Estate Planning

Missouri Taxes

2011-12-26T11:28:00.000-08:00

For those of us who live in Missouri the article here might be of interest. Especially for those who take yoga classes and for those who smoke! On a serious note, I do not think the state tourism commission has caught on to my idea for increasing population growth in our state. Missouri is one of the few states that has NO INHERITANCE tax of any kind. So, if you want to pick a tax jurisdiction to die in, we are one of the best states in which to expire!

IRS Offers Year End Tax Planning Advice

2011-12-17T14:41:00.000-08:00

It is nice that our government actually does something to help out taxpayers at the end of the year. Go to the link here for the IRS web page for free year end tax advice. This is otherwise known as IR-2011-18. Happy Holidays from all of us! If you need futher help, feel free to give us a call at (314) 241-3963.

Prenuptial Agreements

2011-06-20T05:20:00.000-07:00

When one marries a second time it is critically important to protect one's wealth through a Prenuptial Agreement. This is a contract between two parties entered into upon the advice of counsel that sets forth the rights a spouse will have after one is legally married. A typical Prenuptial Agreement will set forth what is considered "Separate Property" and what property will be deemed to be "Marital Property". Separate Property is wealth that the future spouse waives his or her rights to upon death or divorce. When someone says "I do" a spouse gains legally enforceable rights to take against a will or a living trust by virtue of the marriage contract. The only way to protect against a second spouse upsetting the apple cart for the heirs is to have the spouse waive those rights before the marriage. This has to be done upon advice of counsel and full disclosure. A Prenuptial Agreement needs to be signed long before the date of the marriage ceremony so as to avoid any undue influence that might give someone the right to void the agreement at a later time. Married couples need to promise their current spouses that they will enter into Prenuptial Agreements if they decide to remarry after one becomes a widow or widower.

Estate Planning for One's Social Media

2011-06-17T06:47:00.000-07:00

While traditional estate planning deals with one's physical assets such as bank accounts, stocks and bonds, brokerage accounts, real and personal property, etc. the mark of a good estate plan goes beyond these matters to reflect a client's goals, legacy and history for future generations. Today one's social media may record more about a person's hopes, dreams and goals than ever before. So what happens to your Twitter, Facebook or Linked-In accounts when someone dies?

Facebook has a page here whereby one's Facebook page can be memorialized for friends of the deceased Facebook owner. Comments can be left on the wall for the family. The same link can also be used to close the account.

Twitter has a policy that sets forth the requirements for saving a deceased's public tweets or deleting them. They require the following information:

Your full name, contact information (including e-mail address), and your relationship to the deceased user;

The username for the Twitter account, or a link to the profile page of the Twitter account.

A link to a public obituary or news article.

One can either contact them at privacy@twitter.com or mail or fax at:

Twitter, Inc.
c/o: Trust & Safety
795 Folsom Street, Suite 600
San Francisco, CA 94107

Fax: 415-222-9958

Linked-In has a very simple "Verification of Death Form" here. One can opt to submit the form on-line or via Fax.

As with a person's other property, one's estate planning may include instructions on how one wishes their intangible property to be used even after one's death. Social media may do more to preserve one's photos, videos and conversations for future generations than ever before possible.

When you make a Charitable Gift - Get a Receipt at that time!

2011-05-25T14:05:00.000-07:00

The IRS recently issued an e-mail advice that when a taxpayer fails to obtain a contemporaneous written acknowledgment from the charity to whom the taxpayer has made a gift, the taxpayer cannot later claim an income tax deduction even if the charity files an amended Form 990 for the year of contribution for purposes of identifying the gift. See more here.

A Window of Opportunity

2011-05-21T13:15:00.001-07:00

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which was passed and signed into law in December of 2010 gives affluent individuals a gift, estate and generation-skipping tax exemption of $5M for the tax years 2011 and 2012. On December 31, 2012, these exemptions are scheduled to expire. The new amounts going forward could be as low as $1M. At the same time, the present estate tax rate of 35% is scheduled to increase to a whopping 55%!

Savvy planners are telling clients that there is currently an 18 month "Window of Opportunity" to shift wealth to the next generation on an extremely tax advantaged basis.

What happens if someone gives away $5M in 2011 and dies in 2013 when the estate tax is only $1M?

The answer is "We don't know?" The way the Tax Act was written in 2010 there is a possibility that Congress could attempt to "claw back" into the taxable estate gifts made in 2011 and 2012 that were in excess of the estate tax basic exclusion amount then in effect (i.e. $1M). Other commentators are convinced that this will not happen. The way we look at it, even if the claw back were to occur, the appreciated earnings of the gifted amounts would escape estate tax taxation at a potential 55% and the taxpayer would be no worse off if he or she had done nothing.

2. If I give my money away have I lost all control over the assets of the gift?

There are two basic ways one can make a gift: (1) outright; or, (2) in trust. Outright gifts are just that....a donor writes a check to a child and proceeds become the child's outright as soon as the check clears. The child can do whatever he or she wishes with the proceeds. Outright gifts are cheap and easy. But, they offer no asset protection or oversight of the gifted funds. A gift into a trust is a gift with strings attached to it. The donor can condition how the proceeds are to be used by placing the proceeds with a Trustee for the benefit of the child who is known as a beneficiary, i.e the one who "benefits" from the trust. A trust can be crafted to be as "liberal" or "restrictive" as the donor wishes. The main advantage to a gift in trust is that the proceeds can be protected from a beneficiary's predators, creditors and spouses. This asset protection of the gift is a huge benefit. It is even possible with proper drafting to make the donor one of a class of beneficiaries (the donor, the donor's spouse, the donor's children and grandchildren) of an Irrevocable Trust.

3. If I make a gift of appreciated securities doesn't the donee get the donor's income tax basis in the assets that are transferred?

If one's estate is less than $1M dollars there is no need to make gifts for estate tax purposes as the heirs will receive a "step-up" in the basis of the inherited property to the full fair market value as of the taxpayer's death. When one makes a gift of appreciated securities or real estate, the donee of the gift does get the donor's lifetime income tax basis along with the gift. That is why it is always better to gift cash than highly appreciated securities that would get the step-up at the time of the owner's death. Another option is to make a transfer of appreciated securities to what is known as an "intentionally defective grantor trust" a/k/a as an "IDGT". Why would anyone want a defective trust? It is a quirk in the tax code that one can make a gift for gift tax purposes of property transfered to an IDGT; but, for income tax purposes the donor continues to pay the income taxes on the property inside the IDGT. Why would a donor want to to do this? Because, every time the donor pays the tax on the IDGT it is the same as making a transfer for value to the grantor trust; but, the payment of the income taxes is NOT deemed to be a gift for gift tax purposes. In essence, the proceeds inside the IDGT can appreciate on a "tax free basis" because the IDGT is not paying the income tax on the growth inside the IDGT with its assets. If the Trustee of the IDGT sells stock, the capital gains tax on the sale is paid by the donor of the securities and reported on the donor's income tax return. Often the amount of wealth transferred in this manner will more than offset the capital gains taxes paid by the donor even if the children did not receive a "step-up" tax basis.

4. What is the effect of gifting to a "Dynasty Trust"?

When a donor gifts assets into a "Dynasty Trust" for the benefit of children, grandchildren and future children yet to be born by allocating their Generation Skipping Tax Exemption to such a gift, the benefit of avoiding taxes as each generational level is leveraged. If a taxpayer does not use one's Generations Skipping Tax ("GST") exemptions, the exemptions are generally wasted. The government gives these exemptions to everyone. It truly is a case of use it or lose it.

Let's say Taxpayer X does NOT use his GST exemption when he dies with a $5M estate in 2011. There will be no estate tax on the transfer of his wealth to his son Y at the time of his death . But, let us say son Y dies in 2013 when the estate tax rate is 55% over everything over $1M. The tax on the son's estate is 55% of $4M = $2,200,000; which in turn passes to Y's daughter Z. Z dies the following the year with a taxable estate of $2,800,00 [$5M - federal estate taxes of $2,200,000] at which time her estate owes $990,000 in Federal Estate Taxes on her taxable estate which passes to her children. So to pass Taxpayer's X original $5M estate down to two generations, his heirs will have paid a whopping $3, 190,00 in Federal Esate Taxes.

Use the same fact pattern with Taxpayer X as above. However, this time Taxpayer A creates a $5M dynasty trust with his estate at the time of his death and allocates his GST exemption to the dynasty trust so that there is no tax. When his son B dies in 2013 there is NO estate tax on the dynasty trust because the son B does not own the Dynasty Trust! Instead, the entire proceeds of the Dynasty Trust are held for the lifetime of Son B's daughter, C. If daughter C dies a year later, again the entire $5M (plus earnings) of the Dynasty Trust will pass estate tax free to C's children inside the Dynasty Trust. The tax savings over three generations can be as high as 65%. While it is true that Taxpayer A will have to pay some professional fees to create the Dynasty Trust, the tax savings pale in contrast to any expenses of administration of such Dynasty Trusts. Dynasty Trusts can be great "rainy day" fund to protect future beneficiaries from the effect of predators, creditors and spouses.

Sharing the Estate Plan with Family Members

2011-04-25T06:54:00.000-07:00

Parents are often reluctant to share financial and estate planning information with the children as they become adults. Generally, many parents are concerned that if the next generation becomes to fixated on what they will inherit some day that this may prove detrimental to their own independence and self sufficiency. A recent study confirmed that wealthy parents were afraid to share to much information with their children.

While no two families are the same, when each generation can do their estate planning with knowledge of what is going to happen in the future, there are opportunities to do things that otherwise go unnoticed. For example, if a child knows that there is will be a substantial inheritance someday, that knowledge could free up the child to consider gifting and multi-generational planning to take advantage of things such as the utilization of generation skipping transfer taxes. Through the use of dynasty trusts one can transfer wealth down to future generations on a tax free basis that can bless many future generations of one's heirs.

With proper drafting a trust can reflect the goals and desires of parents to foster independence and business entrepreneurship without, at the same time, creating a sense of entitlement that could impair a beneficiary's future development. We have seen success stories where families plan together and achieve a much improved estate plan that benefits a far greater number of members that when each generation plans in secret.

Current Planning to Avoid the Future Health Care 3.8% "Surtax"

2011-01-17T07:25:00.000-08:00

A new 3.8% surtax on certain investment income of taxpayers becomes effective January 1, 2013 as part of the health care reform act. While that is nearly two years away, it is not too early to start planning for it now because there are certain things one can do to help reduce or eliminate this new income tax.

Understanding the Tax

The 3.8% investment income surtax, also known as the health care surtax or "Medicare tax", applies to tax year ending after December 31, 2012. The surtax is:

For individuals, 3.8% of the lessor of:

net investment income for such taxable year; or,
the excess, if any of:

a. the modified adjusted gross income for the year, over

b. the threshold amount.

For trusts and estates, 3.8% of the lesser of:

the undistributed net investment income for the year; or,
the excess, if any of:

a. the adjusted gross income (as defined in Code Section 67 (e) for the year, over

b. the dollar amount at which the highest tax bracket in Section 1(e) begins for the year ($11,200 in 2010).

Three Key Numbers

There are three numbers that determine how this surtax will affect a client:

Net Investment Income. This is the sum of gross investment income over allocable investment expenses. For purposes of this surtax, investment income includes interest, dividends, capital gains, annuities, rents, royalties and passive income. Investment income does not include active trade and/or business income; any of the income sources listed above (e.g., interest , dividends, capital gains, etc.) to the extent it is derived in an active trade and/or business; distributions from IRA's and other qualified retirement plans; or any income taken into account for self-employment tax purposes. For the sale of active interest in a partnership or S corporation, gain is included as investment income only to the extent net gain would be recognized if all of the partnership/ S corporation interests were at fair market value.
Modified Adjusted Gross Income ("MAGI"). Here, MAGI is the sum of adjusted gross income (the number from the last line on page 1 of Form 1040) plus the net foreign income exclusion amount.
Threshold Amount.

Married taxpayers filing jointly............................$250,000
Married taxpayers filing separately....................$125,000
All other individual taxpayers..............................$200,000
Trusts and Estates......................(Beginning of the top bracket ($11,200 for 2010).

Who will pay the new Surtax?

Here is a quick formula to determine if the the 3.8% surtax will apply:

MAGI less than or equal to the threshold amount = no tax
MAGI greater than the threshold amount = Tax is 3.8% of the lesser of investment income; or MAGI threshold amount

Note that the surtax liability is determined on income BEFORE any tax deductions (page 2 of Form 1040) are considered. As a consequence, a client with lots of deductions could be in the lowest tax bracket and yet have investment income that is subject to the surtax! Also, because the capital gains rate has increased to 20% in 2011, with the 3.8% surtax in 2013 the effective capital gains rate will become 23.8%.

Planning Tip: Start adjusting trust and estate investments now to reduce income in 2013 and beyond.

Planning Considerations: For taxpayers who could be hit by the surtax, look for ways to invest income and MAGI:

The 3.8% surtax does NOT apply to distributions from IRAs and other qualified retirement plans, and contributions to these plans provide tax-deferred growth. Therefore, taxpayers may wish to increase contributions to IRAs, 401(k) plans, 403(b) plans and 457 plans. However, be aware that required minimum distributions for those over 70 and 1/2 will increase MAGI as those distributions are considered ordinary income.
The 3.8% surtax does not apply to distributions from Roth IRAs. However, Roth conversion income will count toward MAGI. Thus, 2011 and 2012 Roth conversions can help to avoid the surtax by reducing post 2012 MAGI from required minimum and other plan distributions in 2013 and beyond.
Because income from tax-exempt and tax-deferred vehicles like municipal bonds, tax deferred non-qualified annuities, life insurance and non qualified deferred compensation are not included in investment income, investments in these vehicles should be more favorable.
Charitable Remainder trusts should be more appealing because they permit taxpayers to defer income over a period of time, enabling them to stay under the threshold amount.
Charitable lead trusts will become more popular to shift investment income to a CLT which in turn will be offset by the "above the line" charitable deduction.
Installment sales will be popular to smooth income.
Oil and gas (with 95% initial investment deduction, 15% depletion allowance and IDC deduction on passive oil and gas) will continue to be attractive investments.
For eligible estates and electing trusts, select the proper year to reduce the surtax. For example, Frieda dies in January 2012. Her estate elects a November 30, 2012 year end. Result: The surtax will not apply to her estate until the year beginning December 1, 2013, providing 11 additional months without the surtax.

Roth IRA Conversions today reduce future MAGI

As stated earlier, required minimum distributions from a traditional IRA are exempt from the surtax; but, they increase MAGI. This can effectively create a 43.4% effective tax rate on IRA distributions in later years (39.6% income tax plus 3.8% surtax on investment income made surtaxable by the IRA distribution).

Planning Tip: Converting to a Roth prior to 2013 can reduce MAGI in 2013 and beyond and thereby reduce or eliminate surtax exposure.

2011-2012: The Time to Plan

2011-01-03T06:31:00.000-08:00

Congress has given those who plan estates a wonderful 2 year window before the possible return of the estate tax in 2013. The 2010 Tax Act kicked the can of Bush tax cuts down the road for two years. In addition, Congress increased the size of the exemptions from tax. The new limits are set to expire on December 31, 2012. But, in the meantime, here are the current limits:

Gift Tax Exemption: Individuals can now make lifetime gifts up to a $5M and exclude the transfer from tax by filing a Federal Gift Tax return allocating one's lifetime gift tax exemption.
Generation Skipping Transfer ("GST") Tax Exemption: Individuals can now set up trusts for younger beneficiaries and use a $5M GST lifetime exemption. This is a "use it" or "lose it" exclusion. Once a person dies, this exemption disappears.
Annual Exclusion Gifts: In addition to the use of one's lifetime exemptions, an individual can also make annual exclusion gifts of up to $13,000 per year per donee without any adverse tax consequences.
Estate Tax Exemptions: An individual can die in the next 2 years and not pay any Federal tax on estates of less than $5M. In addition, for spouses dying in 2011 and 2012 it will now be important for the personal representative of a deceased person's estate to file a gift tax return passing along a deceased spouse's Unused Spousal Exclusion Amount to one's spouse. Effectively, the surviving spouse could then have up to $10M worth of estate tax exemption. However, the GST tax exemption cannot be transferred in this manner.

This means that families with wealth who wish to plan ahead can do some extraordinary things to benefit future generations. The use of an Irrevocable Life Insurance Trust ("ILIT") which can be funded with life insurance creates opportunities for tremendous tax leverage for future generations. Clients who have illiquid assets, such as a family business or a farm, can use an ILIT to balance out distributions between multiple beneficiaries.

Another strategy that received a reprieve was the use of the Grantor Retained Annuity Trust ("GRAT"). This strategy coupled with an ILIT can make intergenerational wealth transfers a significant part of giving what one has, to whom one wishes, the way one wishes, at the lowest possible tax impact. Those who choose to plan in the next two years will benefit their families significantly over those who do nothing.

The time to do this planning is now! Every day one waits you run the risk of losing these opportunities.

The Charitable IRA Rollover Gift

2010-12-29T13:42:00.000-08:00

For clients over age 70 and 1/2 Congress snuck in a bit of charitable opportunity in the new 2010 Tax bill that allows one to make gifts directly from one's IRA to your favorite qualified public charity on a tax free basis. The ability to do this ends on January 31, 2011. The gift cannot exceed $100,000.

The Charitable IRA Rollover gift is made directly from the IRA custodian to the charitable organization. The gift is completely tax-free from the IRA to the charity. The gift is not included in the donor's income and the donor receives no income tax charitable contribution deduction for the gift. The completely tax-free transfer provides the equivalent of a 100% income tax charitable deduction for the gift. More importantly, the Charitable IRA Rollover gift does not reduce the donor's ability to make other charitable gifts that are subject to the income tax charitable contribution deduction rules.

Anyone needing more information should contact their tax advisor to take advantage of this opportunity before January 31, 2011.

Year End Fire Sale on Generation Skipping Transfers for 2010

2010-12-27T14:48:00.000-08:00

Grandparents wishing to make gifts to grandchildren have been handed an opportunity by the new 2010 Tax Act to make gifts, directly or in trust, without incurring any Generation Skipping Transfer ("GST") tax in this calendar year. However, a grandparent would still pay 35% gift tax on a grandchild's gifts in excess of the $1 million gift tax exemption. In 2011 and 2012, the tax rate on GST transfers will be 35% with a $5 million exemption.

The decision to pull the trigger on this opportunity is effectively over by Thursday as most financial institutions will be closed on Friday for the New Year Holiday. Anyone who wishes to consider this should contact their tax advisors ASAP.

It is now up to the President

2010-12-17T06:55:00.000-08:00

Last night while most of us were sleeping, the U.S. House of Representatives passed the "The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" [hereinafter the "2010 Act"] and sent it off to the President to sign on December 17, 2010. This band aid of legislation is only effective for two years. Yes, we will be right back where we are today looking at $1M dollar estate tax exemptions and a 55% estate tax rate all over again in December 2012! What a way to run a railroad? Assuming that President Obama signs this new law, there are a variety of new provisions which we will have to incorporate into our estate planning practice. Here are a few of the highlights:

1. Estate Tax for 2010: Exclusion Amount $5M with a maximum tax rate of 35% and the option to elect carryover tax basis instead of estate tax treatment. The Gift Tax exclusion amount will remain at $1,000,000 (no change) and at a 35% gift tax rate (no change).

2. Estate Tax for 2011-2012: Exclusion Amount $5M with a maximum estate tax rate of 35%. The Gift Tax exclusion amount will increase to $5M and maintain a rate of 35% (no change).

3. One of the new features is the use of a deceased spouse's exemption amount ("portability") for spouses who die in 2011 and 2012. In essence, married couples will get the use of a $10M exemption under certain circumstances.

There is much to be studied and absorbed from this legislation. We will bring you more details ahead in the coming days.

Year End Tax Reform Controversy Contines

2010-12-09T08:01:00.000-08:00

On Monday, December 6, President Obama announced that he had reached a compromise with the Republican Senators for a two year extension of the Bush-era tax cuts. The projected estate tax exemption would be $5 million per citizen with an effective tax rate of 35% over and above $5 million ( down from the scheduled $1 million exemption and a 55% tax rate scheduled to take effect on January 1, 2011). In exchange the unemployment insurance benefits (including a 2% reduction in payroll tax, from 6.2% to 4.2%), would become effective in 2011.

Almost immediately this compromise drew fire from both sides of the aisle. For example, Republicans were uneasy awaiting details of the plan. At the same time some Democrats have announced their opposition to the passage of this legislation. This is not a done deal.

All we can suggest is that clients stay tuned for the latest developments. No doubt a $5 million dollar exemption would be welcome news to 99% of all Americans who would not be bothered with Federal Estate Taxes. But, if Congress fails to act, those Americans with estates over 1 million dollars may wish to avail themselves of some gift giving opportunities in 2010. The shopping days in December are rapidly coming to a close.

Year End Estate Planning

2010-11-22T07:27:00.000-08:00

Congress is back in session and the big question is whether this lame duck Congress is going to do anything on the tax front before the end of the year? Whether they do or do not, there are still some things that folks should consider:

Making taxable gifts in 2010. This year there is a "blue light special" on taxable gifts of 35% made in 2010. Next year the rate goes to 45%. And, if one does die next year or thereafter the death tax rates will be 55%. If there was ever a time to consider this option it is now.
Use of Rolling Grantor Retained Annuity Trusts ("GRATs"). While Congress has debated sticking a knife in this technique by requiring a minimum 10 year lifetime term (i.e. if a donor sets up a GRAT and dies within 10 years it gets sucked back into one's taxable estate) right now short term GRATs are still possible. This is a win-win situation that may not be with us much longer.
The Section 7520 rate dropped to 1.8% in December. This is a historic all time low rate of interest that makes some techniques like Charitable Lead Annuity Trusts very attractive for people looking to avoid the payment of Federal Estate taxes on estates over $1M in 2011.
Irrevocable Gift Trusts for children and grandchildren are still favorites to provide asset protection planning for future generations.
IRA Roth conversions from traditional Individual Retirement Accounts ("IRAs") in this month may be an appropriate move for many people with with the right mix of investment assets that can be used to pay the income taxes on the conversion. Coupled with a Retirement Benefits Trust as a Qualified designated beneficiary, one can get "stretch" IRA tax treatment for the beneficiary and asset protection planning under the right circumstances.

Our calendar is filling rapidly for planning in December. If you need help or assistance, please call soon.

November AFR Rates continue lower

2010-10-20T09:26:00.000-07:00

The November Applicable Federal Rates continued their downward spiral for next month. The new annual short term rate is down to .35%. Mid-term rates on notes between 3 years and 9 years are now at 1.59% and the new annual long term rate is down to 3.35%. The Section 7520 rate is now a historic 2.0%. Loans to younger generation beneficiaries, Grantor Retained Annuity Trusts ("GRATS") and Charitable Lead Trusts are wonderful tools to lock in some these lower rates.

October Applicable Federal Rates ("AFR")

2010-09-18T14:59:00.000-07:00

Every month the government establishes what is known as the Applicable Federal Rate for the charging of interest rates in related party transactions. The Section 7420 rate is now down to 2%. This is a historic all time low water mark for interest rates.

If one wanted to make a loan to a child over $10,000.00 the IRS requires that the loan bear interest at certain minimum rates. For loans repayable within three (3) years [the "short-term" rate] the minimum interest rate in October is .41%. The "mid-term rate" for loans over 3 years but less than nine (9) years to maturity is 1.71% for monthly payments. The "long-term rate" for loans over nine years to maturity is now 3.27%. The use of intra-family loans is a wealth shifting device that can be used to enable a younger generation's accumulation of wealth.

10 Things the IRS wants you to know about Charitable Giving

2010-08-26T14:27:00.000-07:00

Did you make a donation to a charity this year? If so, you may be able to take a deduction for it on your 2010 tax return.

Here are the top 10 things the IRS wants every taxpayer to know before deducting charitable donations.

1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.

2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

5. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.

6. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.

7. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

8. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.

9. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.

10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.

For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 78, Cumulative List of Organizations

Publication 526, Charitable Contributions ( PDF)

Publication 561, Determining the Value of Donated Property ( PDF)

What to do with Inherited Property in 2010?

2010-08-24T08:59:00.000-07:00

With the repeal of the Estate Tax and Generation Skipping Transfer Tax in 2010, those who inherit assets from someone who dies in 2010 may be forced to deal with some very difficult income tax basis rule changes. If someone dies and their entire estate is less than $1.3M the inherited assets will receive a "step-up" in basis to the fair market value of the asset as of the decedent's date of death. But, if the person who dies in 2010 owned more than $1.3M in assets, then a tax return must be filed with the decedent's final income tax return which would be due April 15, 2011 or such later date as the IRS might prescribe by regulation not yet issued [see IRC Section 6075(a)].

If an heir sells property in 2010 where the asset is included in an estate of a deceased person with more than $1.3 M in property, that individual will need to wait until he or she receives the information required by Internal Revenue Code Section 6018. So far, the IRS has not even published the necessary tax forms to file this report.

Heirs who inherit property from someone who dies in 2010 in excess of $1.3M would do best to NOT sell that asset in 2010. There is an argument that with the sunset of the current tax laws at the end of this year (Section 901 of the EGTRRA) that the basis of assets sold after 2010 from decedents dying in 2010 will be entitled to a step-up in basis under the resurrected Section 1014 of the Internal Revenue Code. No one can say for sure what Congress might do before the end of the year? Stay tuned.

Generation Skipping Issues in 2010

2010-07-28T13:18:00.000-07:00

Like the federal Estate tax, the federal Generation-Skipping Transfer ("GST") tax is currently repealed for 2010. If Congress continues on its "do nothing" approach to tax reform, the GST tax will reappear on January 1, 2011 at a top rate of 55%.

Unlike the estate tax where one has to die in 2010 to benefit from the repeal, there are some options this year for those who are planning on living until 2011. By way of background, the GST tax was implemented by Congress in 1976 as a way to stop rich people from passing wealth down to future generations tax free. It was designed to tax distributions that did not get passed down from one generation to the next (i.e. parent to child) by taxing distributions that "skipped" a generation. Thus, in addition to income tax, estate tax, and gift taxes Congress leveled a new tax (the GST tax) for transfers that are classified as "generation skipping transfers" to or for the benefit of a "skip person". This system was so complicated that Congress decided in 1976 to give every taxpayer a $1M dollar exemption from GST taxes. In 1976 $1M was a lot of money. From 1976 to 2001 the GST exemption was increased to $1, 060,000. Suddenly, people who had never heard of the GST tax [Chapter 13 of the Internal Revenue Code] were paying more in taxes. Congress ratcheted the exemption up to $3,500,000 by 2009. We are now poised for the return of the GST tax on January 1, 2011 at the base rate of $1M with perhaps some minor inflation adjusted amount.

A skip person is generally a person more than one generation removed (think grandchild and beyond) from the transferor. A skip person can also include a trust for the benefit of beneficiary or beneficiaries of a skip person(s). A generation skipping transfer can be either:

a "Direct Skip" which is an outright transfer to a skip person or a trust for a skip person;
a "Taxable Distribution" from a trust to a skip person; or
a "Taxable Termination" of a trust or non-skip person's interest in a trust that vests property in a skip person, which could include the termination of all non-skip persons' interests in the trust, leaving only skip persons as beneficiaries.

Certain trusts may be "GST Exempt" trusts because they were set up before the date of the enactment of the GST tax (i.e. they are "grandfathered") or the maker of the trust allocated his or her GST exemption on a validly filed GST tax return to allow the GST Exempt trust to have an inclusion ratio of "0".

Several planning opportunities present themselves in 2010. For example, a donor can make direct gifts to grandchildren without any GST tax in 2010. However, the federal Gift tax still remains in effect. The highest federal Gift Tax rate for 2010 is 35%. Gifts that are less than $13,000 per donee per calendar year are exempt from gift tax. In addition, a person may allocate any part of their $1M dollar lifetime gift tax exemption to such gifts. Note that the gift tax rate is down 10% from last year (45%) and will be 20% less than the projected current gift tax rate of 55% for next year.

If a grandparent who has exhausted all of one's annual exclusions and gift tax exemption were to gift $1,000,000 to a grandchild this year, the transfer tax would be $350,000. That same gift if made in 2011 would incur a combined gift tax and GST tax liability of $1,100,000! That is a tax rate of 110%! If a grandparent were to make gifts to great-grandchildren, such gifts would skip two generational levels.

Many grandparents have established gift trusts for grandchildren. Each calender year the grandparent would gift $13,000 into such a trust for the benefit of the grandchild. Normally Section 2611 (b)(2) of the Code would protect future distributions from such trusts from GST tax in the future since the original transfer to the trust was subject to GST. A transfer to such a trust in 2010,however, would NOT be subject to GST. There fore, the protection of Section 2611 (b)(2) may not apply. Accordingly, grandparents should not make annual exclusion gifts to gift trusts in 2010. Instead, one may wish to consider either direct transfers to skip persons or to a Uniform Transfer to Minors Account for such a grandchild in 2010. Consideration needs to be given to the appropriateness of such gifts to a grandchild outright.

Grantor Retained Annuity Trust ("GRAT")

2010-07-05T16:01:00.000-07:00

The Grantor Retained Annuity Trust (often referred to as a "GRAT") is a long favored technique for those with substantial estates who find themselves staring at a 55% estate tax rate starting January 1, 2011. By setting up a GRAT one can legally pass wealth down to the next generation on a tax favored basis. In essence, a donor sets up an Irrevocable Trust and retains the right to receive an annuity paid to the donor over a specified term of years. At the end of the annuity term, if there is anything left over for the beneficiaries, known as "remaindermen", the amount of increase in the trust's investments that exceeds a specified rate set by the IRS, passes tax free to the remaindermen.

The IRS hates this technique even though it is sanctioned by the current tax Code. Clients often set up revolving GRATS that rollover at the end of the term as a way to leverage their transfers to younger beneficiaries. Typically, we use GRATS that have a term of two, three or sometimes five years.

On July 1, 2010 the House of Representatives voted 215 to 210 to pass an amendment to H.R. 4899 ( a supplemental spending bill) that would now require all GRATS to have a minimum ten year term. If the donor who sets up a GRAT dies during the term, the bulk of the GRAT is includable in the estate of the donor for Federal Estate Tax purposes. Thus, for older donors this may well be the death knell of the use of the GRATS. The Senate is expected to take the measure up in the next few days.

For anyone interested in setting up GRATS, now is the time to do so! The effective date of the legislation will be the date the Act is enacted. Due to the very low interest rates now in play, if anyone has ever considered this technique, they should rush to get this accomplished post haste to avoid the application of the ten year minimum term rule. It looks like the clock will be ticking down soon.

The Closely Held Business - What to do?

2010-07-03T15:21:00.000-07:00

Estate planning attorneys are always talking with clients about how to best plan for their retirement and estate planning. For those clients who own a business, planning for the transfer of that business upon death or disability must be built into the process. The challenge of how to treat both the family and the employees of the business fairly is a difficult challenge.

Current Climate for Business Transfers

With the aging of the baby boomers, there are more and more closely held businesses coming onto the market every month. There may be a myriad of more sellers than qualified buyers. Coupled with the current stock market losses, these factors affect the value of one's closely held business. Coupling that with increased governmental regulation in all areas of the law dealing with commerce, labor, anti-discriminatory employment practices, new tax laws and the like, the small closely held business is under assault. Trying to get a bank to make a loan to buy a closely held business is almost impossible given the increased standards of the banking and finance industries. And, to top it off, for the first time in years individual income tax rates are increasing to exceed corporate income tax rates. Income taxes next year could be as high as 39.6% for an individual ( federal rate), plus 6% for Missouri state income tax, with any a new 3.8% healthcare tax on higher incomes. We are now looking at a first-time Medicare tax on passive income. Long-term capital gains tax rates will be increasing from 15% to 20 - 28%. And, if Congress fails to act, estates of more than $1M dollars starting on January 1, 2011 will be taxed at 55%.

Public corporations can pass along their increased costs to the consumers. But, a privately owned company must absorb these increased costs out of what goes to the owners of the business. If a private business wants to borrow money to keep a business afloat, the owners will have to sign a personal guaranty with the bank pledging their personal assets for the business loan. If the business fails, often the fortunes of the family go with the business.

The analysis has to start with "What does the client want?" Here it is often difficult for clients to resolve inherent conflicts. How does a business owner treat children who work in the business with those who work outside the business? Is the goal to pass the business down to the next generation? Who will provide the management of the transferred business? Are the children of the owners the best "qualified" people to lead the company? Sometimes bringing in an outside consulting firm to give the owners an unbiased opinion is a good start to the succession planning process. Retaining employees who feel that they have merited consideration can be extremely difficult in a business succession plan. Protecting the business's good will through contracts with key employees that restrict competition, or soliciting customers or vendors and employees are critical components in maximizing the valuation of the business.

The very best time to sell a business to maximize it's value is when things are going well. Unfortunately, this is the very last thing a successful closely-held business owner is thinking about until some disastrous event occurs. The transfer of a company has to be incorporated in the client's retirement, estate and income tax planning.

Leaving a Legacy

2010-06-26T21:17:00.000-07:00

I like to define estate planning as giving what you want, to whom you want, the way you want, how you want, and at the lowest possible cost. That definition has always made a lot of sense to me. But, that definition is really focused on estate planning as a process. What makes even more sense is to think of how one's estate plan can add value to others. The joy of giving is difficult for many to grasp. But, when one gives something of value that reflects a donor's hopes, dreams and goals there is demonstrable benefit to the donor. It is, I believe, an universal law of nature. When you gives some thing away of value, there is a benefit that comes back to the donor. It may not be economic; but, there is joy in helping others to achieve a goal. That joy is brought about by leaving a legacy. A legacy is a benefit that survives the donor. It comes from the realization that we enter this world with nothing and when we die, we can't take it with us. So what does one do with the accumulation of wealth? This has nothing to do with the quantity of wealth; but, everything to do with the quality of one's estate plan.

If someone fails to do any planning at all, the State determines who will benefit. This is called the law of Intestate Succession. For example, in Missouri if someone dies while they are married with children, the spouse will receive the first $20,000 of assets. The balance is then divided between the spouse and the children. If a single person dies without descendants, the estate passes in equal shares between the mother, father, brothers and sisters. Many times when people discover this, they will say, "That is not what I want!" This is why it is important for every person, regardless of the size of one's estate, to create an estate plan long before the need arises.

New Wyoming Single Member Limited Liability Company

2010-06-22T07:44:00.000-07:00

I remember back in 1977 when the State of Wyoming passed the first Limited Liability Company Act. Many thought that a hybrid company that could be treated as a partnership or proprietorship for tax purposes and yet have limited liability like a corporation would never work. Fast forward to today and all fifty states now have Limited Liability Company statutes and the Limited Liability Company ("LLC") has become the entity of choice for all of new business organizations.

Well, the state of Wyoming is at it again. Beginning July 1, 2010 , an individual can set up a single person LLC in Wyoming and have creditor protection in a way that is not available in Missouri or in very few states. The new provision of the Wyoming statute regarding creditor's rights (W.S 17-15-503) now creates an "exclusive remedy" for creditors of an LLC. A creditor is limited to what is known as a "charging order". The charging order "is the exclusive remedy by which a person seeking to enforce a judgment against a judgment debtor, including any judgment debtor who may be the sole member, disassociated member or transferee, may, in the capacity of the judgment creditor, satisfy the judgment from the judgment debtor's transferable interest or from the assets of the limited liability." This means the individual member of the LLC (think "owner") cannot be sued for the liabilities of the LLC. The Wyoming statute even goes on to say that there are "no other rights, legal or equitable, other than the charging order". Thus, there is no judicial foreclosure available to a creditor of a member's LLC ownership interest.

Anyone who is interested in creating an extra layer of security in a business enterprise might consider setting up a single member Wyoming LLC and then registering the Wyoming LLC as a foreign business in the state in which the member resides or does business. We can partner with attorneys who are licensed in Wyoming to assist clients with this new tool of asset protection planning.

2010 Estate Planning

2010-06-08T07:59:00.001-07:00

As of June 8, 2010 Congress has still failed to act to advise us as to what the exact tax implications will actually be for people who die in 2010. With the repeal of the Estate Tax and Generation Skipping Transfer ("GST") tax in 2010, anyone who contemplates that they could meet their demise in 2010 would be well advised to seek legal counsel immediately to update one's estate planning documents. In particular, anyone who utilizes a "formula clause" in one's will or trust to create sub-trusts after the first spouse's death for the benefit of a surviving spouse and/or family members (i.e. a "Marital Trust" and a "Family Trust") would be well advised to update his or her documents.

For larger estates the gift tax rate this year is at an all time low of 35%. Next year, the rates revert to 55%. Should one consider making taxable gifts this year to pick up a 20% savings for the benefit of one's heirs? Anyone who has to write a check to the "U.S. Treasury" next year for 55% rates would have thought that this would have been a wonderful idea!

Clients who face end of life issues may wish to update their Health Care Powers of Attorney and Living Wills in light of the year end tax issues for 2010. The time to make these decisions is well in advance of the events that cause the need for them.

Our best guess at this time is that we are not going to see any tax legislation before the November elections. Given the current circumstances of gridlock in Washington D.C. at this time, the thought of comprehensive tax legislation getting done before year end is looking more and more unlikely. We very well may be facing a situation starting on January 1, 2011 where every unmarried citizen who dies in 2011 will be paying 55% estate taxes on one's estate in excess of $1M dollars.

The Increased Need for Special Needs Trust Planning

2010-05-05T07:36:00.000-07:00

There is no doubt that the need for special needs planning is increasing. Just look at these statistics:

In 1992, there were 15,580 children ages 6-22 who were diagnosed as having what is now called an Autism spectrum disorder. In 2006, the number was 224,594.
In 2006, there were an estimated 24.9 million adults in the United States with serious psychological distress.
Approximately 4.4 % of U.S. adults may have some form of bipolar disorder during some point in their lifetime.
In 2006, an estimated 22.6 million people in the U.S. (9.2% of the population age 12 or older) were substance dependent or abusive in the previous year.

Almost every family has at least one member (child, grandchild, nephew, niece, parent, grandparent) who will always need help managing personal care and/or finances. And since most of these conditions do not decrease life expectancy, many families are seeking answers on how to provide the best quality of life for their loved ones for the rest of their lives . . . which could, for a young child, be 70 years or longer.

Fewer Programs Are Available
At the same time that the need for support services is increasing, government and non-government programs are being reduced and even eliminated due to the strain on state budgets, competition among entitlement programs, and pressures to reduce deficit spending. Once a program is cut, it may be difficult if not impossible to restore it in the future.

Families Are Motivated
Even families who are using them now do not trust that the programs that are benefitting their special loved one will be there to provide the needed benefits in the future. They are wisely (and fearfully) looking at alternatives to provide those services. Common concerns are:

Who will care for my loved one when I am gone?
Who will be my loved one's advocate?
Where will my loved one live?
How much independence can be maintained?
Will the money last for my loved one's lifetime?

Preserving Government Benefit Entitlement
Are government benefits for a special needs person worth preserving? For families of lesser means, the answer is almost always, "Yes, absolutely!" For more affluent families, however, maybe not.

It may be better to privatize the special needs person's care instead of spending thousands of dollars to protect a few hundreds in benefits that may not be available in the future. In the past, many practitioners focused exclusively on preserving public benefits at all costs. Today, special needs planning is not necessarily "poverty planning." The proper focus today is, on a case-by-case basis, how to provide the best quality of life throughout the life of the loved one.

Estate Planning Update - No News

2010-05-01T20:58:00.000-07:00

It is now May and so far it looks like the Senate is to busy to deal with Estate Tax Reform before November. It is looking more and more like 2010 will be the year when one can die without the imposition of any Estate taxes regardless of the size of one's estate. However, starting January 1, 2011 taxpayers will be limited to an exemption of only $1M dollars. Everything else above that number will be taxed at 55%.

I never dreamed that we would see the actual repeal of the Estate Tax. Nor did I imagine we would ever go back to exemptions and rates that were in effect in 2002. The Federal Estate Tax is like a sponge. It soaks up everything that one owns: cash, bank accounts, CD's, stocks, bonds, investment accounts, retirement plans, real estate and life insurance owned by the person who dies. When one totals up everything on this kind of basis, there are many more "millionaires" today than there were in 10 years ago. Your next door neigbbor might be a millionaire?

Married people get a special break called the "Unlimited Marital Deduction". Any property that passes at death to one's spouse, whether outright, as a designated beneficairy or as the beneficiary of a Marital trust, will qualify for deduction. Often this means there will be no tax at the first spouse's death! But, the IRS is not being that generous. They will just wait until the second spouse dies, subtract the $1M exemption, and then tax the excess at 55%. We often refer to the Federal Estate Tax as the "Tax on the 2nd spouse's life".

It is imperative that when the first spouse dies, that he or she use whatever exemptions are available to the deceased spouse in the year of death. Jointly held property will not get one there. The first spouse needs to set up a Family Trust(sometimes referred to also as a "By-Pass" trust, or a "Residuary Trust" or a "B-Trust"....lawyers just love to call the same thing by different names to confuse people!) at the death of the first spouse. That trust can be for the surviving spouse's benefit during his or her life. But, when the surviving spouse dies, this Family Trust can pass tax free to the heirs as it is not deemed to be "owned" by the 2nd spouse during his or her lifetime. This savings is huge! It could be as much as 55% of $1M dollars =$550,000 starting next year. Jointly held property in this set of circumstances actually increases one's taxes and becomes a trap. Planning before one becomes disabled or dies is essential.

It is entirely possible that we will get a new Tax bill after November's elections. A lot will depend on who is elected. Stay tuned. This is going to be a wild ride for millions of Americans.

Congress to Increase Taxes on Individuals

2010-04-22T15:01:00.000-07:00

With the passage of the new Patient Protection and Affordable Care Act, starting in 2013 the new law provides for 3.8% tax on “Net Investment Income” to help pay for nearly $1 Trillion in spending under the health care legislation. This has now been labeled the“Medicare Tax”.

For individuals, this 3.8% additional tax is imposed on the lesser of:
(i) Net Investment Income; or,
(ii) Modified adjusted gross income exceeding $250,000 for married couples filing jointly or $200,000 for single tax payers.

This 3.8% tax increase also implies to Net Investment Income of trusts.

Net Investment Income encompasses interest, dividends, capital gains (other than income from an active trader business not primarily engaged in investment trading activity), rent and royalties as reduced for applicable specific deductions.

It appears that tax exempt interest from municipal bonds and similar investments will not be subject to this tax. Also exempt are distributions from IRAs and qualified retirements plans such as 401(k) and profit sharing plans.

With the ending of the Bush tax cuts which are scheduled to expire at the end of 2010 long term capital gains rates will increase next year from 15% to 20% and dividend rates will again be taxed as ordinary income starting next year. With the corresponding expiration of the cuts in ordinary income tax rates, the top rate on dividends will be 39.6% (federal). This will be a resumption of the Clinton-era top income tax rate.

In addition, starting in 2013 the new law increases the 1.45% Medicare portion of FICA taxes by .9% on wages exceeding $250,000 for married couples jointly or $200,000 for single taxpayers. Also, starting in 2013 (and in 2017 for individuals and their spouses age 65 or older) the floor for deducting medical expenses will increase from 7.5% to 10% of adjusted gross income.

However, twenty (20) states have now filed suit to overturn the new law on constitutional grounds. Where this will end up is anyone’s guess at this point? Very few such constitutional challenges are successful. What is apparent is that the trend of current tax law will create significant increases in many individual’s personal income taxes at almost all levels. The need for efficient tax planning is now even more necessary for the preservation of one’s wealth.

Community Spouse Owned Annuities are no longer available resources for Medicaid Purposes

2010-04-20T15:41:00.000-07:00

In a decision on April 20, 2010 out of the Western District of the Missouri Court of Appeals, the appellate court reversed the trial court and barred the Missouri State Family Support Division from counting a community spouse's ownership of a commercial annuity as an "available resource" to disqualify an institutionalized spouse from Medicaid assistance. The court found that treating a community spouse's income stream from a commercial annuity as an available resource which denied coverage for the institutionalized spouse for Medicaid assistance was a violation of federal Medicaid law.

Creditor Protection Benefit of the Stand Alone IRA Beneficiary Trust

2010-04-05T13:46:00.000-07:00

In a recent bankruptcy court decision out of the Eastern District of Texas (In re: Chilton) the court found that an inherited IRA is not the equivalent to an IRA for purposes of determining whether the account contains “retirement funds” that may be exempted from the bankruptcy estate under U.S.C. §522(d)(12).

Courts have listed several reasons for distinguishing an inherited IRA from an IRA which allows the creditors to reach the inherited IRA assets:

The state exemption was for retirement benefits to be available to the retired person, not a child who was still earning a living;
The beneficiary of an inherited IRA has an unrestricted right to withdrawal of the IRA at any time without any penalties;
And, the IRA is significantly different than an inherited IRA under the Internal Revenue Code.

The Chilton case highlights the dangers of relying on the bankruptcy code to provide protection for an inherited retirement accounts. To obtain solid asset protection we recommend that retirement plans be payable to a Stand Alone IRA Beneficiary Trust that is drafted to qualify as a designated beneficiary under Internal Revenue Code Section 401(a)(9) and that contains spendthrift language. The incremental cost of creating a Stand Alone IRA beneficiary trust is more than offset by the benefit of protecting the inherited IRA assets during the lifetime of the beneficiary from creditors, predators and spouses.

Patient Protection and Affordable Care Act (H.R. 3590)

2010-03-23T15:41:00.000-07:00

On March 23, 210 President Obama signed into law sweeping and historical health care reform legislation, H.R. 3590, the Patient Protection and Affordable Care Act. Lawmakers are debating H.R. 4872, the Health Care and Education Reconciliation Act of 2010, a reconciliation bill that would amend H.R. 3590. The House passed H.R. 4872 on March 21, 2010 and the Senate must take up the measure.

H.R. 3590 as a stand alone measure provides the following:

For group health plans and individual health insurance coverage: prohibition from establishing unreasonable annual limits or lifetime limits; restricts rescissions; requires minimum coverage for preventive health services; continues dependent coverage until age 26.
Creates exchanges for purchasing health insurance coverage.
Establishes a refundable tax credit to provide premium assistance for coverage under a qualified health plan.
Provides businesses with a tax credit for the premium cost of health insurance coverage.
Requires individuals to maintain minimum essential coverage or be subject to a penalty.
Requires automatic enrollment for employees of large employers.
Imposes a 40% excise tax on health coverage above certain dollar amounts.
Raises the HI tax on wages and self-employment income in excess of $200,000 ($250,000 for joint filers) by 0.9%.
Imposes annual fees on manufacturers and importers of branded drugs, manufacturers and importers of certain medical devices, and health insurance providers.
Raises the Adjusted Gross Income ("AGI") floor for deducting medical expenses from 7.5% to 10% (7.5% remains in effect for individuals over 65 and their spouses through 2016).
Implements a $500,000 deduction limitation on taxable year remuneration to officers, employees, directors, and service providers of covered health insurance providers.
Requires employer W-2 reporting of the value of health benefits.
Increases the penalty for nonqualified health savings account distributions from 10% to 20%.
Limits health flexible spending arrangements in cafeteria plans to $2,500 (indexed for inflation after 2011).
Requires information reporting on payments to corporations.
Imposes additional requirements for Sec. 501(c)(3) hospitals.
Conforms the definition of medical expenses for HSAs, Archer MSAs, health FSAs, and HRAs to the definition of the itemized deduction for medical expenses (excludes over-the-counter medications, except if prescribed by a physician).
Imposes a 10% excise tax on indoor tanning services.
Makes the adoption credit refundable; increases the qualifying expense threshold; and extends the credit through 2011.

Meanwhile 13 state attorneys general have filed a lawsuit challenging the constitutionality of the Act. A copy of the complaint is here. It appears the judicial branch will get a chance to weigh in on this legislation.

Estate Planning is a Loving Act

2010-03-18T12:03:00.000-07:00

There is no question that estate planning understandably takes an emotional toll on clients. In addition to facing the emotionally charged issues associated with handling money, clients must face their own mortality. Clients may also have to come to grips with strained family relationships, and address how best to provide for the future well being of children or other loved ones. Often, clients "gag and choke" with the gut-wrenching choices that surround the estate planning process. Fear of planning often leads to the paralysis of analysis.

A Loving Act

We believe that estate planning can be a proactive, positive influence. Planning for loved ones is a loving act. It really boils down to "Do you want to determine where your money goes; or, do you want the government (in its infinite wisdom) to do that for you?" We handled an estate of a woman who wrote a will and left everything to her two brothers and sister. Unfortunately, all of her siblings predeceased her without leaving any surviving descendants. When she passed away, she left a sizable estate to unknown cousins who lived in eastern Europe with whom she had very little, if any, contact. These sorts of scenarios do not have to happen. However, statistics tell us that 7 out of 10 Americans will never get around to making an estate plan before they die.

Our Approach

We strive to make your estate planning a life affirming experience. We believe that when a client shares his or her hopes, dreams and goals with us, we can create a plan that will design a legacy which reflects the client's values for years to come. When clients capture the vision of creating something that will survive them, it can actually be "fun"!

A number of years ago a married couple with no children came to me to plan their estate. They were in a serious quandary as to what to do with their wealth. We discussed the idea of establishing a plan that would reflect the values that they supported. They ended up leaving their estate to a series of charitable institutions. One of those institutions was the Ronald McDonald House. I suggested that they allow me to initially contact the various charities on an anonymous basis to let them know that they had been named as a beneficiary. At first, the couple was reluctant. However, after considering our advice , they allowed me to put them in touch with the various charitable entities. The staff at the Ronald McDonald House invited our clients to spend a day touring their facility and visiting with families staying at the house. Not long thereafter the wife passed away. Her husband contacted me after her death to thank me. He told me that the one of the best days of their life together was the day they spent touring the Ronald McDonald House. He was so appreciative that we had helped them to create an enduring legacy for them with their estate plan. The husband has since passed away and now a number of charities have substantially benefited from this couple's estate plan.

An Alternative Approach

We do not profess to have all the answers and solutions. Sometimes bringing in other professionals can help families dealing with some of the emotional problems. We can work with licensed marriage and family therapists who can provide additional family services to assist in dealing with family issues in a legacy context. Often, coming up with a family financial philosophy, something akin to a Family Mission Statement, can create a guide for the making of estate planning suggestions.

Procrastination

2010-02-28T05:32:00.000-08:00

The problem for most Americans when it comes to doing an estate plan is the "P" word. The "P" word does not stand for "Probate"; but,for "Procrastination". Most people think that Estate Planning is always something that one will get around to tomorrow. It is never urgent....until something happens.

According to a recent survey by Lawyers.com, the number of Americans with some type of estate planning document has dropped from 64% in 2007 to 51% in 2009. I have heard of other surveys that suggest that fewer than 30% of Americans have properly drafted and funded estate plans in place. I suspect that in these rough economic times, people are simply testing fate to put off the expense of creating their estate plan. What people do not understand is that a good estate plan helps one avoid probate and saves significant wealth for the benefit of one's family. A good estate should have the ability to benefit the beneficiaries many times over the cost of the initial plan. For example, while the cost of a will is rather inexpensive up front, the cost of administering a will through the Probate process [all wills go through probate] can be as much as 6-8% of the value of the entire estate. While one is alive, a will is meaningless. A will only speaks at the date of death. If one becomes incapacitated and a guardian or conservator has to be appointed while one is still living, the annual cost of such probate administration can be literally thousands of dollars. A simple living trust can avoid both the cost of disability probate and death probate.

We often get calls like "Mom is in the intensive care unit having just suffered a stroke. Can you do her estate plan now?" The answer is: NO. The time to do one's planning is long before the crisis of disability or death. If you are loved one has not effectuated an estate plan, do something about it today. Do not procrastinate! It is not a question of "if" you will need this. The only question is "when" you will need it.

A Suggestion for Congress

2010-02-16T19:02:00.000-08:00

There is a lot of talk these days about "bipartisanship" in Congress. Perhaps Congress needs to find some baby steps for the concept of putting the American taxpayer ahead of politics. Here is a suggestion for our legislators. Since we are waiting on a new Tax bill to straighten out the debacle of the repeal of the Estate Tax and Generation Skipping Transfer Tax, fix the imposition of the new "Modified Carryover Basis" tax regime that became effective on January 1, 2010. These new income tax rules dealing with basis are a nightmare for the heirs of those who have lost loved ones after January 1 of this year. Assuming the new tax bill will take a while to work out, at least spare those who were unlucky enough to die in this calendar year from the headache of trying to figure out all the new modified carryover basis rules. Surely both sides of the aisle can agree that the imposition of these taxes at this time are patently unfair. A simple bill to repeal the modified Carryover basis rules should be a slam dunk to sail through the House and Senate.

Estate Tax Battle Resumes

2010-02-06T10:06:00.000-08:00

Secretary of the Treasury, Timothy Geithner, and the Senate Finance Charmian, Max Baucus agree on one thing. Both want to extend the 2009 estate tax rate and exemption amount to 2010 and make it retroactive to January 1, 2010. In the 2011 budget released Feb. 1 by President Obama, the administration is backing the legislation passed by the House last December to repeal the repeal of the Estate Tax in 2010. Too bad nobody has explained to them the due process clause of the Constitution has been interpreted such that the tax code in effect as of the date of a person's death is the law that is to be imposed. Anyone who has a relative who has died in 2010 and who inherited amounts in excess of the proposed $3.5M exemption may wish to contest such retroactive application of any new estate tax law.

Some insiders suggest that the estate tax bill could be linked to the proposed jobs bill being submitted to boost the economy. All we can say is "stay tuned". The final chapter in this area has not yet been written.

New Haiti Tax Deduction Legislation

2010-01-25T14:51:00.000-08:00

On January 20, 2010, the House passed H.R. 4462. This bill permits Haiti relief gifts from January 12 to February 28 of 2010 to be deducted on 2009 tax returns. Following the House passage on the unanimous voice vote, the Senate acted quickly on January 21, 2010 to pass the bill. President Obama is expected to sign the bill within the next week.

Senate Finance Chair Max Baucus (D-MT) stated, "Today, Congress unanimously agreed to extend the tax deadline for charitable giving so Americans can continue to help the relief efforts in Haiti." The Ranking Republican on the Senate Finance Committee, Charles Grassley (R-IA), continued, "Americans give generously to disaster relief and I hope this extension encourages them to give even more. I also hope Americans will make sure the charities they choose are above board. People should be careful to give only to groups they recognize and trust.

"The bill permits cash gifts (not property gifts) from January 12 to February 28 of 2010 to be deducted on the 2009 tax returns. The gifts must be "for the relief of victims in areas affected by the earthquake in Haiti on January 12, 2010." All qualified charities may receive the gifts, so long as they use the funds appropriately for Haiti relief. Because many individuals have made gifts using their telephone, a deduction is also permitted for cash gifts by phone during the above dates. For a telephone gift, donors should retain the telephone bill with the name of the charity, the date of the gift and the amount of the contribution.

Welcome to 2010!

2010-01-06T10:49:00.000-08:00

The start of a new year brings with it some very interesting tax developments. Congress adjourned and promised to come back and fix the estate and generation skipping tax this year. So right now if anyone wants to die and pass thier estate along without the impositon of any estate tax at the federal level, the opportunity is yours! Tough advice to give to a client!

However, the generation skipping tax ("GST") is also no more. Anyone contemplating gifts in excess of the current $1,000,000 lifetime gift tax exemption will not have to pay GST tax of 45% to gifts to grandchildren. The gift tax rate was reduced from 45% to 35%. While Congress has talked about making any new taxes retroactive to January 1, 2010, there is some thought that that may be unable to do so based on prior case law. So there exists a window of opportunity for those willing to play the game.

The bad news is that Congress had to come up with some way to make up the revenue loss. So they invented something for this year called "modified carryover basis". This means that the executor of a decedent's estate can elect to "step up" the first $1.3 million of assets to the fair market value of a deceased person's estate as of the date of death. But anything else will be subject to "carryover basis", i.e. the basis in the hands of the heirs will be the same as the lifetime basis of the person who died owning the asset....unless, the decedent was married! A spouse is entitled to an additional $3M dollars of step up in basis election. The result is to increase the income tax on the sale of inherited assets at the time of a subsequent sale. The accounting profession will love this new computation. Congress tried this back in 1976. After two years when they admitted that it was so complicated that nobody could compy with it, Congress repealed it. Now this new system is back again in 2010. I wonder how long it will take Congress to remember that this was a mistake the first time and it is not any better the 2nd time around.

Conclusion: This is the year that everyone should review their estate planning documents to see what the current repeal of the Estate tax does to one's estate planning. There are still so many unknowns that are difficult to predict; but, high net worth estates may be able to do some things right now that will not be available later.

Still No News on the Estate Tax Front

2009-12-18T09:59:00.000-08:00

As this week comes to a close, the buzz among estate planners is what Congress has NOT done so far. Time is running out and the ability to fix the unthinkable is dissipating quickly. The unthinkable is that beginning January 1 we will see the elimination of the estate and GST taxes, coupled with the introduction of carryover basis for people who die in 2010. This means that because of the repeal of the estate and GST tax (which only the wealthiest of 2% of the population pays), Congress had to do something else to replace this loss of revenue. Their answer was to do away with the "stepped-up" basis rules and to institute a modified carry over basis for assets that one inherits. This means that starting in 2010 everyone will now pay increased income taxes to offset the tax revenue lost from the Estate and GST tax!

The House is scheduled to recess for the holidays on December 18 and the Senate is focused on health care reform. This is a true dilemma for the estate planning community is that we still don't know what to tell clients to do at this point in time? But on other fronts........

Trademark infringement is a serious matter. A recent case filed in St. Louis however is proving to be the butt of some jokes. For an interesting (and I thought humorous) read check out the following ABA article here.

Health care reform has targeted savings from electronic record keeping as a way to save costs. But the implications of that are staggering. Some are now pointing out the loss of privacy and the exposure of confidential health information. See E-health records.

The Higher Cost of Dying in other states

2009-12-09T07:04:00.000-08:00

The Federal government is trying to decide what size of estate tax exemption citizens are going to have next year from the Federal Estate Tax. Under current law the exemption amount is currently $3,500,000.00 in 2009. If Congress does nothing the Federal Estate Tax exempt amount will be unlimited beginning January 1, 2010. I am betting we are going to see last minute legislation at the end of December to prevent the repeal of the repeal of the Estate tax for 2010.

However, state governments are also feeling the economic pinch and looking for ways to increase tax revenues. Dead people are an easy constituency to squeeze because they do not vote. For example, the State of Illinois "decoupled" its estate tax from the federal exemption amount beginning January 1, 2009. In Illinois anyone who dies this year pays an additional estate tax over anything one owns in excess of a $2,000,000 exemption from Illinois estate tax. What does the mean? If a Missouri resident dies with a $3,500,000 taxable gross estate in 2009, the taxpayer pays $0 Federal estate tax and $0 Missouri estate tax. The same taxpayer who dies in Illinois this year pays $0 Federal estate tax and $209,124 in Illinois estate tax. Picking the right state to die in for tax purposes can save some real dollars! Living on the correct side of the Mississippi can benefit one's loved ones significantly!

I think the Missouri tourism commission ought to adopt a new campaign to attract older citizens to move to Missouri before they die.

The House passes Tax Relief (Sort of)

2009-12-04T11:47:00.000-08:00

On December 3, the U.S. House of Representatives passed the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (H.R. 4154) by a vote of 225 to 200. Not exactly a land side; but, a beginning.

H.R. 4154 would:

· make permanent the $3.5 million estate tax exemption

· make permanent the 45 percent top rate.

· Prevent the untenable and unworkable switch (scheduled to take effect in 2010) from step-up to carryover basis.

One of the shortest tax bills ever to be passed, it is notable for what it does not say. Many of the changes requested by the Treasury department are absent. It is now up to the Senate. A lot has to occur before this becomes law. Stay tuned for further updates.

Lawmakers Scramble to Extend the Estate Tax

2009-12-01T15:51:00.000-08:00

The bonanza of passing one's estate free of federal estate tax might actually happen on January 1, 2010. Due to a quirk in the tax code, the estate tax and generation skipping tax ("GST") are repealed for one year starting next year. Currently, anyone with a taxable estate of less than $3,500,000 is exempt from Federal Estate tax (and in Missouri from state estate tax as well). The Senate is considering legislation that would extend the $3,500.000 exemption another year in essence repealing the repeal of the estate tax. But, with time running out and the agenda focused on health care reform, there may not be time to do anything this term.

Starting in 2011 the Federal Estate Tax and GST tax would return and tax everything that one owns in excess of $1,000,000 at a 55% rate. This means that those who are very rich could take advantage of the one year repeal by dying in 2010. While this is a tough advice for any client, think of the social mayhem that could result by leaving such tax policy in place? Congress needs to act responsibly and deal with this legislation before it adjourns. Stay tuned for further updates.

Social Security

2009-11-19T10:02:00.000-08:00

Anyone who has visited your local security office recently will have a story to tell. There may be a better way to find out information about one's benefits by using the internet. Below are some links that might be of help to anyone who is looking for answers to their social security questions:

TO SEE IF YOU QUALIFY FOR BENEFITS:

What Benefits Can I Qualify for?
www.socialsecurity.gov/best
Can I get Help with Medicare Prescription Drug Costs?
www.socialsecurity.gov/i1020

TO ESTIMATE YOUR FUTURE BENEFITS:

To Obtain Retirement Benefit Estimate
www.socialsecurity.gov/estimator
To Calculate Retirement, Disability, Survivor's Benefits
www.socialsecurity.gov/planners
To Request Social Security Statement
www.socialsecurity.gov/statement

TO APPLY FOR BENEFITS:

To Apply for Social Security retirement/spouse's benefits
www.socialsecurity.gov/applyforbenefits
To Apply for disability benefits
www.socialsecurity.gov/applyfordisability
To Apply for help with Medicare Prescription Drug Costs
www.socialsecurity.gov/i1020
To Check Status of
Online Application
www.socialsecurity.gov/applyforbenefits

COMMON TRANSACTIONS ONCE YOU ARE RECEIVING BENEFITS:

To Change Address or Phone #
www.socialsecurity.gov/coa
To Obtain Replacement Medicare Card
www.socialsecurity.gov/medicarecard
To Request Proof of Income Letter
www.socialsecurity.gov/beve
To Obtain Form 1099/1042S (Social Security Benefit Statement)
www.socialsecurity.gov/1099
To Obtain Password
www.socialsecurity.gov/password

TRANSACTIONS ONCE YOU HAVE A PASSWORD

To Check Information or Benefits
www.socialsecurity.gov/pcyb
To Change Address or Telephone #
www.socialsecurity.gov/coa
To Start or Change Direct Deposit
www.socialsecurity.gov/pdd

I hope that these links might be of help to anyone in answering your social security questions.

Good artilce in U.S.A. Today about Wills

2009-10-23T11:49:00.000-07:00

See: 5 Myths about Wills and what you should do.

To Tax Estates or Not? That is the Question!

2009-10-19T16:27:00.000-07:00

Under the current tax code in effect right now, the Federal Estate Tax is scheduled to be repealed beginning on January 1, 2010. Under the current law in effect in 2009, a citizen can own up to $3,500,000 in total assets, and pay no Federal Estate tax. And, in Missouri we have no state estate tax either. Anything in excess of that amount is taxed at a current rate of 45%.

We have been thinking that Congress was going to "fix" this and pass a law extending the current Federal Estate Tax for next year. Senate Bill 722 would make the 2009 exempt amount and rate permanent. A House Bill 2032 would make the exemption amount only $2,000,000 and fix the rates for estates between $2M and $5M at 45%; 50% for estates between $5M to $10M and tax estates over $10M at 55%. Another House Bill, No. 436 would use the $3.5M exemption and a top rate of 45%. Meanwhile the Congressional Budget Office has thrown out 4 models for Congress to consider.

The truth is nobody knows what is going to happen? What is apparent is that we are fast approaching deadlock; and, if Congress fails to act before the end of the year, we may begin to see in January the tax equivalent of hell freezing over. Stay tuned. We will bring you the latest as soon as we know what is going to happen!

FDIC Protection for Bank Accounts

2009-09-21T13:02:00.000-07:00

We get a lot of calls about the status of the Federal Deposit Insurance Corporation's guarantee of deposits in FDIC insured bank accounts. The current $250,000 limit has been extended by the FDIC until the year 2014. It was originally scheduled to have reverted to the old $100,000 limit at the end of 2009. The additional $250,000 amounts for IRA's and certain retirement accounts has been made permanent.

If you want to know how these limits apply check out the ESTIMATOR that is put out by the FDIC.

Planning for Disability

2009-08-24T07:30:00.000-07:00

All of us are swamped with busy schedules. No one ever thinks that he or she will ever be the person who is incapacitated or disabled. Yet, statistically, a person is seven time more likely to experience incapacity rather than sudden death. It is reported that less than a third of Americans adults, and less than half of nursing-home patients, have ever created any advanced directives setting forth one's wishes and medical desires.

An advance medical directive typically has two parts: a health care power of attorney and a living will. The health care power of attorney for health care, designates a person, such as a spouse or trusted friend, who can legally act as your agent, making medical decisions for you if you are incapacitated. Meanwhile, the living-will portion describes the type of care you would want if you are critically ill. The Missouri Bar offers a free down loadable form here. However, I would strongly urge anyone to seek a competent estate planning attorney to fine tune and develop legal documents that reflect one's hopes, goals and objective in this area. These forms are state specific.

An advanced directive is for the benefit of the living as well as the person who creates them for himself or herself. Anyone who has ever had to make these kind of medical decisions for a loved one knows how emotionally difficult it can be for the decision maker. Leaving instructions that tell someone you trust what you want and how you wish to be treated is a loving act for the benefit of those who are left behind.

Every estate plan should address these issues and create instructions that reflect the client's hopes, dreams and goals.

Estate and Gift Tax Update

2009-08-08T15:55:00.000-07:00

What is Congress doing about the current situation whereby the Estate Tax will be repealed in 2010. President Obama has asked for legislation that would extend the current 2009 $3.5M exempt amount for another 3 years. But, so far nothing has happened. With the focus in Congress on health reform and cash for clunkers the "fixing" of the Estate Tax Code has seemed to have dropped off the radar screen.

Now this is my pure speculation. However, if the country becomes even more polarized over legislative agendas this Fall, I could see a scenario whereby the White House takes a pure party line approach. If no comprises are reached the Estate Tax will be repealed for one year in 2010. This means that if Warren Buffet died in 2010 his entire estate could pass estate tax free to his heirs. There would be no need for charitable planning from an estate tax avoidance point of view. I can actually picture people jumping off bridges on December 31, 2010 so that they can die to pass their estate to their heirs tax free. I can also picture junior who might wish to accelerate mom or dad's demise in 2010? One may wish to take a long cruise to stay away from anxious expectant heirs late in the year.

But, here is the kicker! Starting January 1, 2011 everyone who dies who has gross taxable estate in excess of $1,000,000 dollars would pay an estate tax of 55% on the excess over and above that amount. If you want to pick a on a constituency that does not vote, dead people fit the bill. And, if Congress is looking for an easy fix to ring in the tax dollars to pay for prior exorbitant spending, what better way than to say "we did not do anything. We just let the tax breaks expire." I hear a large sucking sound beginning to resonate in Washington, D.C. that will impact us all.

In light of all the uncertainty, the one thing that everyone who has an estate of over $1M should do is to update their estate plan to take all these scenarios into account. Many people will be lulled into a false sense of security thinking that this will not apply to them. What they do not realize is that the estate tax is like a giant sponge. It soaks up everything that one owns at death. This includes not only a person's so called "liquid assets" like cash, bank accounts, stocks, bonds, etc. but it also includes equity in real estate, all of an individual's retirement plans such as IRA's , 401(k) plans, annuities and the face amount of all life insurance owned by a decedent. When people add up all of this they are shocked to discover that on paper their estates are a lot larger than they think. The first dollar over $1M could be at risk of a possible 55% haircut.

Stay tuned as the script is not even been written on this yet!

Planning for College

2009-08-03T12:25:00.000-07:00

As kids get ready to go off to college it is that time of year when parents swallow hard to pay for tuition, fees and expenses of a child's college education. For a child in Missouri the cost of a public education is approximately $17,000 per year. For a private school costs can exceed $50,000 per year. Few people can afford to pay for this out of their regular income. It takes a lifetime of savings and planning for this expenses.

What are the options for saving?

1. Parents can try to save money in their name. The plus of this is that the investment is in the parent's name and there is no loss of control. The downside is that the return on the investment is currently taxable at the parent's rate.

2. Specialized savings accounts in the child's name, i.e. Uniform Transfer to Minor's Account ("UTMA") and Uniform Gift to Minor's Account ("UGMA") are popular accounts at banks, savings institutions and investment firms. The advantage of these type of accounts are that they cheap and easy to set up. The investments in these accounts are taxed to the minor (subject to kiddie tax). The downside to these accounts is that when the child turns 21 in Missouri (in some states it is 18) the investment belongs to the child. For example, if your child wants to buy a motorcycle on his or her 21st birthday and take their significant other to Alaska you will not be able to do anything about it. For this reason, I do not recommend these accounts unless they are for very small amounts.

3. Section 529 College Savings Plans. Almost every state offers these accounts which are similar to an IRA. The main attraction is that the investment grows tax free inside the 529 Plan. If used for "Qualified Educational Expenses" the amounts expended for college are not taxable income. The parent (or better yet the parent's living trust) can be the owner of the 529 plan so that there is no loss of control. If the child does not go to college, the owner of the 529 plan can name a new beneficiary. Contributions are limited to $13,000 per year. A five year gift of $65,000 can be made up front; but, no other contributions can be made for a five year period.

4. An Irrevocable Trust. Another way to create a fund for future use is to set up an Irrevocable Trust. Let's say a Grandparent sets up an Irrevocable Trust naming the Parent as the Trustee for the benefit of a Grandchild (the "beneficiary") The Trustee can invest in anything that is fiduciallary appropriate. Grandparent can contribute up to $13,000 per year (the "annual exclusion gift"). If Grandparents want to make a joint contribution to such an Irrevocable Trust the maxiumum amount of the gift could be as much as $26,000 per year ($13,000 x 2 = $26,000) . In addition, a Grandparent could choose to make a lifetime gift up to $1M as part of their lifetime gift tax exemption amount to "supercharge" such a trust in addition to annual exclusion gifting. If Grandparent wishes to do so the trust can be made "defective". This means that for estate and gift tax purposes the Irrevocable Trust is outside of the estate of the Grandparent. But, for income tax purposes the earnings of the Irrevocable Trust can be picked up by the Grandparent and put on the Grandparent's income tax return. Why would a Grandparent might want to do this? Because, so far paying the income tax for someone else is not deemed to be a gift. In essence, the Grandparent's payment of the Irrevocable Trust's income tax is another way to transfer more wealth to the next generation. Meanwhile the Irrevocable Trust grows "tax free" so to speak. The earnings are compounded and re-invested in the trust each year. If the Irrevocable Trust could earn 7% a year for 10 years it would double in value. This is a wonderful way to create a supercharged savings plan for a grandchild. The trust can offer asset protection planning from the grandchild's creditors, predators and spouses for their lifetime if so desired.

Fictitious Business Names in Missouri

2009-08-03T08:18:00.000-07:00

Many of our business clients utilize a Fictitious business name for their corporations, partnerships, proprietorships and limited liability companies. The Missouri legislature has passed a new law effective August 28, 2009 that requires all former Fictitious Name Registrations filed before August 28, 2004 to be renewed. See here for a copy of the new law. Filings are now good for five years and may be renewed.

If you have need to renew an existing registration or have questions regarding how to file, please feel fee to give us a call.

Wills are Public Records

2009-07-22T10:16:00.001-07:00

One of the main advantages of a Living Trust over a Will is that a Will becomes a public record when it is filed with the Probate Court. Not only is the Will a public record, but the subsequent inventory and accounting records of what a deceased person owns becomes public as well. Very astute people glean all kinds of things from these records. For example, if one wants to know about Michael Jackson's will see here. Some have likened probate proceedings as akin to leaving your checkbook in a public forum for everybody to see what you own and how you spend your money. Most clients would choose privacy over this kind of public review of their financial matters.

If one wants to maintain some degree of privacy about one's personal estate planning a Living Trust is a better way to plan. A Living Trust is a private contractual document that is only shared with the beneficiaries of the trust and the Internal Revenue Service. No one can walk into a probate court and view a Living Trust as Living Trusts avoid probate at death. Wills, on the other hand, guarantee probate.

Estate Planning for Unmarried Couples

2009-06-26T07:47:00.000-07:00

Chances are quite good that you might know of a couple who are living together without the benefit of marriage. The U.S. Census Bureau confirms what you already may suspect. More people are cohabitating in lieu of marriage these days than ever before in our nation’s history. In 1930, married couples accounted for 84 percent of American households. In the year 2000, just 70 years later, married couples were barely in the majority at 52 percent. The trend does not seem to have bottomed-out, either. In 2005, married couples were the minority at 49.7 percent. And, it is not just young couples. In fact, between 2001 and 2006, the number of unmarried cohabitants older than age 55 rose 61 percent, from 340,000 to 549,000. Even though cohabitation is legal in the majority of states, unmarried cohabitants face unique estate planning challenges regarding incapacity, inheritance, and estate taxation.

So who in charge when someone becomes “incapacitated”?

Unlike their married counterparts, unmarried cohabitants may not be able to make fundamental health and financial decisions for one another in the event of incapacity. Absent prior legal planning or specific statutory authority, unmarried couples have no legal relationship to give standing in court over one’s blood relatives. For example Jim and Mary are unmarried cohabitants when a severe automobile accident leaves Mary in a coma. If both Jim and Mary’s parents seek to be appointed as Mary’s legal guardian, then the preference will be for Mary’s parents. In addition, if Mary’s parents do not like Jim, they may legally bar Jim from visiting her. Mary’s parents would even have the authority to make end-of-life decisions without Jim’s input. Similarly, Jim would not be able to manage Mary’s finances. Her parents likely would be appointed as conservator over her financial affairs, paying her bills and filing her taxes, too.

Protecting Your Partner's Inheritance

Absent proper legal planning, state intestate succession laws (i.e., state laws that determine the distribution of assets of a person who dies without a will) may leave the surviving cohabitant on the street. For example, Jane and John reside in a home titled in Jane’s name alone. If Jane dies, then her parents inherit the home and may force John to leave as a trespasser. If Jane and John had children together, then the children would inherit the home, not Jane’s parents. But what if the children were minors? As the surviving parent, John would be responsible for maintaining the home for the children, or selling it on behalf of the children. When the children reach the age of majority (i.e., age 18 in most states), John will be required to turn the home or the proceeds from its sale over to the children without any further guidance or control.

Unmarried Couples Lose the Unlimited Marital Deduction for Estate Taxes

The unlimited marital deduction is an unlimited deduction for estate (and gift) tax purposes, but only for transfers between married spouses of the opposite sex. For example, Jane’s estate is worth $7 million, chiefly consisting of an IRA and a life insurance policy designating John as the beneficiary. Upon her death, only $3.5 million of the IRA and life insurance proceeds will be sheltered from federal estate taxes. What about the remaining $3.5 million? Jane’s estate will have to shell out more than $1.5 million in federal estate taxes (plus income taxes on any IRA funds withdrawn to pay these federal estate taxes) to the Internal Revenue Service within nine months of Jane’s death.
Contrast this result with Pete and Barbara who are married and who live next door in the cul-de-sac. Assume they present the same facts. Pete will inherit Barbara’s full $7 million of assets without any reduction due to federal estate taxes. The Federal Tax Code laws grant to Pete an unlimited marital deduction. This allows married spouses of the opposite sex to gift during life or leave to one another upon death an unlimited amount of assets free of gift or estate taxation.
Couples who elect to cohabitate should consider seeking qualified legal counsel to minimize or eliminate these adverse results.

What are "Charitable Gift Annuities"?

2009-06-24T07:08:00.000-07:00

As its name suggests, a charitable gift annuity consists of two elements:

an outright charitable gift; and,
the purchase of a fixed income annuity contract. Payments can begin immediately or can be deferred for a period determined by the donor and set forth in annuity contract.

The payment period can be measured by one annuitant's life (who is in most cases is the donor) or by the lives of two joint and survivor annuitants (often a husband and wife). Charitable gift annuities are not issued for a fixed term of years. As will be discussed, however, it is possible to terminate the annuity payments in advance of the life measuring term.

Unlike charitable remainder trusts or pooled income funds, whereby the obligation to make payments is limited solely to the contributed assets or segregated fund, a charitable gift annuity is considered a general obligation of the issuing charitable organization. Charitable gift annuities, therefore, take on much of same characteristics as commercial annuities with the issuing charity acting as the insurer. Many states require issuing organizations to be licensed and to maintain investment reserves.

In order to provide for a gift component, the rates offered by organizations in connection with charitable gift annuities are lower than those available from commercial insurance carriers.
Most organizations offer annuity rates as suggested by The American Council on Gift Annuities -- a qualified 501(c)(3) organization formed in 1927 as the Committee on Gift Annuities for the purpose of providing educational and other services to American charities regarding gift annuities and other forms of planned gifts. The Council deals with all matters pertaining to charitable gift annuities and meets periodically to establish suggested annuity rates that will result in issuing charities realizing a 50% actuarial residuum from the annuity agreements they issue. The rates are based on current mortality studies, prevailing and projected investment returns on invested reserves, and projected administrative costs.

The annuity rate is based on the age and number of annuitants. The most recently published rates apply to gift annuities issued on or after July 1, 2008. Rates begin at 3.3% for single-life annuitants age 0 - 5 and increase to 10.5% for single-life annuitants age 90 and older. Rates for joint-and-survivor life annuities are less to reflect longer combined actuarial life expectancies. Charitable gift annuities are limited to one or two annuitants.

The purpose of using standardized rates is to discourage competitive rate setting among charities and thereby ensure that a significant portion of the transfer will be available for charitable purposes. In 1995, however, a lawsuit was filed by a donor who charged that charities that issued gift annuities had conspired to fix the rates they offered donors and that such practices violated both antitrust and securities laws. Congress, recognizing the primacy of charitable gift annuities as fundraising tools, enacted two laws designed to specifically exempt charitable gift annuities from antitrust laws. As an alternative to using the suggested ACGA rates, some organizations choose to develop their own rates based on their own investment experience, charitable residuum goals, and the investment/reserve requirements under state law.

Determining the Annuity Amount
The annuity rate is stated as a percentage that, when multiplied by the net fair market value of the amount transferred, determines the annual amount payable to the annuitant. The annual amount can then be paid annually, semi-annually, quarterly, monthly or as otherwise set forth in the annuity agreement.
EXAMPLE 1 : Mr. Pleasant, age 70, transfers $100,000 on January 1, 2008 to a charitable organization in exchange for a single life immediate charitable gift annuity. The suggested ACGA annuity rate corresponding to his age is 6.5%. Mr. Pleasant will receive $6,500.00 per year.
EXAMPLE 2: Mr. and Mrs. Jones, both age 70, transfer $100,000 on January 1, 2008 to a charitable organization in exchange of a joint and survivor life immediate payment charitable gift annuity. The annuity rate corresponding their ages is 5.9%. Mr. and Mrs. Jones will receive $5,900.00 per year as long as at least one of them survives.

With a Deferred Payment Gift Annuity (DPGA), the annuitant(s) start receiving payments at a future time, the date chosen by the donor, which must be MORE than one year after the date of the contribution. As with Immediate Gift Annuities, payments can be made monthly, quarterly, semi-annually or annually.

What is Estate Planning?

2009-06-08T21:17:00.000-07:00

Estate planning is simply giving what you have, when you want, the way you want, how you want, to whom you want, at the lowest possible cost. It is not a bunch of legal mumbo jumbo. The truth is that we come into this world with nothing, and we leave this life with nothing. All of our physical assets remain behind. I am always amazed how we know that death and taxes are a certainty....but, 7 out 10 people die with no estate planning in place. How is that possible? Well, think about it. People are always so busy taking care of the affairs of life on the "urgent" basis that they never take time to think about what would happen if they check out permanently? We spend a lifetime accumulating assets; but, most people spend very little time planning for one's exit strategy.

Estate planning can be a loving act for the benefit of one's beneficiaries. If one fails to make any provision for his or her estate, the state in which you live at the time of your death has a plan of disposition ready for you. However, it may not be the plan that you would necessarily want? When someone dies without a will or a living trust in place, the laws of intestate succession take over. What is that you ask? The state has a set of rules in place to govern where someones property will go if that person dies without an estate plan in place.

Any person over the age of 18 who is of sound and disposing mind has the ability to condition how one's property will be disposed of at the time of one's death; but, it is utterly amazing how often people die without any plan in place. The probate court is the only institution on earth that can change the name of a deceased person's property after one dies. Probate is great for lawyers; but, it is not so good for people. Anytime one can avoid probate, the heirs will come out way ahead. Most probate administration will eat up on average about 7% of the assets passing through probate. A good estate plan will allow one to avoid probate.

Trustworthiness of a Child

2009-06-04T18:24:00.000-07:00

Here is a recent Wall Street article that is good food for thought on how to choose a successor Trustee.

Article

Welcome to my New Estate Planning Blog

2009-05-31T12:45:00.000-07:00

Tomorrow I start as a partner at Kohn Shands Elbert Gianoulakis & Giljum LLP. The movers are coming at 8:00 a.m. to relocate us to 231 S. Bemiston, Suite 800, Clayton, MO 63105. My new phone number will be 314-241-3963.

I am looking forward to creating a blog that helps people understand the basics of estate planning and how taxes impact the design of ones' estate plan. Please bear with me as the relocation will take a little time. However, if we can provide you with information or advice in the interim, please feel free to contact us.