Estate Planning Archives - Page 7 of 14

The IRS Wants Consistency in Basis Reporting

April 1, 2016 by Gregory Leave a Comment

From the article New Basis Reporting Requirements for Executors and Beneficiaries:

Recent federal legislation adds fresh compliance burdens to an old concept in federal tax law: the step-up in tax basis of appreciated property at death. New reporting requirements will apply to estates required to file a federal estate tax return after July 31, 2015 and are effective beginning June 30, 2016. Executors and beneficiaries who do not comply with the new rules may be subject to penalties.

When a person sells an asset that has appreciated in value, the gain recognized generally equals the sale price minus the seller’s “tax basis” in the property, usually the amount paid to acquire the asset. When a person dies owning appreciated property, the property generally acquires a new tax basis equal to its fair market value as of the date of death. This “step-up” in basis has the effect of wiping out the income tax burden on all pre-death appreciation in the property. (Property can also depreciate in value and receive a “step-down” in basis at the decedent’s death.)

Stretch IRAs Under Seige?

March 31, 2016 by Gregory Leave a Comment

What’s a stretch IRA, you say? Well, it’s not a new type of IRA, rather it’s a strategy to preserve the value of an inherited IRA, to defer the tax on as much of the IRA as possible for as long as possible. As the law now stands, the owner of an IRA has to begin taking required minimum distributions (RMDs) for his or her IRA at 70 1/2. Those RMDs are based on the person’s life expectancy at that time.

Should the IRA owner die, the beneficiary of the IRA must then take RMDs based on the beneficiary’s life expectancy–regardless of how old the beneficiary is at the time. Typically, beneficiaries are spouses, people of roughly the same age as the owner, so their RMDs will be more or less the same as the IRA owner’s.

To “stretch” the tax deferral benefits of an IRA, some advisors suggest their clients change the beneficiary designation on their IRA from their spouse to their children, that is, if their spouse has other income and will have no need for the income from the IRA. Though the children beneficiaries will have to take RMDs as well, those RMDs will be “stretched” out over a longer life expectancy and therefore will be much smaller and therefore more dollars will remain in the IRA for a longer period, safe from the tax man–for now.

Got that?

Well apparently stretch IRAs are under attack, according to a piece at Wealthmanagement.com. Here’s the first paragraph, with a teaser at the end. Yes Virginia, there are some possible solutions to the problem.

The stretch IRA is under siege.

If it’s eliminated, a non-spouse beneficiary of an IRA will be required to pay income taxes on the entire inherited IRA within five years of the IRA owner’s death. Here are two promising solutions using tax-free income that your clients can act on before the law changes. Let’s discuss Roth IRA conversions and life insurance.

There’s much to talk about with regard to IRAs, so check back later.

Filed Under: Asset Protection, Estate Planning, Financial Advisors, IRA, Life Insurance, Roth IRA, Taxes

There are Family Offices, and There are Family Offices

March 30, 2016 by Gregory Leave a Comment

As anyone who’s read my profile knows and as I’ve stated elsewhere on this blog, I once wrote for Bloomberg–for three Bloomberg magazines, in fact. One of them was Bloomberg Wealth Manager, which was later sold and then sold again. I continued to write for the magazine in all its iterations. The other day, I stumbled upon a list of some of my articles for one of the later iterations. Since most of the articles are still (mostly) timely, I’ve started posting them here. This is the second, a story about so-called family offices. Enjoy, but with this one caveat: As I said, these stories are still (mostly) timely; the basic law underlying them is still (mostly) valid.

However, if one of them discusses a subject near and dear to your legal problems, don’t rely on the story as legal advice. Use it instead to prompt you to talk to an attorney about the problem to get more current insight on the subject.

Filed Under: Bloomberg Stories, Business Planning, Estate Planning, Family Business, Wealth Transfer

Just Say So

March 29, 2016 by Gregory Leave a Comment

Sometimes feel confused? Wonder why the left hand can’t understand what the right hand is supposed to be doing? Imagine what your family will feel like the day after you’ve passed on to the great beyond, then think about how a well-drafted trust might clear things up for them.

I’ve written more than a few blog posts about trusts, about the legal elements necessary for a trust to be enforced, about five reasons you may need a trust, about decanting as a way to correct or improve a trust, about how trusts are an effective way to handle the issues that come with blending families, about using trusts to plan for disability, about the all-important funding step in the process of establishing a trust, and on and on. But it wasn’t until I was reading someone else’s blog post when it hit me (maybe because the writer kept repeating it): if you want something to happen when you die, just say so. Just speak your mind. Tell your loved ones what you want to happen. Tell them who gets what and why. Don’t hold your piece. Tell them now.

In essence, that’s what a well-drafted trust does. Tells them now, so they’re not confused later, so what you want to happen–happens.

Just say so. If you fail to do that before you die, life will get pretty complicated for your loved ones after you die. Trust me.

Filed Under: Blended Families, Business Planning, Estate Planning, Family Business, Farms and Ranches, Stepfamilies, Trusts, Wealth Transfer, Wills

Quote for the Day

March 28, 2016 by Gregory Leave a Comment

“Family business succession planning is the cornerstone of any successful family business owner’s estate plan. As is often the case, however, planning for the inter-generational transfer of ownership and control of the business becomes complicated by the intra-generational conflicts of the business owner’s heirs. These onflicts among members of the second generation, if severe enough, can render the effective management of the business by the second generation virtually impossible, leading to a loss in productivity and profitability with a resulting decline in the enterprise’s value.”

Michael V. Bourland and Dustin G. Willey, “Setting the Stage for Planning with the Family Business Owner: Tax-Free Division,” ALI CLE Estate Planning Course Materials Journal, April 2015.

Filed Under: Business Planning, Estate Planning, Family Business, Farms and Ranches, Quote for the Day, Trusts, Wealth Transfer, Wills

Quote for the Day

March 26, 2016 by Gregory Leave a Comment

If one advances confidently in the direction of his dreams, he will meet with a success unexpected in common hours.”

Henry David Thoreau

Filed Under: Business Planning, Estate Planning, Quote for the Day

Conservation Easements: Go Big or Go Home

March 24, 2016 by Gregory Leave a Comment

Briefly, creating a conservation easement can allow you to receive good by doing good. Consider creating one on your property to protect

“natural, scenic, or open space values of [that] real property, assuring its availability for agricultural, forest, recreational or open space use, protecting natural resources, maintaining or enhancing air or water quality, or preserving the historical, architectural, archeological or cultural aspects of real property”

HeartMt_431511_10150848522799638_729014637_12580484_639413481_n and you might receive a variety of tax benefits, including a reduction in property taxes and a charitable deduction that can be carried forward on future tax returns, among other things. For a farmer or rancher, the easement can have the added benefit of ensuring the farm or ranch stays in the family, because, according to G. Bruce Chilcott and Erin Johnson,

“with most or all of the development potential given away in the easement, the next generation doesn’t have the usual incentive to sell or develop [the property] in a residential or commercial manner.” (Long-Term Planning Issues for Farm and Ranch Owners, Wealth Counsel Quarterly)

The steps to create one are outlined in the Utah and Wyoming state codes and are not particularly hard to follow. But, Chilcott and Johnson caution, don’t go the cheap route. Get it done correctly. In particular, they say,

“In creating a conservation easement, the key to achieving the desired tax benefits is the appraisal. This is no place to skimp on costs or quality, and the appraiser must have special qualifications and significant experience in this arena.”

Make sure you choose an appraiser with a good track record regarding farm and ranch appraisals for conservation easement purposes because “the quality of the appraisal can be instrumental in getting the eventual approval of the department of revenue.”

Filed Under: Business Planning, Charitable Giving, Estate Planning, Family Business, Farms and Ranches, Uncategorized, Utah, Wyoming Tagged With: conservation easements

Quote for the Day

March 23, 2016 by Gregory Leave a Comment

On the impact of the business structure of a farm on federal farm payment limitations:

The structuring question also influences eligibility for the federal farm program payment limitation. Under the Federal Agriculture Improvement and Reform (FAIR) Act, of 1996 and earlier legislation, each “person” under one or more production flexibility contracts is eligible for a maximum of $40,000 in federal farm program payments. The payment limitation was eased in 2000. Thus, a key issue any time the farm or ranch business is restructured is determining who will qualify as a separate “person,” and whether different types of entities qualify as their own separate “person.”

McEowen and Hart, “The Law of the Land: Fundamentals of Agricultural Law,” (2002)

Filed Under: Business Planning, Estate Planning, Family Business, Farms and Ranches, Quote for the Day, Trusts

Caution! Exponential Growth Ahead

March 23, 2016 by Gregory Leave a Comment

I’ve been attending a continuing education webinar on drafting trusts. Very interesting. There is so much you can do with trusts, so many avenues to make sure your wishes are carried out when you’re no longer with us or become incapacitated. Among other things, as with a will, you can make specific distributions to specified people or classes of people in your trust. So you can give your record collection to Bobby, “because he’ll appreciate your taste in music,” your old Colt revolver to Mary, “because she has always loved the West,” and so on.

And you can give cash, and this is where a problem can arise. Suppose the trust says that grantor–the maker of the trust–wants “to give $10,000 to each of my grandchildren on the day each turns 21.” See any problems with that? How about if at the time the trust was drafted the grantor had just five grandchildren. See any problems now? Sure, that’s a $50,000 bill, but the grantor probably knew that when he created the trust.

How about 20 years later? The grantor has just died, and his youngest child just gave birth to triplets, which brings the total number of grandchildren to 20. Now do you see a problem? That $50,000 bill has grown to $200,000. Do you think the grantor had that in mind when he signed his trust?

That’s the problem with specific distributions to a class of people rather than to specific people. If the class continues to grow, so does the gift. Thus, dear potential (or actual) grantor, if you have or are considering making a class gift, make sure you’ve thought well into the future and/or make sure your trust is drafted in such a way that your upside is capped. Otherwise, your gift could grow exponentially, and there may not be enough room at the inn to fulfill all of your promises.

Filed Under: Estate Planning, Trusts, Wealth Transfer Tagged With: class gifts, specific distribution