 482-5800 Fax: (517) 482-0887 Mark E. Kellogg, J.D., CPA Phone: (517) 377-0890 Email: mkellogg@fraserlawfirm.com © 2014 Fraser Trebilcock Davis & Dunlap, P.C.
  47. 47. DISCLAIMER THESE MATERIALS ARE NOT INTENDED TO BE LEGAL ADVICE, NOR ARE THEY INTENDED TO BE A SUBSTITUTE FOR LEGAL SERVICES FROM A COMPETENT PROFESSIONAL. THESE MATERIALS ARE FOR EDUCATIONAL PURPOSES ONLY. © 2014 Fraser Trebilcock Davis & Dunlap, P.C.

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