Thursday, February 26, 2015

Estate Planning Essentials

You have likely spent many years accumulating wealth, establishing relationships and caring for your family.  Don’t let that all go to waste by neglecting to plan ahead. By carefully designing and establishing an integrated estate plan, your wealth, relationships and family will be protected.
Approximately 55% of American adults do not have a Will or other estate plan in place according to a 2013 survey conducted by LEXISNEXIS, a legal research provider.  Although thinking about and planning for potential incapacity and inevitable death may be uncomfortable, it is essential to assure that your wishes are carried out, your hard-earned money goes where you want it to, and your loved ones have direction and guidance as to your wishes.  These important documents warrant careful thought and planning as they will speak for you when you can no longer speak for yourself. 

If a person passes away without an estate plan, their loved ones and family are left in what could be a sticky situation.  They may not know where to find bank account information to pay that last phone bill, where the keys to a safety deposit box are located, or who was supposed to get the family silver.  While these questions are seemingly insignificant, they have the potential to develop into large family disputes when the person who has the answers to these questions is no longer there.  While under emotional stress of losing a loved one, a family is forced to guess the deceased person’s intent.  The situation is further complicated when the family has to go to court for probate of the estate where Nevada (or the state of the decedent’s death) may have a say in guessing the intent of the decedent.  This process of attempting to discern a deceased person’s intent may last for months and cause unnecessary disputes and tension between loved ones and family members.
If you are part of the 55% of American adults who have a Will or other documents in place to speak for you when you pass away, you are already way ahead of the curve.  However, oftentimes when people have executed solely a Will, they neglect to plan for what may happen in the event of incapacity.  Without a document like a living Will which states who you would like to act for you when you can no longer make decisions for yourself, family members may fight over who will take care of you and Nevada (or the state of your residence) may step in and choose someone who you would never want to be in that position of trust.  If you have a living Will, you can name a person (or persons) who will step into your shoes and assure that you are taken care of.  This person will enable you to maintain your standard of living, help provide for any dependents you have, and prevent your family from having to guess at what you would have wanted while under emotional stress and time constraints. 
These potential messes can generally be avoided with a comprehensive estate plan, wherein your wishes and intent are explicit.  Please contact our office for a FREE 30 minute Trust or Will consultation so you can plan and be prepared.
-Attorney Rebecca J. Haines

Wednesday, February 18, 2015

Planning for Aging Parents and Family Pets

When putting together our estate planning, it is natural for us to plan for our descendants and other persons whom we wish to be benefitted by our legacy.  We may also want to include provisions for certain charitable organizations that are meaningful to us.  Our population is changing such that estate planning considerations are also expanding to less traditional classes of beneficiaries, such as aging parents and family pets.  The older generations are living longer, and people are finding themselves caring for an aging parent, relative or friend.  Persons in care-giving roles may want to think about including their aging parents in their estate plans to ensure there is no disruption in their parents' ongoing care and/or diminution in their parents’ quality of life.  In addition, some pet owners go to great lengths to provide a high level of care for their pets.  To them, it is important to make arrangements for the continued care of their pets should their pets outlive them.  For the owner’s peace of mind and the security of the pet, an estate plan may include a reasonable monetary bequest to a caregiver who could in turn use the funds to care for the pet.

Tuesday, February 10, 2015

LLCs v. Corporations

Both LLCs and Corporations can be utilized as part of an integrated estate plan to provide additional protection, flexibility and perpetuity.  It is important to know the primary differences between an LLC and Corporation so that you can choose which type of entity will best help you achieve your business and estate planning goals.  Three of the primary differences between LLCs and Corporations are the following: differences in flexibility, differences in management structure, and different treatment for tax purposes.

1.      Flexibility.  Corporations are defined by statute, LLCs are defined by contract.  Corporations are rigidly defined and must meet numerous formalities to satisfy statutory requirements to protect assets, while LLCs are more flexible in nature as the members of the LLC write the contract by which the LLC is governed.

2.      Management Structure.  Corporation management is vested in its Board of Directors.  Each Director has one vote and the Board sets policies to be executed by the Officers on day to day basis and have the responsibility to govern the company.  An LLC’s governing structure is based upon its Operating Agreement.  The default organizational structure of an LLC is that all members of the LLC have an equal right to participate in management, but the members can agree to have a member-managed or manager-managed LLC.  In a member-managed LLC all the members of the LLC share responsibility for the day-to-day running of the business.  This structure usually works best for small businesses.  In a manager-managed LLC, a manager is chosen by the members to oversee the running of the business and the members almost act as a corporate Board of Directors in that the members delegate management responsibilities to a manager.  A manager-managed structure typically works best in a larger business where a separate management level is desirable or some members of the LLC want to be passive investors.

3.      Tax Treatment.  Corporations are subject to ‘double taxation.’  When a person sets up a corporation, he or she is taxed on both the corporate and the individual level.  However, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S status.  An LLC typically allows for ‘pass-through’ taxation, wherein profits and losses typically pass through the LLC and get reported on the personal income tax returns of the owners.  Additionally, an LLC can elect to be taxed as a C or S corporation depending on the tax objectives of its owners. 

There are various reasons to choose forming a corporation versus an LLC and vise versa, not the least of which are flexibility, management and tax treatment.  To determine whether a corporation or LLC should be a part of your integrated estate plan and which type of entity will best help you achieve your business and estate planning goals, come in and speak with one of the knowledgeable attorneys at JEFFREY BURR.

-Attorney Rebecca J. Haines

Thursday, January 29, 2015

Inherent Unfairness In The Proposed Closing Of The “Trust Fund Loophole”

In November of 2014, I wrote a blog entitled Income Tax Basis Adjustment of Trust Assets at Death of Trustor.  The blog discussed how under long-standing tax law, an asset of a decedent or of the decedent’s revocable trust or estate receives a new basis for income tax gain and loss purposes equal to the value of asset as of the date of death of the decedent.  For example, if the decedent or the decedent’s revocable trust died owning Apple stock with a value of $115.00 per share on the date of death, if and when the stock was sold by the trust or its beneficiaries any taxable gain is equal to the excess of the sale price over $115.00 per share.  This is true even though the decedent may have purchased the stock at $90.00 per share during his or her lifetime, and $90.00 per share was the decedent’s basis in the asset.  As noted by Attorney Collins Hunsaker in his recent blog entitled President Obama’s Tax Plan and the “Trust Fund Loophole, President Obama wants to eliminate this income tax basis adjustment of an asset to the value on the date of death, and instead require that the income tax basis remain the decedent’s basis even after death.  Mr. Obama touted this in his most recent State of the Union Speech, and labeled it the closing of the “trust fund loophole”.  If such a proposal was enacted into law, if and when the stock was sold by the trust or its beneficiaries in the above example, any taxable gain would be equal to the excess of the sale price over $90.00 per share, the decedent’s basis, and not the $115.00 per share, the value as of the date of death. 

So what is unfair about that? After all, that is what the decedent’s income tax basis was when he or she was alive.  Why should the beneficiaries obtain an increase in the income tax basis to the value on the date of death just because a death occurred?  The answer is federal estate tax.  When one dies, the decedent’s estate and trust is potentially subject to federal estate tax depending on the value of the estate and trust assets.  If federal estate tax is due as a result of the death of the decedent, the tax rate is 40% and generally the tax must be paid within 9 months of the date of death.  Federal estate tax is based on the value of the assets as of the date of death, not the decedent’s basis in the assets.  Accordingly, to subject the decedent’s estate, trust and beneficiaries to federal estate tax based on the value of the assets as of the date of death, it is only consistent from a tax point of view to adjust the asset basis to the same value for income tax purposes if and when the asset is sold, namely the value of the asset on the date of death.  To do otherwise has traditionally been viewed as unfair and inconsistent. As opposed to closing the “trust fund loophole”, arguably the adoption of such a proposal would allow the government “to have its cake and eat it too” tax-wise.   

-Attorney John R. Mugan


Friday, January 23, 2015

President Obama’s Tax Plan and the “Trust Fund Loophole”

Last November, Attorney John Mugan wrote a blog titled “Income Tax Basis Adjustment of Trust Assets at Death of Trustor”.  I would suggest one reads this blog to gain an understanding as to how income tax can largely be avoided at the time of death applying the long standing Internal Revenue Code rule more commonly referred to as the “step-up” basis rule. 

It is rumored that President Obama would like Congress to reexamine this rule.  In a New York Times article (Obama Will Seek to Raise Taxes on Wealthy to Finance Cuts for Middle Class) dated January 17, 2015, Julie Hirschfeld Davis wrote:

The centerpiece of the plan, described by administration officials on the condition of anonymity ahead of the president’s speech, would eliminate what Mr. Obama’s advisers call the “trust-fund loophole,” a provision governing inherited assets that shields hundreds of billions of dollars from taxation each year.”

The proposed elimination of “step-up” basis rule has already proven to be a highly contested issue among political pundits.  Although it is difficult to know for certain as to whether or not President Obama will be successful in his efforts to push through legislation that would cause the elimination of this rule, many believe that a GOP led Congress will impede his efforts. 

If you find this topic of interest, I would recommend that you take a look at the article “Obama Plan to Lower Middle Class Tax at Expense of Rich is Non-Starter for GOP” for another writer’s perspective.

-Attorney Collins Hunsaker


Tuesday, January 13, 2015

New Year’s Resolutions

There’s a lot of talk this time of year about resolutions, goals, and changes that people want to make in their lives.  The best joke that I heard on this subject was one fellow who said that for his new year’s resolution, he’d like to keep his computer screen at 1280 x 1024.  I’d like to throw out a serious suggestion for a goal for 2015; but I won’t be asking you to improve your health through exercise or better eating.
Estate Planning.  That’s a broad category, but I have two targets:  1) those who need to implement their first estate plan; and 2) those who need to review and update their existing estate plan.
Initial Estate Planning:  This one’s pretty obvious, and for those that fit into this category, you know who you are.  It may be an awkward topic or it might scare you to talk about estate planning.  But it’s not as bad as it might seem.  Just get it done and you will feel better and more prepared for the future.
Review and Update:  This category scares me because I am afraid that there are still a lot of people that need to have their old estate plan reviewed.  A trust originally drafted and signed in the ‘90’s or early 2000’s, likely needs to be updated.  We at JEFFREY BURR have talked a lot about this with newsletters to our clients, letters discussing estate tax updates, and this blog.
Our concern is that a lot of these old trusts may have language requiring the surviving spouse to divide and allocate the entire trust estate between two separate sub-trusts.  These divisions into sub-trusts were originally intended to reduce or eliminate the impact of the federal estate tax.  But the estate tax laws were significantly changed in 2012.  The 2012 estate tax changes made permanent a much higher exemption amount ($5 million per spouse – indexed for inflation), and the idea of portability of the estate tax exemption was introduced.  Portability allows a surviving spouse to claim and preserve a deceased spouse’s $5 million exemption regardless of the details of their estate planning or even without having a Will or Trust in place.  And the increase in the exemption amount means that far fewer people will be impacted by the federal estate tax. 

The combined result of these changes is that married clients with an estate less than $10 million may be able to greatly simplify their trust by removing the requirement to divide the trust.  While this administrative burden to divide the trust upon the death of the first spouse may no longer provide a tax advantage, it may be a mandatory requirement of the trust contract and the surviving spouse may have few options other than to fulfill the mandatory obligation to divide and operate the trust as two or three trusts after the first spouse’s death. 
Please make an appointment with your estate planning attorney to have your trust reviewed.  It won’t take too long because most attorneys will be able to quickly identify if an update is warranted and 2015 is a great year for a checkup if you haven’t had one in a while.

Wednesday, December 31, 2014

What are the Differences Between a Last Will, a Living Trust and a Living Will?

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.

-A. Collins Hunsaker