Nebraska Inheritance Tax Updates

Although Nebraska does not currently have an estate tax, it does still impose an inheritance tax. The Nebraska inheritance tax applies to an individual who (1) dies a resident of Nebraska, or (2) regardless of residency, an individual who owns real property in Nebraska at the time of their death. The inheritance tax must be filed in and paid to the county in which the decedent resided or within the county in which his or her real property was located. The inheritance tax is due and payable within twelve (12) months of the decedent’s date of death, and failure to timely file and pay the requisite tax may result in interest and penalties.

The tax rate and applicable exemption amount varies based on the degree of kinship between the decedent and the respective beneficiary. Now for some good news. On February 17, 2022, Legislative Bill 310 was signed into law. The new law effectively reduces inheritance tax rates and increased inheritance tax exemptions for deaths occurring in 2023 and beyond. 

Currently, spouses receive a full exemption from paying Nebraska inheritance taxes, and they will continue to be exempt under the new law. In addition, the inheritance tax will not apply to transfers to individuals twenty-one (21) years or younger, and there is no tax imposed upon property passing to an entity organized exclusively for religious, charitable, public, scientific, or educational purposes. Beyond that, the Nebraska inheritance tax is as follows:

Transfers to immediate family members other than the surviving spouse -- The tax rate on transfers to immediate relatives (e.g., children, grandchildren, siblings, parents, etc.) will remain 1%, however, the exemption amount will increase from $40,000 to $100,000, per beneficiary. 

Transfers to more remote family members -- The tax rate on transfers to remote relatives (e.g. aunts, uncles, nieces, and nephews) will be reduced from 13% to 11%, and the exemption amount will increase from $15,000 to $40,000, per beneficiary. 

Transfers to unrelated persons -- The tax rate on transfers to unrelated individuals will be reduced from 18% to 15% and the exemption amount will increase from $10,000 to $25,000, per beneficiary.

If you have questions regarding Nebraska inheritance taxes, the aforementioned updates, or are interested in reviewing your current estate plan in light of these changes, please reach out to any of the highly knowledgeable and experienced estate planning attorneys at Erickson & Sederstrom.

Homestead Exemption & Transfer on Death Deeds

In Chambers v. Bringenberg, a recent matter of first impression, the Nebraska Supreme Court reversed the decision of the district court and held that a transfer on death (“TOD”) deed did not fall under the plain language of a statute governing homestead conveyances. See Chambers v. Bringenberg, 309 Neb. 888 (2021).  Therefore, in the case where a homestead was owned by one spouse, the TOD deed executed by the owner-spouse did not require the non-owner spouse to execute or acknowledge the deed for it to be valid. 

This case arose when a surviving husband, David Chambers, brought an action challenging a TOD deed executed by his wife, Eleanor Chambers, before her death. On February 8, 2018, Eleanor recorded a TOD deed for a home she purchased solely in her name and chose her daughter, Angie, as the designated beneficiary. At this time, David neither executed nor acknowledged the TOD deed.

In contending the transfer to Angie was invalid, David relied on Nebraska Revised Statute § 40-104, also known as the homestead statute, which provides that the “homestead of a married person cannot be conveyed or encumbered unless the instrument by which it is conveyed or encumbered is executed and acknowledged by both spouses.” Neb. Rev. Stat. § 40-104 (emphasis added). David argued he was the rightful owner of the home because he did not execute or acknowledge Eleanor’s TOD deed.

The district court found in favor of David on this issue, reasoning that Eleanor’s TOD deed was void because Eleanor was a “married person” who lived at the home in question, and it was therefore “the homestead of a married person” subject to the homestead statute. Accordingly, the district court found the TOD deed was invalid because David did not execute and acknowledge the deed as required under the homestead statute.

In reversing the district court’s decision, the Nebraska Supreme Court considered, as an issue of first impression, whether § 40-104, the homestead statute, applied to TOD deeds.

In its analysis, the court first noted that under the Nebraska Uniform Real Property Transfer on Death Act (“TODA”), a transfer of property through a TOD deed “is effective at the transferor’s death” and “[n]othing in the TODA expressly contemplates any circumstance under which the TOD deed of a married grantor must contain the spouse’s execution and acknowledgment in order to be valid.” Id. at 906. Additionally, the conveyance statutes that are incorporated by reference into the TODA make no reference to homestead protections.

The court acknowledged that “even when both spouses have a homestead interest in the real estate,” it has never previously held “that a spouse cannot validly devise an ownership interest in homestead property without the other spouse executing and acknowledging the will.” Id. at 912. However, the court found that the requirement under the homestead statute did not apply to TOD deeds because, under the plain language of the statute, the words “convey,” “grant,” and “encumbrance” all connotate that the instrument has an inter-vivos effect, where the transfer is made during one’s life. In contrast, the language in the TODA describes a “transfer” between a “transferor” and a “beneficiary” and is the language of a devise, or the passing of title of real estate upon death.

Based on the foregoing, the court ultimately held a TOD deed does not fall under the plain language of the homestead statute because “[w]hat occurs upon a transferor’s death to property that is the subject of a TOD deed is not a conveyance or an encumbrance, but a devise.” Therefore, David’s execution and acknowledgment of Eleanor’s TOD deed was not necessary.

Call Erickson | Sederstrom’s estate planning attorneys with questions on TOD deeds, wills or trusts, or related matters at 402-397-2200 and ask for Andrew Huettner, Dan Dittman, or Michelle Daniels.

Why Everyone Needs A Comprehensive Estate Plan

You have likely already made a diligent effort to choose a knowledgeable financial advisor and create a sound financial plan, whether that means starting a college savings fund for your children or saving for retirement. However, more than likely, the financial plan you built with your financial advisor does not necessarily consider what you want to happen in the event of your incapacity or upon your death.  So, what happens to a Nebraska resident that does not have these important estate planning documents?  

The state of Nebraska, in its generosity, creates a “will” on your behalf, and the laws of intestacy dictate who gets what. But what does Nebraska law really say? Well, that all depends on your then living heirs and the total value of your estate. For example, if you are a married person with no children, Nebraska law says the first $100,000.00 plus one-half of your remaining assets go to your surviving spouse, and the balance of your assets go to your parents. For a married person with children, Nebraska law says the first $100,000.00 plus one-half of your remaining assets go to your surviving spouse, and the balance of your assets get distributed equally amongst your children, so long as all your children are also children of your surviving spouse. 

If these state laws surprise you, or if they do not reflect the plan you envisioned, do not let the State of Nebraska dictate these things for you.  Be diligent in your planning and consider executing these very important documents, not only for yourself, but also for your loved ones. 

When it comes to estate planning, most people are familiar with the concept of a Will. However, in addition to a Will, there are many other essential documents that you should consider, and we will discuss each in greater detail below.  

Last Will and Testament. What comes as a surprise to many is the fact that a Will is much more than just an instrument detailing who you want to inherit your property. A Will is a legally enforceable document stating the “who, what, and when” upon your death. In a Will, you will consider things such as: 

1. How your estate will be distributed;

2. Whether you want to include any bequests to specific individuals or charities, or in the alternative, whether there are individuals you would like to disinherit;

3. Who you want to take care of your minor children, if any;

4. At what age or ages you want your children to receive their inheritance and whether you want to set conditions for asset distribution;

5. Who you want to wind up your affairs and handle your property after death; and

6. Where you want your property to go in the event you die without any living descendants (i.e. children, grandchildren, etc.)

 Power of Attorney. Although this document may take many forms, all Power of Attorney documents allow another person to make decisions on your behalf during your lifetime. Giving a person you trust a power of attorney gives them the ability to advocate for your medical needs or make necessary legal and financial decisions for you.

 An agent under a Durable Power of Attorney for Financial Affairs (“Financial DPA”) is appointed by you to act on your behalf regarding your property, business, and financial affairs, among other things. Your agent is legally permitted to perform acts that you designate, whether that be limited powers, or all powers to the fullest extent allowed under the law.  An example of such powers includes simple tasks, such as paying bills and depositing checks, or more complicated tasks, such as managing your real estate, investments, or business interests. Unless expressly stated in the document, the agent may act even while you, the principal, have capacity.

 Should you not have a Financial DPA in force in the event of an incapacity, it is very possible that your family will need to petition the court and ask a judge to establish a conservatorship for you. In addition to being labor intensive, court proceedings are also costly and typically require the assistance of an attorney.  Oftentimes, the situation that calls for a conservatorship also requires immediate action. Of course, as with all fiduciary appointments, who you name as your agent needs thoughtful consideration, such as whether the person is capable of managing your assets, can be diligent when carrying out actions, and fully understands your wishes.  Furthermore, you must consider who you want to serve as a back-up in the event the primary agent is unable or unwilling to fulfill the role.

 An agent under a Health Care Durable Power of Attorney (“Health Care DPA”) is appointed to make health care decisions for you in the event you are unable to make health care decisions for yourself. If you want the agent to have authority regarding life-sustaining treatment, the authority must be expressly stated in the Health Care DPA.  In the alternative, you may choose to execute a Living Will and expressly state your wishes to refuse life-sustaining treatment.  You may also express your wishes regarding organ donation within the Health Care DPA. 

 If you have questions regarding the aforementioned documents, or are interested in more information about Trusts (which is another highly sought-after method of estate transfer), please reach out to any of Erickson & Sederstrom’s highly knowledgeable and experienced estate planning attorneys at (402) 397-2200.

Common Misconceptions About Wills and Probate

Traditionally, most people think of a will as the vehicle that transfers all of a person’s property upon their death; however, wills do not always pass ownership of everything. Trusts, transfer on death deeds, beneficiary designations, and joint accounts with rights of survivorship are also tools that transfer ownership of property upon death. For example, most retirement plans pass to a named beneficiary. Many bank accounts pass to a joint tenant with rights of survivorship or to a payable on death beneficiary. Nebraska has also adopted another method of transferring ownership of real estate upon the death of the owner through the use of a transfer on death deed. All of the aforementioned examples pass outside the terms of a will.

Another common misconception is how wills work and when they go into effect. Wills do not go into effect until the will has been admitted to probate. Probate is a court-supervised legal process that occurs in the county court where the decedent resided and is typically required to administer a person’s estate after their death. After the will is validated by the court, the court must also appoint a personal representative (or executor) to oversee and manage all estate assets. Therefore, just having a will and naming someone as your personal representative does not automatically deem the will to be valid and allow the person named in the document to jump right in and start transferring property.

It is also important when meeting with your estate planning attorney that you do not limit the discussion to your will or who gets your assets upon death. Planning for a disability or incapacity during your lifetime is also a very important aspect of planning for your future.

Whether you are exploring the idea of estate planning for the first time or you have had a plan in place for years, we would welcome the opportunity to take a fresh look at your situation to ensure that every piece of your estate plan fits with your overall financial picture and goals.

This article does not create or constitute an attorney-client relationship and is not intended to convey or constitute legal advice. It is important to speak with a qualified professional regarding your specific matter prior to taking any action.

What Is the SECURE Act and How Could It Affect Your Estate Planning?

The SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement,” enacted numerous provisions that may impact your estate plan beginning January 1, 2020. Perhaps the most noteworthy provision in the realm of estate planning relates to inherited retirement accounts. The previous rule, often referred to as the “stretch IRA,” allowed individuals inheriting retirement accounts to stretch out required minimum distributions (RMDs) over their own lifetimes. The new provision implemented by the SECURE Act, which will apply only to account holders dying on or after January 1, 2020, eliminates the stretch distribution, and will now require a full payout of the inherited IRA within 10 years of the original account holder’s death. Although there are limited exceptions to this rule, such as inherited retirement accounts collected by the surviving spouse of the decedent, the SECURE Act will undeniably have a significant impact on many estate plans. The implications will vary and could have very different consequences depending on each individual’s goals and assets held inside IRAs.

Other notable ways the SECURE Act may impact your retirement include an increase in the age that triggers required minimum distributions ("RMDs") from 70½ to 72, as well as repealing the age-based restriction on contributions, which means individuals may now make contributions to a traditional IRA for an indefinite period. The SECURE Act contains several other tax-advantageous provisions for both individuals and employers, such as including part-time employee participation in 401(k) plans. These changes were designed to ultimately strengthen retirement security nationwide.

For more information regarding the Secure Act or any other related matters, please reach out directly to Michelle J. Daniels, William T. Foley, or any of the other experienced attorneys at Erickson | Sederstrom.

This article does not create or constitute an attorney-client relationship and is not intended to convey or constitute legal advice. It is important to speak with a qualified professional regarding your specific matter prior to taking any action.

What Happens To My Online Accounts When I Die?

The 2017 Nebraska Revised Uniform Fiduciary Access to Digital Assets Act now allows an individual to provide for their electronic assets in an estate plan. 

        Nebraska, along with over 30 other states, enacted a law which discusses what happens to digital assets after death. The Nebraska Revised Uniform Fiduciary Access to Digital Assets Act (“the Act”) went into effect January 1, 2017, and provides guidance concerning how a fiduciary (e.g. Trustee, Personal Representative) may gain access to the digital devices of a deceased user.

        So what does the Act really mean for you? It’s simple. You can now grant someone the absolute authority to control any and all Digital Devices and digital information in your estate plan.  This, in turn, will provide an easier avenue for a specified individual to gain access to accounts and will grant them with widespread power over your digital devices, whether for the purpose of continuing your business efforts, settling your affairs, or to simply collect lifelong memories. 

        Let’s take a moment to reflect on all the ways we rely on the internet and different online applications in our daily lives.  Some may conduct significant business transactions via PayPal and Gmail; while others may market services, acquire clientele and procure payment through social media accounts, such as Etsy, Twitter, Facebook, and Instagram. Although every person uses technology in varying ways and for different reasons, many do not consider what happens to their digital records upon death.  

       Prior to the enactment of the Act, unless you left a specific person with all your username and password information prior to death, it was common for an individual to have to jump through quite a few hoops if they wanted to acquire access to and control of “digital assets” and digital information of a deceased user from the corresponding provider.  In essence, this meant that even after someone died, many of their digital assets continued to exist, leaving no one the power to access, modify, delete, control or transfer any digital information or communications. If the internet plays such an abundant role in our day-to-day lives, why do we put such a huge emphasis on planning for all other aspects of our lives, but not for this one? After all, time is money, and the effort spent gaining access to an account could undeniably be better spent actually running the account.

        It is also important to note that arrangement for your digital assets is only one aspect of estate planning. Incapacity issues, asset protection for you and for beneficiaries, avoiding probate, and minimizing income taxes are all other aims that can be achieved with proper planning.  In addition, changes in your family or to your assets may render your current estate plan outdated. Therefore, we welcome the opportunity to meet and to discuss all of these matters to ensure that your estate plan reflects your current objectives. 

        For more information on the Nebraska Revised Uniform Fiduciary Access to Digital Assets Act, how to provide for the Act in your estate plan, or any other matters relating to estate planning and probate, please contact Michelle J. Daniels with Erickson | Sederstrom.
 

Divorce’s Impact on Estate Plans in Nebraska

    On September 3, 2017, Nebraska LB 517 went into effect. The passing of this bill has resulted in the enactment of Nebraska Revised Statute §30-2333, titled “Revocation by divorce or annulment; no revocation by other changes of circumstances.” What exactly does this mean? Well, absent a court order, express terms of a governing instrument, or contract relating to the division of the marital estate, it means a few different things.
   First, a divorce or annulment revokes any revocable transfer or appointment of property made by a divorced individual to his or her former spouse, or to a relative of his or her former spouse. For instance, let's say Spouse 1 is both the owner and insured of a life insurance policy that lists Spouse 2 as the primary beneficiary. In the event Spouse 1 and Spouse 2 legally divorce, Spouse 2 is no longer treated as the primary beneficiary of said policy, assuming the contrary is not specified under the policy, by court order, or by other contractual agreement between the parties.  In this case, the provisions of the life insurance policy are given effect as if Spouse 2 disclaimed all interest in the life insurance policy. The same principle applies to accounts with payable on death designations, last wills, interests in certain trusts, pensions, retirement plans, transfer on death deeds, annuity policies, profit-sharing plans, etc.  
    Also revoked by a divorce or annulment is any revocable provision giving the former spouse, or relative of the former spouse, a general or non-general power of appointment. An individual's estate planning documents often contain such powers of appointment. Also found in estate planning documents are nominations of certain fiduciaries. Any revocable nomination of the former spouse, or relative of the former spouse, as a fiduciary or representative is revoked upon divorce or annulment. Examples of potential nominations include an executor, trustee, guardian or power of attorney.
    Next, a divorce or annulment severs any interest in property held together by former spouses as joint tenants with a right of survivorship at the time of the divorce or annulment. The former spouses then become equal tenants in common.  What does “joint tenants with a right of survivorship” mean? Let’s say you have Spouse 1 and Spouse 2 and they own property together as joint tenants with a right of survivorship. Now if Spouse 1 dies, Spouse 2 automatically obtains the percentage of the property previously held by Spouse 2. Now what about “equal tenants in common”? Now you have Spouse 1 and Spouse 2 and this time they get a divorce. Upon the divorce, Spouse 1 and Spouse 2 both have equal shares in the property, and upon the later death of one spouse, the surviving spouse no longer has a right to the deceased spouse's interest in the property. Again, it is important to note that these are default rules absent express terms of a governing instrument, court order, or other property settlement agreement.  Also, unless there has been a writing declaring the severance and the writing was noted, registered, filed, or recorded in appropriate records, this severance does not affect a purchaser’s interest in the property so long as the purchaser purchased it for value and in good faith relied on the fact that the title was in survivorship in the survivor of the former spouses. 
    Also, it is important to note that a decree of legal separation is not considered a divorce or annulment for purposes of this statute. Moreover, provisions revoked solely by this statue are revived by the divorced individual's remarriage to the former spouse or by nullification of the divorce or annulment.
    How are third parties affected by this statute? A third party is not liable for making payment or transferring property to a beneficiary designated in a governing instrument that is affected by the divorce, annulment, or remarriage, or for taking any other action in good faith reliance on the validity of the governing instrument, before such third party receives notice. If a third party receives written notice of the divorce, annulment, or remarriage, the third party then becomes liable for payments or action taken regarding the property after said notice.  Finally, a former spouse, relative of a former spouse, or other person who received, without giving value in return, a payment, an item of property, or any other benefit to which that person is not entitled under this section is obligated to return the payment, item of property, or benefit, or is personally liable for the amount of the payment or the value of the item of property or benefit, to the person who is entitled to it.