Planning for Unique Assets

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

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

2014

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


2014

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

2014

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


2014

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.


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


2014

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


2014

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)

2014

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



2014

GENERAL ASSIGNMENT



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


2014

GENERAL ASSIGNMENT


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



2014

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


2014

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


2014



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

2014



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
2014

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.


2014

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)
2014

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.”
2014

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
penalties)
2014


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)

2014

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

2014

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
2014

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
2014

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


2014

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.
2014

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


2014

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.

2014

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.

2014

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
2014

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)


2014

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


2014

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


2014

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


2014

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
2014

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


2014

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
2014

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

2014

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
2014

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.


2014

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
2014

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

2014

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

2014

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.‖
2014

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.
2014

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.

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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