April 2007 Nevada Lawyer

April 2007

PERSPECTIVES FROM THE RETIRED PROBATE COMMISSIONER: NEVADA LAWS AND PROCEDURES IN A NEW LIGHT

By. Don W. Ashworth

As I am writing this article, I am in Alpine, Utah, surrounded by beautiful mountains covered with snow. Every morning and evening we see herds of deer in the scrub oak that covers the yard. My wife and I are here tending four grandchildren while our daughter and her husband are in Hawaii on vacation. There appears to be something wrong with this picture when you realize we are the ones who are retired.

I have been a member of the State Bar of Nevada for almost four decades. The last 15 years I have been the Probate Commissioner in Clark County, a position I have certainly enjoyed. I will endeavor in this article to point out a few laws and procedures which I believe will help you in your practice of law.

NRS 111.064: Community Property with Right of Survivorship

In 1981, while serving as a State Senator, I introduced a bill in the Nevada Legislature, which passed. This bill created a new way for property to be titled between husband and wife in the State of Nevada. It is known as Community Property with Right of Survivorship (see NRS 111.064). This law allows for the creation of a deed between a husband and wife stating that the property is held as community property with right of survivorship. The language “with right of survivorship” on the deed is the consummate language which gives effect to the desired result of the statute. The result is that upon the death of the first spouse, the real property is vested totally in the survivor by operation of law. This transfer is very similar to the transfer that takes place with joint tenancy property upon the first joint tenant to die. The big advantage of the Community Property with Right of Survivorship is that there is no probate and in the event the property has appreciated in value, there will be a step up in basis for Federal Income Tax purposes on both halves of the real property equal to the fair market value of the property at that time. When dealing with joint tenancy property, however, there will only be a step up in basis on one-half of the fair market value of the entire property at the death of the first joint tenant, instead of the full value. Inasmuch as the term “step up in basis” is an integral part of this article, I think an example is in order:

A husband and wife purchase a piece of real property and pay $100,000 cash. The basis of the property for income tax purposes is $100,000, which means $50,000 for each spouse. Assuming the property appreciates in value to $180,000, then under the current law, upon the death of the first spouse, the surviving spouse receives a step up in basis in the following manner:

Community Property with Right of Survivorship Example: If the property is held as Community Property with Right of Survivorship, then the step up in basis is equal to the fair market value on both halves of the property, which is $180,000, and the property also is not subject to probate.

Joint Tenancy Example: If the same property is held in joint tenancy, then the step up in basis is equal to one-half the original basis, which is $50,000 (one-half of the $100,000) and one-half of the fair market value, which is $90,000 (one-half of the $180,000). The total step up in basis under this example would be $140,000 ($50,000 + $90,000).

Therefore under the Community Property with Right of Survivorship Example, if the property is sold for $180,000 and its basis is $180,000, there is no gain subject to tax. In the Joint Tenancy Example, if the property is sold for $180,000, there is a $40,000 gain (180,000 - $140,000) which would be subject to tax.

An interesting fact to be noted about this statute and its implications is that it has been a part of Nevada property law for over 25 years, yet I am convinced that nine out of 10 Nevada real estate brokers and escrow officers are not aware of this statute and its consequences. This is evidenced by the fact that when a husband and wife are purchasing property and have no preference as to how the property is titled, the real estate broker or escrow office almost always suggests that the property be held as joint tenants. The escrow officer and real estate brokers erroneously think that joint tenancy is the most advantageous way for husband and wife to hold property in Nevada to avoid probate, and is not the case, as we have already discussed. As attorneys, we need to make a more concerted effort to educate the people of Nevada about the advantage of holding property as Community Property with Right of Survivorship.

NRS: 115.060: Homestead Filed on Community Property

In 1983, NRS 115.060 was amended. This amendment made a notable change to circumstances when a husband and wife record a homestead on community property. The amendment provides that if there is no premarital agreement entered into between the husband and wife and the property upon which the homestead is being declared is community property, then by operation of law it is deemed to be held by the couple as Community Property with Right of Survivorship. Upon the death of the first spouse, the entire homestead property vests in the surviving spouse without any probate.

NRS 111.109: Grantor’s Deed to Take Effect Upon Death

Another statute which has made a significant change in Nevada property law concerning the transfer of real property was passed during the 2005 Legislature and became NRS 111.109. This statute was introduced by Senator John Lee. The idea for the statute came from an Arizona statute. It allows a person (the true owner) to designate on a deed of real property an individual (the prospective transferee) to whom the true owner would like to transfer the property upon his or her death. The transfer becomes effective only on the death of the true owner. The recording of the original deed does not transfer any interest in the property to the perspective transferee; it is merely an expectation. The true owner still has the ability to sell the property, mortgage it, or revoke the initial deed without any consent whatsoever from the prospective transferee. The use of this deed is far superior to the joint tenancy deed. The advantages of this new deed under NRS 111.109 over the use of joint tenancy deed are as follows:

1. The sole control of the property remains in the hands of the true owner.

2. No consent is required of the prospective transferee to sell or transfer the property to a third party.

3. No consent is required of the prospective transferee to mortgage the property.

4. No gift is made at the creation of the Grantor’s Deed to Take Effect Upon Death; consequently no Federal Gift Tax Return is required to be filed upon the creation of the deed. But when an owner is placing a third party on a deed as a joint tenant without any consideration being given by the third party, a gift has been made by the owner and a Federal Gift Tax Return is required by the owner.

5. The real property is not subject to the debts of the prospective transferee, whereas the property held in joint tenancy is subject to the debts of both joint tenants.

6. Upon the death of the true owner there is a step up in basis on the entire property instead of only one-half of the value similar to the example explained above.

7. The designation of the prospective transferee can be changed at any time to someone else by revoking the initial deed and executing a new Grantor’s Deed to Take Effect Upon Death, designating the new prospective transferee.

Improvements in Practice

Through my 15 years as Probate Commissioner I have made the following observations, and I am of the opinion that they will be helpful to you in your practice.

First and foremost, if you have a question of law, the best place to go for information is to read the law and its annotations carefully. I will never forget the lesson I learned from a practitioner with many years of experience, from whom I rented space when I was just getting started in my practice. I would go to him seeking answers to certain questions of law. His response was always, “Don, did you look at the law and the annotations?” On many occasions I would have to admit that I had not done so. If I had reviewed the law, I usually could have answered the questions myself.

Under the new Eighth Judicial District Rule 2.27, exhibits of all pleadings that are in excess of 10 pages need to be consecutively numbered in the documents in the lower right-hand corner. It is my suggestion that in addition to this requirement when referring to the exhibit within the pleadings, you place in parentheses the consecutive page numbers of where the exhibits are found. For example, put “Exhibit C (p. 33-40).” This makes it easier for the judges and other attorneys to refer to the documents, and makes the legal process more effective and time-efficient.

Also as attorneys, we need to know that the legal papers we produce are similar to the creation by artists in the pictures they paint. We need to take pride in the documents we prepare, whether they are the petitions, orders, wills, trusts or letters of communication. The final product of our legal papers is a direct reflection upon our care and thoughtfulness in the practice of law. Time is never wasted in proofreading your final documents. Of the many documents I have reviewed over the years, it does not take long for the picture to become evident as to which attorneys have taken real pride in their end product. Those who put forth the effort will be highly rewarded in their reputation not only with clients, but also by fellow attorneys and the judges they appear before.

My daughter, who is an attorney and wishes she could charge me her hourly fee, got demoted to be my pro bono legal secretary for this article. However, she has six children and it has become evident to me because of the noise volume that it is definitely time for her and her brood to go home and for me to slip back into retirement.

Former Probate Commissioner Don W. Ashworth, a native Nevadan, has been a member of the State Bar of Nevada for over 35 years. He has worked as a practicing attorney, a state senator and corporate counsel, and was probate commissioner of the Eighth Judicial District Court for over fifteen years.