December 2012 Archives

Thomas Kinkade Estate Feud Continues, Hearing Postponed

December 28, 2012,

One of the many goals of proper estate planning is to prevent family feuding. This is obviously to ensure that the worry, stress, and cost of these legal battles is avoided. But on top of that, done right, avoiding costly disputes saves an immense amount of time. It is well known that the legal system often does not act swiftly. It is important not to underestimate the simple benefit of having property matter resolved right away after a passing, instead of making surviving loved ones wait months or even years--preventing them from obtaining necessary funds and moving on with their lives.

The prolonged nature of the resolution exists anytime there is no estate planning (probate takes time). But the delay is especially pronounced where there is feuding and legal battles are fought.

For example, the Patch recently reported on a delay in a hearing for one high-profile estate fight over the property of painter Thomas Kinkade. We have previously blogged about the legal fight between Kinkade's estranged wife, four children, and live-in girlfriend. The girlfriend has produced two handwritten wills which seem to leave Kinkade's house to her while establishing a museum. The wife and children contest the wills.

Yet, before even getting to the legal challenge on the authenticity of the wills, ancillary arguments have broken out on the need for the girlfriend to pay rent on the home--she is currently living in it. The sides have disputed the living situation and argued about the safety of the belonging within the home valued at millions. Thus far the wife and children have had no access to that property, even though Kinkade died nearly nine months ago. A hearing was schedule to resolve the personal property matter earlier this month. However, that was postponed until this week.

Even then, once the personal property issue is resolved, that won't end the matter as it still does not resolve the merit of the holographic wills. The fate of the home and the rest of the estate (valued at over $60 million) remains undecided.

The take-away lesson is a reminder of the fact that disputes often drag out for years. Beyond avoiding the stress and uncertainty of a legal battle, proper estate planning also ensures timeliness. No matter how complex one's situation, there is nothing to gain from leaving matters in such a mess that survivors are forced to wait years before having things resolved. Be sure to avoid this in your own situation by visiting a legal professional as soon as possible.

See Our Related Post:

Confusion, Disagreement Regarding Thomas Kinkade's Wishes

End of Year Estate and Gift Tax Dilemma

December 26, 2012,

Only a few days remain in the year, and most financial activity for 2012 has come to a close. However, the end of year action has already brought one of the most active seasons ever. Financial advisors, estate planning attorneys, and others have all seen community members of all different income brackets seek out help understanding how possible legal changes in the new year might affect their own financial health and long-term prospects.

A Forbes story last week explored one of the main reasons for confusion and the seeking out of help: the "give now or pay later" problem. This is an issue that mostly affects those with significant assets who may be affected by gift and estate tax changes. As has been documented exhaustively, Congress is considered what to do with the gift and estate tax. Over the past ten years the tax rate has steadily fallen and the exemption level has risen. In 2010, the estate tax was eliminated altogether. However, what will happen in the new year remains to be seen.

Many different options are on the table--from a permanent elimination of tax (unlikely) to a return to pre-2001 rates. A table from the Tax Policy Center (viewed here) offers a helpful snapshot of the options and how many people would be affected by each. One comparison offers the range of possibilities. If the current rate continues, about 3,800 estates will be affected next year. Those estates would bring in about $12 billion in taxes. Conversely, if the 2001 rates returned then 47,000 estates would be affected and over 300% more tax revenue would be generated.

For those families affected, the possible significance of changes is clear. The Forbes article points to a helpful example. Right now if you give another person $5 million, then you pay no taxes on that gift. Without action, next year the same gift with also come with a $2 million gift tax bill. This is no minor change.

Of course, even though we are only days away, almost none of the uncertainty has been eliminated. As before the best option is to watch the debate and policy action closely while keeping in contact with your planning professionals to determine if any changes are needed in the future to account for any changes in the law.

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Unsellable Artwork Donation Saves Millions in Estate Taxes

Fiscal Cliff Negotiations Move on to Estate Taxes

December 20, 2012,

The political wrangling to avoid the so-called "fiscal cliff" continued this week. Many different issues are all tied up in the negotiations, including income tax rates, defense spending, entitlement spending, and control of the debt limit. However, various reports suggest that the both sides in the political battle--primarily the Obama White House and U.S. House Republican leaders--are now trying to work out some agreement on estate taxes.

Still Wide Disagreement
Most discussion of tax issues and the fiscal cliff affecting upper income Americans revolved around the income tax. There is disagreement about whether current income tax rates for those in the highest bracket should increase slightly or stay the same. Both sides publicly believe that current rate should be extended for middle tax brackets. Because of the focus on income taxes, real negotiation of estate taxes has been pushed to the side. That appears to be changing.

According to a recent NBC story on the situation, the parties are now trying to reach some common ground on the estate tax. The current rate is 35% on all assets over $5 million. If no agreement is reached and we go over the fiscal cliff, then the exemption level drops to $1 million at a 55% rate. This represents a significant change with very real implications for many New Yorkers. In general, Republicans oppose any change to current rates while most Democrats (including the President) propose a compromise with higher rates and a lower exemption levels than at present but not as stark as the fiscal cliff amounts. The President has proposed a 45% rate with exemptions up to $3.5 million.

One complexity in the negotiations is that there may be disagreement within the Democratic party. Some leading figures have agreed with Republicans that current rates be extended. The concern is that lowering the exemption level and increasing the rate might hurt certain groups, like family businesses and farms.

Yet, figures from the Tax Policy Center suggest that of the 3,270 families that paid the estate tax last year, less than 50 involved small businesses and farms. Instead, the collections seem to be concentrated among a certain groups, with the top 1% of earners in the country paying 80% of the total estate tax.

In any event, all families who may pass on assets over $1 million must pay careful attention to these negotiations, as changing rules may impact their long-term planning.

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Unsellable Artwork Donation Saves Millions in Estate Taxes

Donor-Advised Funds for Charitable Giving

December 18, 2012,

The holiday season is a popular time for charitable giving. It is helpful for those considering gifts--particular sizeable donations--to properly think through all of the tax and legal implications. There are smart ways to make contributions and clumsy ways. As always, an estate planning lawyer or similar professional can explain how any such decision is best carried out.

For example, the Wall Street Journal reported recently on the rise of "donor-advised" funds. The use of these tools is likely spurred by two tax uncertainties in the upcoming year. Will charitable deductions on taxes be limited in the future, counseling toward a large gift this year? Will income tax rates increase next year, counseling toward using the deduction next year instead of this year? It is a somewhat tricky problem, as no one knows for sure what lawmakers might decide.

That is where these donor-advised funds come into play. They are accounts managed by national charities and foundations. The basic idea is that a donor can give the gift this year--locking in a tax deduction--while waiting to actual disperse the funds to the charities as they see fit over time. The funds grow tax-free throughout this period.

Interestingly, the National Philanthropic Trust and other sources provides data on the sharp rise in use of these funds. Many of the largest charitable entities increased anywhere from 60% to 80% in use of these funds this year as compared to last year. And that is on top of the fact that last year saw a 10-15% rise in use from 2010.

Most accounts can be opened with $5,000--large sums are not needed. The donations can then be given out in small increments of as little as $50. In other words, there is a lot of flexibility for those with assets of all sizes. When using these tools however, it is important to have tailored advice on the best manner in which to give. For example, it might make sense to donate stock that has appreciated, instead of donating the profit after sale of the stock. By selling the stock directly some capital gains can be saved and a larger charitable deduction can be taken.

Of course, these donor-advised funds are just one of many ways that might be appropriate to give to charities smartly. Various trusts and other legal arrangements are available to ensure your gift is maximized. No matter what the case, though, it is important to act quickly, as the future remains uncertain and it is helpful to lock in current rates as soon as possible.

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Unsellable Artwork Donation Saves Millions in Estate Taxes

Face Retirement: Psychology to Spur Long-Term Financial Planning

December 12, 2012,

Virtually everyone agrees that it is important to invest for retirement, take care of inheritance details, prepare for long-term care, and otherwise plan for the future. But there is a big difference between understanding the value of these tasks and actually taking the time to do it. Considering the financial and political stresses that come with caring for an aging population, figuring out how to motivate community members to do what is necessary to plan for the future is drawing more and more attention.

One new tactic stems from unique psychological research on financial motivation. In previous studies out of Stanford, experts found that one way to spur real action on long-term planning was getting individuals to visualize their future, elderly selves. Interestingly the researchers found the most benefit not when people just imagined themselves in old age but actually saw digitally enhanced images of themselves when they were older. The surprise of seeing their own face in old age was a real spur to stop putting off the necessary planning.

The lead researcher in the Stanford experiment summarized that, "People who see an age-progressed rendering of themselves are more likely to allocate resources to the future."

See For Yourself
In fact, interest in this technique has advanced to the point that Bank of America's "Merril Edge" program allows anyone to go online, take a picture of themselves, and see how they might look in the future. The tool is known as "Face Retirement." You can check it out for yourself here.

The program allows you to view images of yourself at various ages. On top of that, the tool provides estimated cost of living figures for each of those ages. Those cost of living calculators adjust for inflation so that consumers have a real idea of what they'll need to do to be financially secure well into their golden years. Perhaps expectedly, considering the tool was created by a financial services firm, the program also provides information about steps that can be taken now to prepare for the future.

Action Matters
No matter what you use to motivate yourself to plan for the future, the bottom line is that there is nothing to lose from taking action today. Thinking about money is always stressful. That is particularly true when worrying about retirement and other end-of-life issues. But it is important not to forget that the easiest way to ease the stress burden is to actually do something about it. No matter what your current financial situation--good or bad--there is value to beginning the process of long-term planning.

If you are in New York City, Albany, Fishkill, MIddletown, Nyack, Rhinebeck, Saratoga Springs, White Plains, or elsewhere throughout our state, please feel free to reach out to the attorneys at our firm to see how we can help.

U.S. Supreme Court to Hear Two Same-Sex Marriage Cases

December 10, 2012,

The U.S. Supreme Court made headlines on Friday when it agreed to hear two cases which may have significant implications on the rights for same-sex couples in New York and throughout the country. The stage is now set for a few months of speculation and commentary on possible outcomes before the Court finally hears the cases. It is important for same-sex couples to understand the implications of each case, as the legal issues in each are different.

DOMA & State Bans on Marriage
One of the cases which the Court will hear is United States v. Windsor. As we have often discussed, at the center of the Windsor case is the Defense of Marriage Act (DOMA). Several appellate courts have now found that parts of DOMA violate the U.S. Constitution in that they deny federal benefits to legally married same-sex couples solely on the basis of their sexual orientation. In granting the petition of those appealing the lower court rulings, the U.S. Supreme Court will likely settle the matter once and for all.

Alternatively, the second case that the Court agreed to hear, Hollingsworth v. Perry, stems from the Proposition 8 ban on same-sex marriage in California. Unlike the DOMA case which deals with federal recognition of these unions, the Prop 8 case has implications for individual state decisions on marriage rights. There is a bit more legal complexity to the Prop 8 case, as the district court and the U.S. Circuit Court of Appeals both struck down the Proposition but for slightly different reasons. The bottom line is that, depending on the U.S. Supreme Court's decision in that case, same-sex marriage may not be allowed in California, be allowed in parts of California, all of California, or even in every state in the union. However, because same-sex marriage is already legal in New York, the rights of gay couples in our state will likely be most directly affected by the outcome in Windsor.

Interestingly, in both cases there are "standing" issues. That means that there is disagreement regarding whether the specific parties seeking the appeal even have the right to be in court on this issue at all. Therefore, on each case the Supreme Court has the option of rejecting the appeal without actually reaching the merits of the case.

What Is In Store
The actual hearings for these two cases will likely take place in late March--perhaps even on the same day. Following those hearings, the Court will deliberate and eventually reach a decision. Opinions will be written and then officially released to the public, likely sometime in late June.

Perhaps the only immediate change for local couples is that, becase the Windsor case was accepted, there is a "stay" on the lower court decisions in DOMA cases. In other words, had the Supreme Court refused to hear these cases, then there is a chance that DOMA may not have had effect in those jurisdictions where courts found it unconstitutional. However, as expected, the Supreme Court itself will have the final say. Until they declare otherwise, DOMA is in full effect, and same-sex couples in New York--even when married legally--need to conduct unique estate planning to account for their disparate treatment under federal law.

See Our Related Blog Posts:

Updates in Gay Marriage Cases That May Make it To Supreme Court

The Story Behind the New York DOMA Challenge

Unsellable Artwork Donation Saves Estate Tax Liability

December 6, 2012,

The heirs of art dealer Illena Sonnabend faced a very unique problem after the woman's death in 2007. One the most valuable pieces of her estate was a work by Robert Rauschenbeg known as "Canyon." The 1959 piece of art is a collage that include various three dimensional materials, including a stuffed bald eagle. Canyon would prove to be a sticking point in the heir's attempt to settle the estate--a process which ultimately dragged on for five years.

Taxes Always Due
For estate tax purposes, the value of artwork in an estate is appraised and the tax is owed based on the total appraisal value. Sonnabend's estate had a significant number of pieces and the artwork taken together was valued at over $1 billion. According to a Wall Street Journal story on the case, this led to an estate tax bill of about $471 million. The two heirs to the estate sold about $600 million of the artwork to pay for that bill.

However, the Canyon piece was a different story. Because the work featured a stuffed bald eagle, it could not be sold under U.S. law. That is because the 1940 Bald and Golden Eagle Protection Act as well as the 1918 Migratory Bird Treaty Act prohibited sale of the items. Since Canyon could not be sold, the three appraisers for the estate gave the artwork a value of zero for estate tax purposes.

But the IRS disagreed.

The IRS sent the family a report valuing the artwork at $15 million-even though it couldn't be sold for $5, let alone $15 million. The family rejected the IRS valuation. This drew the ire of the government tax collectors who responded by re-appraising the art as worth $65 million. On top of that, they claimed that the intial appraisal by the family of zero dollars triggered an "undervaluation penalty" of 40%. All told, the family was being asked to pay $40.4 million in taxes on an object that they could not make a dime from selling.

Few Options
Confused logic aside, the family had few options. Eventually, they chose to donate the piece to the New York Museum of Modern Art. This allowed them get around having to pay the hefty estate tax--charitable donations (like inheritances to spouses) generally fall outside the purview of the estate tax. Unfortuantely, however, the family was unable to use the gift for charitable deduction purposes as happens in most cases. That is because, even though the gift was made to get around estate taxes, at the end of the day it still had no value because it could not be sold.

This bizarre case is a testament to the lengths that the IRS may go to collect what it deems it is owed, even when logic suggests otherwise. It's a reminder that local residents should never try to plan for these details or handle long-term financial affairs without experienced professional assistance.

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Forbes Estate Tax Article Catches Fire on Social Media

First "Fiscal Cliff" Proposal Made -- What It Means for Estate Planning

December 4, 2012,

You cannot turn on the TV, flip open a newspaper, or pull up a news website this month without seeing the words "fiscal cliff." As many are aware, this refers to sweeping, mandatory federal tax and budgetary changes that are set to take effect January 1st unless the Congress and White House pass legislation with an alternative plan. Essentially the "cliff" is about $7 trillion worth of tax increases combined with significant spending cuts across the board--including everything from Medicare and Medicaid to the military.

What is interesting about the cliff is that virtually no one on either side of the aisle actually wants it to take effect. Instead, it was only put into place as a compromise over a previous debt ceiling legislative fight. The idea was that that the cliff would be so abhorant to both sides that its impending appearance would force a compromise. However, as the end of the year gets closer, more and more observers are worrying that even with the serious consequences of the cliff, no compromise is in sight.

Currently, the Obama Administration and Congressional leaders (most notably, the Republican House leaders) are trying to reach agreement on an alterantive to prevent the mandataory changes. As part of that effort, President Obama recently released his "first offer." As summarized in a recent article, the offer is far from what the Republican leaders have proposed, so it is unlikely that it will be taken seriously. Essentially, it calls for around $1.6 trillion in tax increases over a ten year period--mostly related to expiration of the so-called "Bush tax cuts." In addition, it calls for modest stimulus spending. The proposal would also permanently eliminate Congressional control over the debt ceiling level (which caused the current crisis to begin with).

On the one issue that has the most direct impact on estate planning, the proposal calls for estate tax rates to return to 2009 levels. That is a $3.5 million exemption level and a top rate of 45%. That is compared to a current $5.12 million exemption at 35%.

What Does It Mean For You?

No matter what the final resolution, advocates, advisors, attorneys, and others on all sides of the issue agree that stability is key. For planning purposes, it is always advisable to know what the rules will be for the future, instead of having the risk of major changes every two years.

For those hoping to dig deeper, the Tax Policy Center has a "Fiscal Cliff Calculator" that allows you to plug in your own details and see how various proposals and the cliff itself will personally affect you. You may be surprised at the significant nature of the results. For example, the "cliff" affects everything from unemployment benefits to payroll taxes, and so everyone is likely to be affected, no matter what their current situation. Be sure to keep a close eye on the possible proposals as they are discussed in the coming weeks. It is also important to talk to your financial advisors and visit with estate planning attorneys to learn more.

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Forbes Estate Tax Article Catches Fire on Social Media