Healthcare Powers of Attorney - Advanced Directives
September 10, 2012 3:00-4:00 p.m.
1 CEU credit
Please RSVP to Sandy Simpson at 433-4455
A favorite estate planning transaction used by many sophisticated estate planning attorneys across the country involves the use of an “intentionally defective grantor trust” (IDGT). The “grantor trust” rules of the Internal Revenue Code instruct that a grantor trust is not taxed as an entity separate from the grantor (the person creating the trust) and that the assets transferred to a grantor trust still belong to the grantor for income tax purposes. The result of transferring assets to a trust that qualifies as a grantor trust is that the person has not made a transfer for income tax purposes. Many estate planning attorneys use the grantor trust rules to their advantage and they carefully draft a trust that is “intentionally” drafted to qualify as a grantor trust for income tax purposes, yet the carefully drafted trust can also be treated as a completed transfer for the gift tax and estate tax. Therefore by using an IDGT and transferring appreciated assets to a trust a person can shift the value of the asset from his or her taxable estate for estate tax purposes while at the same time the transfer will not count as a taxable transfer for income tax purposes that could trigger capital gains.
The Obama Administration’s revenue proposal for 2013 recommends a change to the long-standing grantor trust rules. The proposal would require more consistent treatment of transfers to a grantor trust and would eliminate the powerful estate tax planning that can be accomplished using the IDGT. The proposal would include assets in a grantor trust in the grantor’s taxable estate and would therefore take away the advantage described above. The proposal does not purport to affect grantor retained annuity trusts, qualified personal residence trusts, and grantor retained income trusts.
It is possible that a grantor trust created and funded prior to a change in the law could be “grandfathered” into existing law. This could bring some great advantage to someone willing to establish an IDGT under current law and fund that trust with sufficient assets this year in order to hedge against any possible changes to the law.
Luckily, this is only a proposed change in the law that is presented by the Department of the Treasury and hopefully this proposal will never make it into ourlegislative system. We will be watching this topic carefully and we hope that the favorable laws that apply to IDGTs can continue on for many more of our clients and that the IDGT will not become an estate planning endangered species.
People are often confused about the differences between a Last Will, a Living Trust and a Living Will. Although these things may sound alike, they all serve different purposes.
A Last Will lets you dictate who receives your property, provides instruction for the handling of your remains upon death, and if you are a parent of a minor child allows you to nominate a guardian.
A Living Trust, like a Last Will, allows you to dictate who receives your property. The major difference between a Living Trust and a Last Will is that a Living Trust typically avoids Probate upon the death of the Settlor – the creator of the Living Trust. Thus, the property you place in a Living Trust passes free of court involvement to your beneficiaries. A Living Trust is also known as Revocable Trust or a Family Trust.
A Living Will has nothing to do with the distribution of your property. Rather a Living Will indicates your wishes as it relates to artificial life support. During times of incapacity, the Living Will may provide peace of mind to your loved ones as they will know your wishes relating to end-of-life treatments. A Living Will is also known as an Advanced Directive or Directive to Physicians.
The attorneys at JEFFREY BURR have extensive experience implementing these documents into a person’s estate plan. Please feel free to contact our offices for a free 30-minute consultation.
Many of our clients have residences in or spend a significant amount of time in both Nevada and California. Although the state of Nevada has no income tax, the state of California taxes non-residents on any California taxable income and California residents on all income. If individuals are not careful, they may be considered residents of California and therefore subject to California income tax on all of their income. Fortunately, the California Franchise Tax Board has issued some guidelines for determining resident status.
FTB publication 1031 sets out the test for determining residency as follows:
“A resident is any individual who meets any of the following:
The publication further explains, “the underlying theory of residency is that you are a resident of the place where you have the closest connections.” The Franchise Tax Board Publication also provides the following partial list of factors that the state may consider in determining whether a person is a resident or non-resident:
If a person is treated as a resident of California, it may subject them to potentially large income tax consequences. Aside from the tests and factors outline, there are many other things to consider when determining or evaluating residency. Should you have any questions regarding your residency status, please contact our office.
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
Although not as successful as other literary series such as Harry Potter, Twilight, or The Hunger Games, our blog series has been fun to produce. I am up again for exciting installment number Six!
6. FAILURE TO TAKE ADVANTAGE OF THE ESTATE TAX EXEMPTION IN 2012
We will be holding free seminars for clients and potential clients on this exact topic at 7:00 p.m. on June 26 at our Las Vegas office and at the same time on June 27 at our Henderson office. If you have an interest in attending, please call us at 433-4455 to RSVP.
As we have stated before in earlier blog posts, 2012 is the perfect storm for gifting opportunities. The gift tax exemption amount is currently reunified with the estate tax exemption and since the exemption amount is set to greatly reduce next year, and most people commenting on this issue feel that the likelihood of the gift tax exemption amount again being unified with the estate tax exemption amount is low. In plain words, there is only 6 months guaranteed to be remaining where it will be legal to gift up to $5.12 Million without having to pay gift tax. The amount will be $1 Million next year and the future is uncertain beyond that because Congress is likely to make a change to this element of the tax code, but not likely until after the Presidential election. The ability to gift over $5 Million out of one’s estate can result in a great estate tax reduction opportunity for clients in the right wealth category.
A few techniques for accomplishing gifting (that will also be discussed at our upcoming seminar) include the following:
We could have a whole spin-off blog series on this topic alone to discuss these gifting opportunities. (Think “A Different World” as a spin-off to “The Cosby Show”).
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
As we continue to discuss each of the 7 major errors in estate planning, I am up again for number 5.
5. Maximizing Annual Gifts
Under current tax laws, the annual gift tax exclusion allows each individual to gift $13,000 per year to an unlimited number of persons without any estate or gift tax consequences. As a result, the utilization/use of the annual gift tax exclusion is a way to transfer assets to the next generation without being subject to any gift or estate tax. For example, a married couple with 5 children can gift $26,000 per year ($13,000 per parent) to each child free of estate or gift taxes. The result is that each year the married couple has transferred $130,000 out of their estate to the next generation. Over a period of 10 years, the couple will have transferred $1,300,000 tax free.
Many clients express concern about gifting thousands of dollars each year to their minor (or adult) children as the funds could be squandered. Fortunately, there are several planning tools that can be implemented to protect the beneficiaries while allowing the parent to retain some control.
The annual gift tax exclusion can also be used to purchase life insurance policies. If structured properly, the policy’s premiums can be paid with the annual exclusion amount and the proceeds pass to beneficiaries free of estate and gift taxes.
We have seen a decrease in the use of the annual gift tax exclusion over the past few years as a result of the increased estate and gift tax exemption in recent years. However, if Congress fails to intervene, the estate and gift tax exemption will return to $1 million dollars as of January 1, 2013. This pending change in tax law may result in new appreciation for annual gifting techniques.
Overall, the annual gift tax exclusion is a great way to transfer wealth to the next generation without paying any estate or gift taxes. Should you have any questions regarding the proper use of the annual gift tax exclusion, feel free to contact our office with your questions.
Continuing the discussion of the 7 Major Errors in Estate Planning, a recent article written for Forbes, leads me to the fourth error – failure to consider the estate and gift tax consequences of life insurance.
An asset class commonly found to be a part of a person’s portfolio, life insurance should draw the attention of the knowledgeable estate planning attorney. When owned by the insured at his or her death, life insurance proceeds are included in the decedent’s estate which may lead to estate tax liability. Although, for many of us, the issue of estate tax liability is often a distant concern with the current Federal estate tax exemption being just greater than $5 million for the year of 2012, the tax year of 2013 and beyond may require the estate planning attorney to resolve the issues surrounding life insurance due to the scheduled $1 million Federal estate tax exemption. The resolution for many clients will require the insured to transfer all incidence of ownership during his or her lifetime. This is most often accomplished with a trust which is often referred to as an irrevocable life insurance trust (ILIT)). There are significant complexities surrounding the use of ILITs, especially if there are ongoing insurance premiums to be paid in future years. The estate planning attorneys of Jeffrey Burr are experienced in providing resolutions to the potential adverse estate and gift tax consequences of life insurance.
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
My colleagues Jason Walker and Collins Hunsaker have discussed the first two errors and how to remedy those problems. I will discuss the third major error.
Failure to Review Beneficiary Designations or Titling of Assets
I spend a significant amount of time in probate and guardianship court. Unfortunately, I see first-hand the problems that can be created by failing to review the titling of assets or beneficiary designations. Generally, when a person creates an estate plan involving a trust, title on the assets must be changed and beneficiary designations should be modified or removed. Oftentimes, deeds are required for real property and assignments are necessary to transfer interests in corporations, LLCs, and partnerships. As a general statement, all assets with the exception of qualified retirement plans (such as an IRA or 401K) can and should be owned by a trust. Sadly, in some cases, these changes are never made. In other cases, new assets are purchased and not titled properly in the trust. These oversights can be very costly as correcting the error may require an expensive probate or guardianship proceeding.
This costly error is a simple fix. Each year, you should review all your assets to make sure each asset is titled correctly and has the correct beneficiary named. Statements from your financial institution will usually indicate how title is held. Real property can be checked online through the county assessor’s webpage. If you are unsure how an asset should be titled in your estate plan, contact your attorney for help. A good attorney will be able to help make sure that your estate planning goals are not frustrated because of an error in the titling of assets or beneficiary designations.
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
I have the opportunity to discuss Major Error Number Two.
ONLINE OR DIY RATHER THAN PROFESSIONALS
There is an abundance of advertisements which purport that a person can create their own will or trust through the use of a certain company’s website. These advertisements have led to the often-repeated question I hear during an initial consultation – why should I use your services over an online company? I have reviewed many of these internet wills and trusts, and many of these internet documents are laughable leading me to believe that an attorney had no hand in the creation of the documents. While I would readily admit that the other documents I have seen seem to be fine, legally speaking, they often demonstrate a lack of personalization in meeting the client’s goals and objectives. Recently, I decided to go through a more widely recognized do-it-yourself internet site that allows a person to create his or her own legal documents. Although my experience was better than I had expected, I was left wanting the site to do things that it did not offer. This may be why the site uses the disclaimer that “LegalZoom is not a law firm and is not a substitute for an attorney or law firm.” These internet sites are not meant as attorney substitutes, and I would add that not all attorneys can properly prepare estate planning documents. While such sites are slightly less expensive than an actual attorney, there is much more to a properly prepared estate plan than the legal document itself. As Mr. Clarfeld states in his Forbes article, “estate planning documents should represent the culmination of a well thought out financial and estate plan. Fill-in-the-blanks documents are not a plan and one size definitely does not fit all.”
- Attorney A. Collins Hunsaker
A recent article in Forbes listed one author’s opinion of the 7 Major Errors in Estate Planning.
The 7 Major Errors were listed as:
I have proposed to my colleagues that we take turns discussing these 7 errors and how to remedy these problems for our clients. Naturally, I’m taking the first error, since it is the easiest, but you’ll hear from me again before we have completed all seven.
NOT HAVING A PLAN
This one is easy to fix. Get a plan. It’s probably an over-generalization, but most estate planning firms offer free consultations. See an attorney and learn what is involved and how much effort and cost is required to get a plan in place. This error universally applies to all individuals, whether old, young, married, single, wealthy, with children, without children, etc. In Nevada, we usually recommend revocable/living trusts for property owners in order to avoid the probate process in Nevada courts. Other important elements to an estate plan in Nevada include a pour-over-will, a healthcare power of attorney, a directive to physicians (or living will), and a financial power of attorney. A good attorney will also provide assistance and advice on how to “fund” your trust with the proper assets in order to accomplish your goals.
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