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.

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.