Omaha Probate, Trusts & Estates Planning

Keep a Sharp Eye on Taxes at the State Level

Now that 2013 is underway, there are finally some solid numbers from which to base your tax planning – at least from a federal tax standpoint, right? But what about those state taxes? If you reside in one of more than 20 jurisdictions that assess an independent inheritance or estate tax, it’s time to start paying attention to your state’s tax changes.

Forbes recently provided some helpful information in an article bluntly titled “Where Not To Die in 2013.”

Nebraska does not have estate tax, but does have inheritance tax.  The governor tried to get rid of it last year, but it is still here.  Inheritance tax does not appear to be going anywhere this year either.

There always are myriad state level taxes to consider. However, here’s the rub: several states may overlap one tax-wise, not to mention federal level taxes. For example, 22 jurisdictions (including the District of Columbia) exact some form of taxation. Problem: none of the taxes for these jurisdictions were written with the current federal taxation limits in mind, because those have only been on the books since the beginning of the year.

So what states are the worst for 2013? It’s worth clicking over to the original article and map on Forbes.

Reference: Forbes (January 28, 2013) “Where Not To Die in 2013”

More People Get Option to Convert to Roth IRAs

It’s no doubt that the Roth IRA is a favorable option to many people when it comes to retirement planning.  And after the fiscal cliff deal, the Roth IRA just keeps getting better and better for more and more people. How do you know whether it is right for you?

A recent CNN Money article titled “More savers can convert to Roth 401(k)s under fiscal cliff deal” says it all. Nevertheless, there is more to a Roth IRA than meets the unaided eye. 

Essentially, the Roth IRA reverses the normal IRA by requiring that you pay the income taxes on money deposited in the account up front when you deposit them instead of when you withdraw the money later. Also, in addition to no income taxes when withdrawn, with a Roth IRA you have no Required Minimum Distributions (RMDs) later on.

The fiscal cliff deal lets more people, and those of lower incomes, convert their IRAs into Roth IRAs if they settle the tax burden up front. This can help with estate planning for their loved ones, too.  If you want to find out more about estate planning, click below to watch a video on estate planning. 

According to experts, however, a Roth IRA may not be right for some folks. A recent MarketWatch article titled “Roth conversions easier, but are they right?” addresses this concern.

As with all things financial, as well as legal …look before you leap. This is especially true when it comes to tax law changes brought by the fiscal cliff deal.

Reference:

CNN Money (January8, 2013) “More savers can convert to Roth 401(k)s under fiscal cliff deal ”

MarketWatch (January 3, 2013) “Roth conversions easier, but are they right?”

 

Elderly Senior’s Extravagant Gifts Spark Litigation

Are you planning your estate or perhaps caring for an elderly loved one who is planning his or her own? If yes, then you can learn some important lessons from Huguette Clark’s case, as recently reported in the San Francisco Chronicle.

In the article, titled “Copper heiress' huge gifts spotlighted in NY court,” Ms. Clark was cast as either an oddball or a thoughtful “eccentric.” Such was the description of one side to the litigation over her estate. The other side, however, painted her as a “poor, manipulated old woman.” In case you haven’t followed the case, Ms. Clark was a wealthy heiress to a copper fortune, and she died recently at the age of 109 after two decades of hospitalization.

Before dying, however, Ms. Clark gave extravagant gifts to her staff:

Her nurse was showered with almost $28 million in gifts, including three Manhattan apartments, two homes elsewhere and a $1.2 million Stradivarius violin. Her doctors' families received more than $3 million in presents. A night nurse received a salary plus money to cover her children's school tuition and to help buy two apartments.

 

Now, after her death, a court-appointed official has begun to demand the return of these gifts, valued at $37 million, to her $400 million estate. The basis for the demanded return is that the recipients received the gifts through manipulation. The case is ongoing.

When it comes to estate planning, however, old age and wealth are a dangerous combination. Some wealthy seniors are generous by nature, but others kept the first nickel they earned. Regardless, expect extra scrutiny of any gift or inheritance from a wealthy senior when the object of such bounty is not someone with a family tie or a long relational history.

Reference: The San Francisco Chronicle (June 17, 2012) “Copper heiress' huge gifts spotlighted in NY court” 

 

 

Inheritance Planning Considerations for the Inheritor

An inheritance can be a blessing or a curse. Proper planning, however, can tilt the odds in favor of the former, rather than the latter.

“Inheritance.” The word alone is packed with emotion. Whether you are planning to leave an inheritance or planning to receive one, there are weighty considerations to be made. In fact, the prospect of an inheritance presents the perfect opportunity for significant intergenerational dialogue about the family wealth.

If you are looking for some practical guidance about how to manage an inheritance, a Forbes article offers some timely advice. The article, titled “How To Manage An Inheritance,” suggests four matters every prudent inheritor should consider regarding his or her inheritance: Make it a part of your plan; Don’t ignore retirement accounts; Have a tax plan; and Disclaim.

Interestingly, the last of the four considerations, Disclaim, actually involves “giving up” the inheritance in whole or in part before you actually inherit it. To effectively disclaim an inheritance (or a gift), there are and specific steps you must take. As with any complex estate and tax issues, always engage competent legal counsel early rather than later.

Reference: Forbes (April 19, 2012) “How To Manage An Inheritance”

 

 

Living Will Challenges

Making end of life decisions means generating and updating your living will (or advance health care directive). These documents often appear simple, but that doesn’t mean the underlying issues themselves aren’t complex.

According to a recent article in The Wall Street Journal titled “A New Look at Living Wills,” unfortunately these issues are only growing increasingly complex.

In its essence, the living will is a document in which you clarify your medical wishes. This allows your loved ones to implement them if you are incapacitated and unable to reflect upon them yourself in the future. Given modern medical science, doctors can keep a human body “alive” long after the “person” inside has lost what he or she would have regarded as a minimally acceptable quality of life.

With each new advance in medical science, there seem to be more and more ethical and legal dilemmas. For example, the typical living will contemplates feeding tubes and respirators, but these can maintain a “persistent vegetative state” leading to shades of gray for the appointed health care agent and physician as they interpret your wishes. Moreover, the boundary between the patient being “there” or “not there” is only getting hazier as science progresses. In the end, even physicians don’t always seem to understand the power they may be wielding over life and death.

Planning for your end-of-life scenarios is never easy, nor is it easy to faithfully interpret the wishes of a loved one. Nevertheless, as with all aspects of estate planning, communication with your agents, loved ones, physician and spiritual advisor holds the key to success as you define it.

Reference: The Wall Street Journal (June 8, 2012) “A New Look at Living Wills”

 

 

Estate Planning for your Family Intangibles

Giving a gift is one thing, giving a lesson is another entirely. With a gift, you may make another happy, but with a lesson, you may make another wise. Interestingly, intangible gifts such as wisdom and values are of rising concern with baby boomers.

This concern is evidenced by the findings in a recent survey, as reported in an article in TIME Magazine’s Moneyland. In the article, titled “How to Give Heirs What They Most Want (It Won’t Cost Much),” more and more people consider “family stories” to be their greatest legacy, along with the lessons behind them. In fact, a whopping 86% of boomers named “family stories” as the most important part of their legacy, even if they also had complex assets to leave or a family tradition of wealth to continue.

Against this backdrop, the question today, as it has always been, is about how to instill or commemorate such values and heritage. The article concludes with this thought:

“It takes reflection to understand what is most important in your life and how you might get that message to heirs. But it won’t be a waste of time. Sometimes a scrapbook is worth more than an investment portfolio.”

 

For more ideas on this subject, be sure to consult the original article and speak with your estate planning attorney for creative approaches other clients have taken in the past.

 

Reference: TIME Moneyland (June 12, 2012) “How to Give Heirs What They Most Want (It Won’t Cost Much)”

 

 

First Comes Love, Then Comes Marriage (or is it the Prenup?)

Summer is the official “I do” season as couples across the country exchange marriage vows. However, given the dismal marriage success rate, many of those exchanging nuptials (not to mention their respective parents) are also pondering their exit strategies in case things don’t work out.

Single life can be complex on its own with its own hopes, debts, investments, family members, obligations, and health concerns. Marriage, on the other hand, can be a uniquely tricky institution. When you multiply single life by two in a manner legally recognized by IRS agents, insurers, and in-laws, then everything becomes compounded.

Estate planning can be a complex adventure, too, especially if you are blending families with children from a previous marriage. In addition, issues regarding family inheritance, family businesses, farm and ranches, can require careful navigation. Now that you have a special someone in your life worth keeping, it may be worth mitigating concerns early and intelligently through prenuptial agreement planning.

If you recoil, or simply want to know more, then a recent article in WealthManagement.com will be worth your time. The article is titled “Debunking the Pre-nup Myths,” and, as the title promises, it may help you and your intended get a more accurate handle on the subject.

On the other hand, even if you are familiar with the world of prenups, The Wall Street Journal offers some practical premarital counseling of its own in an article titled “Easing the Sting of Divorce.”

Finally, even if there’s already a slice of wedding cake resting in the freezer and all is happy and well, there’s the less frequently discussed option of the postnuptial agreement. This matter was taken up in another article by The Wall Street Journal titled “Spouses Turn to Postnups.”

Ultimately, the relevance of any of these approaches varies depending upon your unique needs and objectives, along with those of your partner. This is not a do-it-yourself project. Be sure to engage appropriate independent legal counsel to represent your respective interests to avoid potential conflicts of interest and unnecessary litigation down the road.

Reference: WealthManagement.com (June 12, 2012) “Debunking Pre-nup Myths”

            The Wall Street Journal (June 15, 2012) “Easing the Sting of Divorce”

The Wall Street Journal (June 16, 2012) “Spouses Turn to Postnups” 

CHARITABLE GIVING AND TAXES-ANOTHER 2012 CASUALTY?

As the tax-code debate heats up this election season, one cherished break for taxpayers in upper brackets—the deduction for charitable contributions—is under fire.

The bridge is out. As the current tax code barrels down the track there seems to be no one in the engine room. If, or when, the tax code pitches (“sunsets” on December 31, 2012) over the edge, one major casualty will be the current charitable deductions.  We have discussed the estate and gift tax issues and opportunities, but here is yet another issue and opportunity. 

In many ways, charitable deductions are the common point of unity between savvy tax planners of all income levels. There are so many ways to give, and give wisely. This said, if the current laws change for the worse, either by expiring or by getting twisted in an unfavorable way, it could spell trouble in a host of ways for a host of people.

To get a better handle on some problems that may arise and the kinds of steps to take in 2012 while there’s time, you will find plenty of resources to research. Want to get the 2012 deduction, but still have some extra time to think about which charities to benefit? If yes, then consider a “donor advised fund.” Read more about this approach in The Wall Street Journal article titled “Invasion of the Charity Snatchers!”

So, you are concerned about facing a maximum cap on your eligible deductions read another WSJ article titled “Charitable Deductions Under Fire.” And, finally, if you are hoping to mitigate the tax burden of taking a required minimum distribution from your IRA by contributing it to charity instead, then don’t miss the Forbes article titled “The IRA Charitable Donation in 2012.”

In conclusion, although there remains great uncertainty regarding the future of charitable tax planning, there is plenty of information to keep you informed.  Action may be needed before 2013, however.

 

Reference: The Wall Street Journal (June 8, 2012) “Invasion of the Charity Snatchers!”

The Wall Street Journal (June 8, 2012) “Charitable Deductions Under Fire”

Forbes (May 26, 2012) “The IRA Charitable Donation in 2012”

Estate Planning for the Family Farm

Please watch this short video on Farm and business succession planning.

 

 

Farmers and ranchers are typically strapped for cash so when one of them dies leaving an estate large enough to be exposed to the federal estate tax the family can expect to have to sell something to cover the tax. That does not have to be the case. The estate tax has been described as a “voluntary” tax. Voluntary, that is, if you are willing and able to take advantage of the planning opportunities that are in the law. If not, life insurance can be a very appealing alternative to having to sell the family farm.

Living and working on a farm oftentimes means taking a different position toward land itself. If you also own the land, then it means you need to take a different stance toward your assets and your family wealth.

Farmers are in need of a proper and exhaustive estate plan more than anyone else. Fortunately, Hoosier Ag Today provided some helpful pointers in an article titled “Estate Planning for Family Farms and Ranches.”

While there are consistently bumper harvests, the land keeps on giving. Unfortunately, the land also is an incredibly valuable thing due to this potential giving. As a result, that value makes it fall prey to estate taxes if you try to pass it on to the next generation.

To truly own and understand the ownership of your land, it is necessary for a farm owner to make proper estate plans and to prepare for succession of the farm. For small farms that might be a simpler process, even modest planning can help preserve the family and the farm alike.

In the end, many farms will need far more than modest planning. The key is to select and implement the appropriate strategies for your unique circumstances. I recommend reading the original article, even if you aren’t a Hoosier.

 Reference: Hoosier Ag Today (June 4, 2012) “Estate Planning for Family Farms and Ranches”

Suggested Key Words:

Estate Planning, Farm, Succession Planning

 

Charging Order Challenge Successful

If a creditor’s remedy is restricted to a charging order, that means that the creditor cannot get at the assets of a partnership or LLC, right?

Wrong.

Most business owners seek to protect their personal assets from problems arising from their business activities. They do this by creating business entities like a partnership or LLC. Unfortunately, sometimes these personal and business worlds collide, and that can be an asset protection nightmare.

Usually, when these two worlds collide, there is an attempt to attack personal assets by piercing the corporate veil. However, as a recent case illustrates, an attack can come through the personal world to attack the business assets … even when that business interest is in a partnership or LLC.

Forbes recently reported on just such a case in an article titled “Webb & Carey: When Control Is Bad -- Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets.”

There’s a new trick in which a creditor can access assets within a partnership by pairing the often created “charging order” with the powers of a “receiver” who, in return, takes up the powers of a debtor with controlling interests in the partnership. Whew!

Teaching point: if you have a controlling interest in a partnership or LLC, be aware. A creditor may seek to take control over your interest and thereby for distributions or even the sale of the business.

As a result, if you are working to protect your assets and the assets of your company, it is worth handing off control and closing that back door before the creditors come.

Reference: Forbes (June 3, 2012) “Webb & Carey: When Control Is Bad -- Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets”